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Speaker 1: This is Bloomberg Daybreak Asia, but is Thursday, March sixteenth

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Speaker 1: in Hong Kong, Wednesday March fifteenth in New York and

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Speaker 1: coming up today, Volatility grips financial markets with fresh turmoil

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Speaker 1: at Credit Suisse after the collapse of some American banks.

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Speaker 1: Switzerland Central Bank says Credit Suisse will receive a liquidity

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Speaker 1: backstop if it's needed, and trader's question whether major central

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Speaker 1: banks will have to curb their hawkishness to prevent a

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Speaker 1: hard economic landing. The military heads of the US and

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Speaker 1: Russia discussed the downing of the American drone. I'm Dan Schwartzman.

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Speaker 1: I'll have news coming up. That's all straight ahead on

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Speaker 1: Bloomberg Daybreak Asia, the business news you need to start

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Speaker 1: your day in just one fifteen minute podcast available on Apples, Spotify,

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Speaker 1: the Bloomberg Business app and everywhere you get your podcasts.

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Speaker 1: Good morning, I'm Brian Curtis and I'm Dog Prisoner. Here

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Speaker 1: are the stories we're following today. Let's take a closer

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Speaker 1: look at this volatility now in the markets, particularly as

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Speaker 1: it relates to the turmoil at Credit Suis. Credit Suis's

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Speaker 1: stock plunged as much as thirty percent the Saudi National

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Speaker 1: Bank ruled out increasing its stake in the firm because

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Speaker 1: of regulatory constraints. Now we hear the Swiss authorities and

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Speaker 1: Credit Suis itself are discussing ways to stabilize the bank.

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Speaker 1: Switzerland Central Bank and financial regulators say the firm will

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Speaker 1: receive a liquidity backstop if it's needed. Ideas floated also

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Speaker 1: include a separation of the Swiss unit and a long

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Speaker 1: shot orchestrated tie up with larger Swiss rival EUBS. Earlier

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Speaker 1: Neril Roubini, the CEO of his own firm Roubini Macro Associates,

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Speaker 1: told us quote, bad things can happen if Credit Swiss fails.

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Speaker 1: It's important because the SBP was only about a hundred

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Speaker 1: and fifty billion dollars of assets, while in the case

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Speaker 1: of Credit Suiss was speaking about at least a seven

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Speaker 1: hundred billion. So anything will happen to Credit Whiss will

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Speaker 1: be of systemic effect for not just the European final system,

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Speaker 1: but also for the global financial system. On Tuesday, Credits

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Speaker 1: whose CEO Ulrich Kerner, preached patients and said that the

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Speaker 1: bank's financial position is sound, but concerns have mounted about

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Speaker 1: the Swiss firm's financial health despite an ongoing restructuring of

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Speaker 1: the bank. Clients, by the way, pulled more than one

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Speaker 1: hundred billion dollars worth of vassets in the final three

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Speaker 1: months of last year. So let's get some more reaction

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Speaker 1: now on Wall Street from the volatility that we have

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Speaker 1: seen in the banking complex. We heard today from the

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Speaker 1: CIO of JP Morgan Asset Management. He is Bob Michael.

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Speaker 1: He is warning of an economic hard landing for the

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Speaker 1: American economy, and he told us the shockway from the

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Speaker 1: banking crisis could put an already fragile economy more at risk.

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Speaker 1: If you think about where we were a year ago,

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Speaker 1: the FED was just starting its rate hiking cycle. So

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Speaker 1: over the next couple quarters, you're going to get those long, invariable,

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Speaker 1: cumulative and lagged impacts hitting the market further. I think

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Speaker 1: this is the tip of the iceberg. I think there's

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Speaker 1: a lot more consolidation, a lot more pain yet to come.

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Speaker 1: Bob Michael there, who is the CIO of JP Morgan

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Speaker 1: Asset Management. He went on to say he's expecting the

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Speaker 1: FED to get this pause at next week's meeting, and

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Speaker 1: he is predicting the US Treasury yield curve will drop

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Speaker 1: by as much as three percent. Former Treasury Secretary Larry

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Speaker 1: Summers said that central banks will now have to carefully

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Speaker 1: judge the disinflationary impulse resulting from the turmoil in the

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Speaker 1: banking industry. Here Summer is speaking earlier on Bloomberg. I

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Speaker 1: think if institutions don't focus on their inflation mandate, they

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Speaker 1: will be making a very serious mistake. And if they

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Speaker 1: appear to be abandoning concern about inflation, they will make

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Speaker 1: a very serious for stake. Summers said he's confident of

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Speaker 1: the FED and the ECB are in touch with one

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Speaker 1: another about their next policy moves. He also said that

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Speaker 1: a half point hike by the Fed in March should

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Speaker 1: probably be off the table and Doug that seems almost

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Speaker 1: like an understatement. I would say, you're right. Well. Meantime,

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Speaker 1: we have the Treasury Department reviewing the US financial sector's

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Speaker 1: exposure to Credit Suis that story from Bloomberg's and Kates.

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Speaker 1: Officials at the Treasury Department are working closely with the

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Speaker 1: Federal Reserve and European regulators on how US banks may

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Speaker 1: be impacted by the turmoil at Credit Suis. For investors

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Speaker 1: still on edge at at the collapse of three regional

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Speaker 1: US banks, the growing crisis at credit suite has added

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Speaker 1: to concerns about financial stability. When issues arise across the

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Speaker 1: global financial system, Treasury typically reaches out to major banks

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Speaker 1: to gather data that will inform their next steps. In

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Speaker 1: Washington and Kates Bloomberg Day Break Asia, meantime, Morgan Stanley

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Speaker 1: CIO Lisa Schaalatt says that the collapse of three American

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Speaker 1: banks isn't a prelude to a financial crisis like we

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Speaker 1: saw back in two thousand and eight. She told Bloomberg

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Speaker 1: that she sees the collapse as being driven mostly by

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Speaker 1: poor risk management at a time of aggressive FED tightening,

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Speaker 1: and so there's an element of this. You know, we're

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Speaker 1: where this is less about immediate contagion. Again, remember in

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Speaker 1: the Great Financial Crisis, there was a lot of this

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Speaker 1: that was about you know, cross counter party credit risk.

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Speaker 1: That's not what this is about. Shall it considers that

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Speaker 1: the threat to the broad financial industry and economy is contained.

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Speaker 1: She urged the FED and the ECB to stay engaged

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Speaker 1: in their fight against inflation. In the meantime, the European

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Speaker 1: Central Bank will issue a monetary policy decision tomorrow. Bloomberg

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Speaker 1: Economics expects the Governing Council to be more cautious than

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Speaker 1: it previously signaled with a hike of twenty five basis points.

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Speaker 1: I'm Brian Curtis along with Doug Christners, So three quick

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Speaker 1: things here. Bank turmoil, Doug definitely now a global story

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Speaker 1: that has changed. These runs on the bank are hitting

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Speaker 1: lending and the economy. So think organic tightening doing the

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Speaker 1: Fed's jaw. And also that all global central banks now

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Speaker 1: are probably considering whether or not to stop tightening right

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Speaker 1: away to assess the impact. Now. We heard some comments

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Speaker 1: that are like from Lisa Shalott that it is not

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Speaker 1: necessary but and this does put the FED in the

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Speaker 1: ECB in a particular quandary because their meetings come up

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Speaker 1: so soon. One of the things I thought was interesting too,

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Speaker 1: If this is really a crisis not only of the

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Speaker 1: banking system but more broadly the financial system and businesses

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Speaker 1: and consumers begin to pull back, what does that mean

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Speaker 1: for inflation going forward? Look at today's surprising drop in

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Speaker 1: PPI and that perhaps could have some influence on next

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Speaker 1: week's FED meeting. The retail sales number that was maybe

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Speaker 1: a bit unexpected with a drop in the month of February.

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Speaker 1: So you look at what's happening in the banking sector

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Speaker 1: and the second and third order effects that could begin

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Speaker 1: to move away from the epicenter, along with some of

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Speaker 1: the data points now indicating a software economy. Yeah, I

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Speaker 1: think you're probably right, Brian, in terms of peak rates

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Speaker 1: and from central banks that's already been put in place. Yeah.

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Speaker 1: It brings to mind the line from John Mannery kens

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Speaker 1: when the facts change, I change my mind. What do

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Speaker 1: you do, sir? And Well, another point that's kind of

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Speaker 1: interesting here, Doug and I completely agree when I said that,

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Speaker 1: you know that I thought that the organic tightening that

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Speaker 1: was going on I was actually doing the Fed's job.

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Speaker 1: So they can pause if they want and say that, look,

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Speaker 1: this work is being done by the economy itself. But

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Speaker 1: carry trades are great until the load becomes too heavy.

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Speaker 1: But the reverse is true too, So when we look

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Speaker 1: at if rates have to come down in a hurry,

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Speaker 1: then a lot of those securities that are on the

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Speaker 1: books at Silicon Valley Bank and others yielding two to

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Speaker 1: three percent, which didn't look good a week ago, might

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Speaker 1: start looking pretty good if rates go down. So it's

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Speaker 1: all relative in these markets it is, and if those

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Speaker 1: assets are being looked at by any entity right now,

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Speaker 1: you can probably, I think, make a fair assumption that

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Speaker 1: they're going to view that in just the way that

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Speaker 1: you did now, Brian, and I just want to point

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Speaker 1: out in terms of economic weakness, we're getting an indication

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Speaker 1: now from New Zealand that fourth quarter GDP was negative

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Speaker 1: six tenths of one percent, three times three times what

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Speaker 1: the street was looking for. Interesting day. We have Anthony

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Speaker 1: Doyle coming up, head of investment strategy at Fire Trail

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Speaker 1: Investments in our studios in Sydney, and we will be

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Speaker 1: chatting with him in a moment, But now it's time

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Speaker 1: for Global News. The US and Russian military heads discussing

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Speaker 1: the downing of a drone yesterday. Dan Schwartzman with details

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Speaker 1: in the New York Newsroom. Dan, Yeah, Brian, definitely was

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Speaker 1: a rare chat between the US Defense Secretary Lloyd Austin

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Speaker 1: and Russia's Minister Defense Sergei Shoigu, which happened earlier today.

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Speaker 1: Obviously not the best of friends these days, but both

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Speaker 1: speaking about that Reaper surveilling strone that went down in

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Speaker 1: the Black Sea after possibly being hit by a Russian

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Speaker 1: fighter jet, both sides looking to avoid escalating the situation.

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Speaker 1: Russia has denied that it's hit the drone and says

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Speaker 1: it crashed you to quote sharp maneuvering reports say both

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Speaker 1: sides are racing to recover the wreckage of that reaper.

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Speaker 1: Austin says the US, though, won't stop flying drones. I

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Speaker 1: just got off the phone with my Russian counterpart, Minister

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Speaker 1: Showy Good. As I've said repeatedly, it's important that great

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Speaker 1: powers be models of transparency and communication. In the United

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Speaker 1: States will continue to fly and to operate wherever international

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Speaker 1: law allows. Austin was speaking earlier today. With too many

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Speaker 1: close calls involving airplanes almost colliding occurring recently, the Federal

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Speaker 1: Aviation Authority holding a conference today to figure out ways

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Speaker 1: to improve the system. Secretary of Transportation Transportation Pete Budajige,

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Speaker 1: along with National Transportation Safety Board Chairwoman Jennifer Hamandy were

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Speaker 1: all in attendance, discussing why the industry was on track

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Speaker 1: to record more than twenty close calls this year involving aircraft.

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Speaker 1: Secretary Budaje says mistakes are becoming more common. Initial information

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Speaker 1: suggests that more mistakes than usual are happening across the system,

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Speaker 1: on runways, at gates, when planes are pushing back in

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Speaker 1: control towers, and on flight debts. So today is about

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Speaker 1: the entire system, which means it's about all of us.

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Speaker 1: Former cricket star turnedex premiere of Pakistan Imran Khan has

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Speaker 1: avoided being arrested for at least one more night at

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Speaker 1: Pakistani court has suspended operations to arrest Khan to at

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Speaker 1: least ten am on Thursday. Supporters of Khan have been

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Speaker 1: blocking access to his homemaking it hard for police execute

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Speaker 1: a search war it. Now. Khan is facing charges of

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Speaker 1: having failed to disclose funds made from selling state gifts

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Speaker 1: when he was in power. One hundred and ten people

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Speaker 1: have been arrested in Iran for possibly being involved in

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Speaker 1: the poisoning of girls schools that led to hundreds of

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Speaker 1: students being hospitalized. Students and teachers complained of noxious gases

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Speaker 1: that led to nausea and vomiting in hundreds of schools

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Speaker 1: as protests led by women and girls racked the country.

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Speaker 1: Details on who is arrested or what types of gases

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Speaker 1: were used in the attacks have not been released as

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Speaker 1: of now. Global news twenty four hours a day, power

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Speaker 1: by more than twenty seven hundred journalists and analysts in

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Speaker 1: over one hundred and twenty countries. I'm Dan Schwartzmann. This

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Speaker 1: is Bloomberg. I'm Brian Curtis in Hong Kong, along with

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Speaker 1: Rishad Salamat and Doug Prisner in New York. This is

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Speaker 1: Bloomberg Daybreak Asia. Our guest is Anthony Doyle, head of

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Speaker 1: investment Strategy yet Fire Trail Investments in our studios in Sydney. Well, Anthony,

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Speaker 1: thanks for joining us. I keep coming back to this

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Speaker 1: when I think about this big story. You've got bank

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Speaker 1: mismanagement or lacking supervision or central bank hiking on steroids.

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Speaker 1: A lot of people say all three, but does one

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Speaker 1: stand out as the root of this crisis. Well, I

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Speaker 1: wouldn't say that it is one particular standout raisin for

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Speaker 1: while were living through the current volatility in markets. It's

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Speaker 1: arguably a culmination of the raisins you just outlined, and

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Speaker 1: probably even more, you know, including leverage, the rise of

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Speaker 1: algorithmic and short term trading, and obviously false liquidation of

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Speaker 1: assets as well. We're only now starting to understand some

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Speaker 1: of the lagged impacts of the interest rate hikes that

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Speaker 1: we've seen, and it is this dichotomy. It is this

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Speaker 1: tension that exists at the moment between the real economy

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Speaker 1: and the financial world. And obviously central banks around the

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Speaker 1: world have a job to do in both, and now

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Speaker 1: the tussle is which one will win out in terms

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Speaker 1: of the central banks attention. Well, with Credit Swiss in mind,

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Speaker 1: this goes much beyond type manatory policy, does it not. Yeah,

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Speaker 1: I mean Credit Swiss has been almost like a slow

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Speaker 1: moving car crash for the last twelve to eighteen months,

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Speaker 1: even with CEO tjan Tm in place a number of

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Speaker 1: years ago as well, and you'll obviously remember the concern

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Speaker 1: around Deutsche Bank in two thousand and eighteen two. So

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Speaker 1: obviously Credit Swiss they're in close talks with the Swiss

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Speaker 1: National Bank, but certainly they are actioning and trying to

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Speaker 1: remedy some of the concerns they have around their balance sheet. Nonetheless,

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Speaker 1: we are seeing obviously deposit flight from that institution and

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Speaker 1: that's what has elevated concerns at the moment, and you're

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Speaker 1: seeing that expressed via CDs in particular. So there's money

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Speaker 1: to be made in markets like this, either on the

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Speaker 1: short side or on the long side. People say, there's

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Speaker 1: always a bull market somewhere. I'm wondering whether or not

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Speaker 1: profitable tech benefits here from a perceived flight to safety. Yeah, Doug,

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Speaker 1: so in terms of the way that we look at

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Speaker 1: the world. And the great thing about markets obviously is

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Speaker 1: you have the interaction of many, many different types of motivations,

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Speaker 1: whether that be around risk tolerance or whether that be

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Speaker 1: around your time horizon for what you want to generate

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Speaker 1: profits and returns on. And for us, obviously, unprofitable tech

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Speaker 1: has been absolutely carried out over the course of the

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Speaker 1: last twelve to eighteen months as you've seen the cost

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Speaker 1: of capital appreciate and obviously investors become a lot more

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Speaker 1: discerning about where they are allocating capital. But for us,

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Speaker 1: so you know, they profitable tech names, in particular, a

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Speaker 1: name like Microsoft, for example, they could find the environment

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Speaker 1: at the moment particularly fruitful, as you find arguably good

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Speaker 1: companies finding the current operating environment much more difficult. And

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Speaker 1: so those big tech firms that have large cash on

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Speaker 1: their balance sheets, they can look to deploy them and

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Speaker 1: arguably pick up a bargain or two or three or four.

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Speaker 1: So what you're saying is size matters, aren't you absolutely? Absolutely?

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Speaker 1: If you think about as I said, Microsoft, you know,

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Speaker 1: triple A rated, huge level of cash on the balance sheet,

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Speaker 1: and this is an environment where liquidity matters. And so

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Speaker 1: if you are finding it difficult to raise liquidity, whether

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Speaker 1: that be via VC funding, whether it be via debt

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Speaker 1: or equity markets, you're inevitably going to end up cap

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Speaker 1: in hand to those that have cash. And I would

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Speaker 1: suggest that you know, those companies that are in a

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Speaker 1: more powerful position, they're going to drive a pretty hard bargain.

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Speaker 1: So it is an environment where arguably we'll see m

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Speaker 1: and A pickup and consolidation within the tech sector in particular.

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Speaker 1: One of the key points we made today. You know,

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Speaker 1: obviously this is a global story now and the health

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Speaker 1: of the banks is critical to any economy. But also

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Speaker 1: whether or not what we're seeing with those banks, so

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Speaker 1: the fact that they will no doubt lend less and

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Speaker 1: that will do part of the central banks jobs of

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Speaker 1: tightening up financial conditions, is it enough that the central

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Speaker 1: banks globally could pause here, those that are in the

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Speaker 1: tightening mode could pause to assess. I don't believe that

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Speaker 1: they will, so I think certainly they'll scale the market

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Speaker 1: scale back expectations for fifty basis point rate hikes, for

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Speaker 1: example in the US and Europe. I think they will

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Speaker 1: continue because of the negative message that would potentially send.

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Speaker 1: So this event has obviously occurred last week. I think

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Speaker 1: it's too soon to potentially pause on their rate hiking paths.

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Speaker 1: That said, obviously they aren't on a predetermined they haven't

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Speaker 1: got a predetermined course in mind, and are obviously data dependent,

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Speaker 1: particularly the closer we get to a terminal rate, whether

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Speaker 1: that occurs in Q two or Q three of this year.

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Speaker 1: So with that in mind, I think inflation is still

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Speaker 1: uncomfortably high for them, even with the numbers we saw

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Speaker 1: on PPI and CPI this week. I think the labor

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Speaker 1: market is still too strong. I think they're concerned about

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Speaker 1: a wage price spiral remaining, and arguably I think they

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Speaker 1: will say that they have the tools in place to

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Speaker 1: support the financial system, such as some of the measures

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Speaker 1: we've seen both from the Swiss National Bank but also

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Speaker 1: the US Federal Reserve and the government in the US. So, Anthony,

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Speaker 1: you know, in a higher interest rate environment, you know,

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Speaker 1: what are you looking at? Are there some companies which

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Speaker 1: do better in situations like this, And I'm not talking

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Speaker 1: about what you just mentioned about size, etc. But just

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Speaker 1: by generally them business models. Oh absolutely, so as you'd

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Speaker 1: expect as any active investment house. You know, we advocate

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Speaker 1: being highly selective, so we run concentrated, high conviction portfolios.

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Speaker 1: And this isn't a time that you want beta to

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Speaker 1: the market. This isn't a time where you want to

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Speaker 1: be you have exposure throughout the index because you will

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Speaker 1: find that environments such as the one we are living

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Speaker 1: in for the next twelve to eighteen months, I would

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Speaker 1: suggest the leaders and the winners in the marketplace will

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Speaker 1: be very different to that at which we experienced over

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Speaker 1: the course of the last decade. We're in a tin

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Speaker 1: or environment. There is no alternative and QWE and cheap money.

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Speaker 1: So for us, it's about being concentrated and in particular

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Speaker 1: thinking about companies that are potentially more resilient in an

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Speaker 1: economic downturn, more defensive style companies. Yeah, you mentioned some picks.

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Speaker 1: Ryan was one on the New York Stock Exchange. I

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Speaker 1: just note that on a day like today, when you

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Speaker 1: know you're worried about this guy is falling, you know,

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Speaker 1: you get a company like Adobe come out and announced

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Speaker 1: strong earnings, the stock up four point six percent in

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Speaker 1: after hours, So it actually makes it a very good

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Speaker 1: time to be a stock picker. And you know, the

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Speaker 1: world is your canvas. Yeah, So what we've experienced in

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Speaker 1: particular is an environment where correlations interest stock correlations within

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Speaker 1: the SMP five hundred or eurostocks for example, have been elevated.

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Speaker 1: And I think ten out of the last twelve most

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Speaker 1: volatile trading days in twenty twenty two were actually USCPI

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Speaker 1: prints And that's an environment where obviously macrow is driving

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Speaker 1: the market. And so in an environment where you do

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Speaker 1: get lower level of interest stock correlations and higher dispersion

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Speaker 1: within the marketplace, it really is a fruitful time to

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Speaker 1: be an active stock picker. So, as you mentioned, you

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Speaker 1: know we like Ryan Holdings. Another example is Carrier HVAC manufacturer,

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Speaker 1: and we also like a timber eat based over in Seattle. Listen,

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Speaker 1: New York Stock's changed Wayhauser, for example, for the potential

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Speaker 1: to sell very high quality carbon credits and they're developing

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Speaker 1: a climate solutions business, which we believe over the longer term,

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Speaker 1: medium to longer term, you've got structural tailwinds there from

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Speaker 1: decarbonization and a regulatory tailwind as well. Anthony, thank you

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Speaker 1: for joining us at this early hour. Anthony Doyle, head

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Speaker 1: of investment Strategy at Fire Trail Investments. This is Bloomberg

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Speaker 1: gabre Gasia. Your morning brief on this story is making

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Speaker 1: Business app, Sirius XM Channel one nineteen, the iHeartRadio app,

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Speaker 1: and on Bloomberg dot Com. I'm Brian Curtis and I'm

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Speaker 1: Doug Prisoner. Join us again tomorrow for all the news

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