Speaker 1: This is Bloomberg Daybreak Asia for this Friday, March twenty
Speaker 1: fourth in Hong Kong, Thursday March twenty third in New
Speaker 1: York and coming up today. Treasury Secretary Janet Yellen says
Speaker 1: regulators would be prepared for further steps to protect bank
Speaker 1: deposits if warranted. Credit Suisen Ubs are said to be
Speaker 1: among the banks under scrutiny in a probe by the DOJ,
Speaker 1: and the payment's company Block says it will explore legal
Speaker 1: action against short seller Hindenburg Research TikTok CEO faces an
Speaker 1: extremely contentious House committee. He says operations will come from
Speaker 1: within the US China me while says we will have
Speaker 1: to approve any attempt to sell while denying direct control.
Speaker 1: I'med Baxter with Global News. That's all straight ahead on
Speaker 1: Bloomberg Daybreak Asia, the business news you need to start
Speaker 1: your day in just one fifteen minute podcast available on Apple, Spotify,
Speaker 1: the Bloomberg Business App and everywhere you get your podcast.
Speaker 1: Good morning, I'm Dog Prisoner and I'm Brian Curtiz. Here
Speaker 1: are the stories we're following today. Treasury Secretary Janet Yellen
Speaker 1: tried to soothe the US lawmaker concerns about whether American
Speaker 1: bank deposits are safe. Here's Yellen speaking before a US
Speaker 1: House subcommittee. The strong actions we've taken ensure that Americans
Speaker 1: deposits are safe. Certainly, we would be prepared to take
Speaker 1: additional actions if warranted. On Wednesday, bankstocks tumbled after Yellen
Speaker 1: said that Treasury officials had neither considered nor examined the
Speaker 1: possibility of expanding federal insurance temporarily to all US bank deposits.
Speaker 1: She said that such a move would require congressional approval. Well,
Speaker 1: we are told that both Credit Suite and UBS are
Speaker 1: among the banks under scrutiny now in a probe by
Speaker 1: the US Department of Justice. That story from Bloomberg's Charlie Pellett.
Speaker 1: Those sources say investigators are looking into whether financial professionals
Speaker 1: helped Russian allegs evade sanctions. The sources say the Swiss
Speaker 1: banks were included in a recent wave of subpoenas sent
Speaker 1: out by the government. The information requests were sent before
Speaker 1: the crisis that engulfed Credit Suite and resulted in UBS's
Speaker 1: proposed takeover of its rival. According to one of the sources,
Speaker 1: the Justice Department inquiries are focused on identifying which bank
Speaker 1: employees dealt with sanctioned clients and how those clients were
Speaker 1: vetted over the past several years in New York Charlie
Speaker 1: Pellett Bloomberg Daybreak Asia, while the payment company Block said
Speaker 1: it will explore legal action against Hindenburg Research after a
Speaker 1: damning report. It comes after the short seller issued a
Speaker 1: report following a two year investigation into Block. The report
Speaker 1: alleged that Block facilitated scammers taking advantage of government stimulus
Speaker 1: programs back during the pandemic. Block called Hindenburgh's claims inaccurate
Speaker 1: and misleading. More from Bloomberg's Jenny Seraine. I think any
Speaker 1: implication that criminal actors are using Blocks cash app to
Speaker 1: facilitate their transactions is really bad news. I think that's
Speaker 1: when you get regulators looking at you. They could impose
Speaker 1: different kinds of penalties, whether that's monetary or different remediation activities.
Speaker 1: So that's something that investors will really keen on and
Speaker 1: want to see further proof of Blocksher is slid as
Speaker 1: much as twenty two percent after the news today, closing
Speaker 1: down fifteen percent, the company's biggest intra day decline in
Speaker 1: three years. Well US prosecutors have charged the co founder
Speaker 1: of Terraform Labs Do Quan with fraud after he was
Speaker 1: detained earlier in Montenegro. We have that story from Bloomberg's
Speaker 1: David and Glass. Quan was caught while trying to fly
Speaker 1: to Dubai allegedly using falsified cost The weekend travel documents
Speaker 1: his whereabouts have been the source of constant speculation since September.
Speaker 1: Quan was earlier accused of fraud by the US Securities
Speaker 1: and Exchange Commission. The entrepreneur presided over a forty bill
Speaker 1: million dollar cryptocurrency implosion last year. The terror USD stable
Speaker 1: coin he helped create and its sister token Luna, suddenly cratered.
Speaker 1: South Korea also issued a warrant for his arrest. The
Speaker 1: country stripped him of his passport and said he's the
Speaker 1: subject of an inner pole red notice. In Hong Kong,
Speaker 1: I'm David Ingless lumbrig de Brick Asia. The Bank of
Speaker 1: England raised its benchmark lending rate as expected, by a
Speaker 1: quarter percentage point to four and a quarter percent. The
Speaker 1: central bank brushed aside concerns about the banking system after
Speaker 1: the rescue of two major institutions abroad. It suggests that
Speaker 1: policymakers see inflation as the main priority, and BOE Governor
Speaker 1: Andrew Bailey signaled that further rate hikes may be required.
Speaker 1: We've seen signs of inflation really peaking now, but of
Speaker 1: course it's far too high now. We think it's going
Speaker 1: to come down sharply really from the early summer onwards,
Speaker 1: but we haven't seen that happen yet. We had some
Speaker 1: news this week which was unfortunately going a bit the
Speaker 1: other way with it was probably some one off elementths
Speaker 1: of that, but we need to see it starting to
Speaker 1: come down progressively and get back to talkt The Bank
Speaker 1: of England is predicting that the UK will avoid the
Speaker 1: recession it had predicted earlier this year, and the central
Speaker 1: Bank upgraded its growth outlook over the coming months. However,
Speaker 1: the BOA did not comment on its forecast for the
Speaker 1: second half of the year. I'm Brian Curtis along with
Speaker 1: Doug Christener. Paul Allen will join us in a short while,
Speaker 1: so Doug. The SMB five hundred is flat over the
Speaker 1: past month. So here are some of the numbers that
Speaker 1: promise you. The Russell two thousand, an index of smaller
Speaker 1: sized companies down ten percent in a month. Microsoft up
Speaker 1: nine percent in a month, so that's a nineteen percentage
Speaker 1: point swing. The KBW Bank Index is down twenty eight
Speaker 1: percent in a month. Google or Alphabet is up sixteen percent.
Speaker 1: That's a forty four percentage point swing. Now, these trends,
Speaker 1: I would suggest to you, would seem to be a
Speaker 1: little stretched, and the read through that is probably that
Speaker 1: the benchmarks will need to fall from here. But I
Speaker 1: think you have to put your finger on the banks.
Speaker 1: I mean, the weakness that you cited in the Russell
Speaker 1: has to do with the high concentration of small and
Speaker 1: medium sized lenders, and I think it's fair to say
Speaker 1: that these stocks have been just under enormous pressure right now.
Speaker 1: And this is one of the things I think that
Speaker 1: Janet Yellen is trying to address, to solidify that customer
Speaker 1: base so that those folks aren't inclined to continue to
Speaker 1: move assets from those perceived weaker institutions to stronger ones,
Speaker 1: right And this is the thing that is I think
Speaker 1: troubling the market right now, particularly when you consider a
Speaker 1: situation like First Republic. Really that problem has not been
Speaker 1: solved yet. I mentioned that the KBW Bank Index was
Speaker 1: down twenty eight percent in a month, and that's not
Speaker 1: even the regional index. But think about it. You have
Speaker 1: four four forms of tightening at the moment, the new
Speaker 1: rate hikes and the Fed said they may not be
Speaker 1: done yet, qt the long and variable lag of the
Speaker 1: previous hikes, and then the bank's cutting lending. Now we
Speaker 1: can argue that we are probably close to the end
Speaker 1: of the new rate hikes, but we're probably only at
Speaker 1: the beginning of the bank's tightening. And then on top
Speaker 1: of that, how has this impacted sentiment, not just on
Speaker 1: the part of consumers but businesses as well. That's probably
Speaker 1: going to contribute to a little bit of contraction, I
Speaker 1: would imagine, assuming that a sentiment begins to decline or
Speaker 1: is declining already. And we'll see whether these implicit deposit
Speaker 1: guarantees are enough. They're not explicit, but I think that
Speaker 1: many people do realize that the authorities are prepared to
Speaker 1: step in if there is a run coming at a
Speaker 1: particular bank. Anyway, lots more to talk about. We'll get
Speaker 1: to our guests in a few moments, but now it's
Speaker 1: time for Global news. TikTok CEO show ch ran into
Speaker 1: a pretty hostile group of lawmakers in the House Energy
Speaker 1: and Commerce Committee Today at Baxter is tracking that he
Speaker 1: has global news from the nine to sixty newsroom in Strancisco. Ahad, yeah, boy,
Speaker 1: you talking about a tough crowd, Brian. The tone set
Speaker 1: by Representative Kathy Rogers TikTok is a weapon by the
Speaker 1: Chinese Communist Party to spy on you, manipulate what you see,
Speaker 1: and exploit for future generations. Now, one of the allegations
Speaker 1: is a China demand's removal of some content the massacre
Speaker 1: in Tianamen Square. That kind of content is available on
Speaker 1: our platform. You can go and search it. I will
Speaker 1: remind you that making falls from misleading statements to Congress
Speaker 1: as a federal crime. I understand again. You can go
Speaker 1: on the platform. You will find that content. So show
Speaker 1: says assurances should come from Fars in order to assure
Speaker 1: everybody here and all our uses, while a commitment is
Speaker 1: to move day data into the United States to be
Speaker 1: stored on American soil by an American company overseen by
Speaker 1: American personnel. But Bloomberg's Alex Baranca says this is the
Speaker 1: most contentious and hostile hearing she's heard in a long time,
Speaker 1: and there was another exchange with Arab Zona Republican Debbie
Speaker 1: Lasco that I think was really illustrative. She laid out
Speaker 1: that other countries like India have banned the app, the
Speaker 1: FBI has voiced concerns about the app, and ask you,
Speaker 1: why then, do all of these folks have concerns if
Speaker 1: you're sitting here in front of us today saying nothing's wrong.
Speaker 1: He came back and said, look, those concerns are hypothetical.
Speaker 1: They are theoretical. That kind of gap has been kind
Speaker 1: of the theme all day where she feels like he's
Speaker 1: not getting enough substance to combat with the facts that
Speaker 1: he loves to bring to the table, and the lawmakers meanwhile,
Speaker 1: are just not believing anything he said, leading to kind
Speaker 1: of a really contentious back and forth at the hearing today.
Speaker 1: So even Democrats or o'kanna, for example, saying the only
Speaker 1: solutions of sale, Senator Marc o'rubio coming out saying two
Speaker 1: options or sale or commerce deprivment regulation. Now, China has
Speaker 1: issued a statement saying that it would firmly oppose any
Speaker 1: sale if TikTok forced by Washington, saying it would undermine
Speaker 1: confidence in all commerce globally Bloomberg's Dan flatly says, I'd
Speaker 1: really dnded any argument by show of any separation. Now
Speaker 1: that's been a very big concern of you concluding this
Speaker 1: national security review that TikTok has been working with the
Speaker 1: US government is whether China would have any say in
Speaker 1: how that would be concluded. And it also kind of
Speaker 1: cuts against his arguments that TikTok will not share data
Speaker 1: with China, because if they have to approve the sale
Speaker 1: of this business, then you know they are obviously involved operations.
Speaker 1: But Henrietta Treys Veta Partners on Bloomberg says about more
Speaker 1: than just TikTok today, it's a more holistic approach to
Speaker 1: social media because we're talking about domestic problems from mental
Speaker 1: health to national security issues, and it's not unique to
Speaker 1: just TikTok. So what they're looking at in legislation that
Speaker 1: I think can actually pass is more akin to passing
Speaker 1: the back onto the Department of Commerce to have it
Speaker 1: regulate TikTok in all social media apps. Yeah, and she
Speaker 1: says regulation as opposed to sale here. But very interesting,
Speaker 1: by the way, political Tight wrote for democrats as a
Speaker 1: younger demographic group is more heavily TikTokers if you will,
Speaker 1: and the fair would be they could just set out
Speaker 1: twenty twenty four. This is just the beginning Global news.
Speaker 1: I'm more than twenty seven hundred journalists and listen over
Speaker 1: one hundred twenty countries. In San Francisco. I'm Ad Baxter,
Speaker 1: and this is Bloomberg. And I'm Brian Curtis here in
Speaker 1: Hong Kong. This is Bloomberg Daybreak. Agia Paul Allen joins
Speaker 1: us now in Sydney, and our guest is Joanna Gayegos,
Speaker 1: co founder of Bond Blocks, on her market outlook, Well,
Speaker 1: let's start off with that gap that I mentioned. You've
Speaker 1: got bank stocks going down a couple of percent every day,
Speaker 1: and you've got Microsoft going up two percent every day.
Speaker 1: That can't continue, can it. Yeah, it's hard to make
Speaker 1: calls right now. I think it's been hard all quarter
Speaker 1: to understand where the markets were going to be going.
Speaker 1: And some of that recovery and technology may be reflective
Speaker 1: of the actions that those firms are taking to manage
Speaker 1: costs and think about what's coming up in twenty twenty three.
Speaker 1: But what we think about for twenty twenty three is bonds. Obviously,
Speaker 1: we're a nasset manager that focused solely on fixed income,
Speaker 1: and we think there's a lot that we can lean
Speaker 1: into right now because yields have changed so dramatically in
Speaker 1: twenty twenty three. It helps investors really take advantage of
Speaker 1: the power of that carrying their portfolio and actually do
Speaker 1: something in the total return space their portfolio, which just
Speaker 1: isn't straightforward in equities right now from where we sit,
Speaker 1: is it particularly straightforward and bonds though either. I mean,
Speaker 1: you say it's a place to hide up from volatility.
Speaker 1: But take a look at the two year. You know,
Speaker 1: a couple of weeks ago, we're about five. Now we're
Speaker 1: three point eight three. Yet the whipstoring seems to be
Speaker 1: happening in across assic classes. For sure, there was a
Speaker 1: volatility this month in the two year, But think about
Speaker 1: this very simple trade. You know, if you're in the short,
Speaker 1: shortest part of the curve, it may be a great
Speaker 1: place to wait out and figure out what you're going
Speaker 1: to do next, because you're getting paid, you know, upwards
Speaker 1: of four and a half percent for at least being invested.
Speaker 1: And I think that's the action that we want to
Speaker 1: see investors take, is consider that we also maybe recharacterize
Speaker 1: looking at credit because of some of the fundamentals that
Speaker 1: look pretty strong across credit, not only what you mentioned,
Speaker 1: but the capital appreciation is there too, that movement that
Speaker 1: Paul brought to It's basically the bond is going up,
Speaker 1: so the yield is falling a lot. If you think
Speaker 1: that that's the trend that will hold in, that recession
Speaker 1: could be coming and bonds will go up and the
Speaker 1: yields will go down, you're not only getting the hefty
Speaker 1: yield that you bought, but you're getting the capital appreciation too. Yeah,
Speaker 1: I think, but you're referencing is somewhere in between the
Speaker 1: two year and the three year. Just this month year
Speaker 1: to date, sorry, month to date that ranges from being
Speaker 1: up two to three percent in a month on the
Speaker 1: price return plus the yield. So bonds really need to
Speaker 1: be part of your consideration for twenty twenty three, really
Speaker 1: need they're They're very powerful in your portfolio a way
Speaker 1: that they haven't been for over a decade and longer.
Speaker 1: And you know it's you hear people say bonds are back,
Speaker 1: but we want to see investors really consider taking action
Speaker 1: in their portfolio with them. Yeah, we've also got trade
Speaker 1: as effectively pricing and cuts from the fit by yeah,
Speaker 1: and do you feel that's a realistic scenario, So the
Speaker 1: markets pricing that in the FED definitely didn't say that yesterday.
Speaker 1: They didn't indicate that there'd be any rate cuts in
Speaker 1: twenty twenty three. But if you do want to again
Speaker 1: lean into the end of the rate hiking cycle and
Speaker 1: possibly the softening of the economy or downturn in the economy,
Speaker 1: you might consider adding more duration your portfolio, taking on
Speaker 1: reposition your portfolio to go longer out on the curve,
Speaker 1: just even in treasuries with you no credit risk. But
Speaker 1: we are seeing some activity in our products that even
Speaker 1: just this week we saw, you know, a little bit
Speaker 1: taking stepouts in the two three years also the five
Speaker 1: and seven year traded for US. And so we think
Speaker 1: that people if you do take that view and the
Speaker 1: market does have that view that rates may be going
Speaker 1: down at the end of the year, you can step
Speaker 1: into that. In a way, I think it's really smart
Speaker 1: using treasury products. Well, you have four forms of tightening
Speaker 1: that I mentioned earlier. I just run through them quickly
Speaker 1: again and get your response to the last one, because
Speaker 1: that's the only one that's kind of controversial new rate
Speaker 1: hikes QT, the long and variable lag of the previous
Speaker 1: rate hikes. Those are all working to suppress the economy
Speaker 1: and bring down inflation. The last one, the fourth one,
Speaker 1: would be the bank's cutting lending and the tightening that
Speaker 1: that provides. And even if you think that the new
Speaker 1: the new rate hikes are almost at the end of
Speaker 1: their run, the banks are only just getting started with this. Now,
Speaker 1: how pervasive would this be? Yeah, I think it's complementary. Um.
Speaker 1: It's not a great thing to talk about when you're
Speaker 1: thinking about tightening um liquidity or lending standards at the banks,
Speaker 1: because that does affect companies and starts to really put
Speaker 1: a little bit of pressure on the economy. But at
Speaker 1: the same time, it just it would help the other
Speaker 1: inflationary fight that's going on that the Feds waging. And
Speaker 1: so it would be complementary. And you know, if we
Speaker 1: have to get the only way forward is through that
Speaker 1: may be inevitable, and that may be a side effect
Speaker 1: of this UM financial stability issue in place or in
Speaker 1: today that you know, could help us get through this UM.
Speaker 1: But hopefully it will be you know, as as soft
Speaker 1: landings as we would hope it would be but that
Speaker 1: is what market expects. That market expects some kind of
Speaker 1: downturned right now and is looking at rates reducing by
Speaker 1: the end of the year. That is not with the
Speaker 1: FED is saying. And you know, if you take that view,
Speaker 1: you have ways to the risk to your argument. The
Speaker 1: risk to your argument and your thesis is that inflation
Speaker 1: doesn't come down because you're not going to be very
Speaker 1: happy getting a bond yielding three to four percent of
Speaker 1: inflation is running at seven percent, So that's the main
Speaker 1: threat to your argument. Do you think that inflation is
Speaker 1: that sticky? I don't. I don't I really have a
Speaker 1: view if it's that sticky. I think this quarter is
Speaker 1: just so dramatic in terms of what we thought we
Speaker 1: were going into the year expecting, and we need more
Speaker 1: time to process all the conflicting economic data, the confounding
Speaker 1: banking situation. So I think everyone needs more time, but
Speaker 1: I think they're still You can't deny the opportunities and
Speaker 1: using yield in your portfolio this year to help combat
Speaker 1: any of it. Some of it you need to need
Speaker 1: to really consider it before you just you know, go away. Yeah. Look,
Speaker 1: we also had Jaipal this week reiterating its commitment to
Speaker 1: that two percent inflation target that does seem very little,
Speaker 1: very far away. Yeah, do you think it's realistic? And
Speaker 1: if so, how long before we get there? Well, the
Speaker 1: thing is is that even through all of last year,
Speaker 1: when we ignored what the FED said, the FED double down,
Speaker 1: and the FED has just demonstrated conviction and vigilance against
Speaker 1: this fight on inflation. So m realistic if if, if
Speaker 1: you know, some of the other confounding factors come to
Speaker 1: be with either financial stability or an economic downturn or
Speaker 1: tightening lending standards, like, it's realistic that the Fed's going
Speaker 1: to continue their fight, and they reiterated it yesterday. And
Speaker 1: we know many many were calling for a pause, many
Speaker 1: were calling for you know, a lookout point to see
Speaker 1: what would be next. But they seem that they're going
Speaker 1: to charge ahead and that's their goal. And I think
Speaker 1: other central banks have also conveyed the same. So you
Speaker 1: mentioned we talked about sovereigns, so we haven't talked about munis.
Speaker 1: You did also mention credit. For you what's the sweet
Speaker 1: spot in credit? So we we really like UM people
Speaker 1: to consider high yield and one of the sweet spots
Speaker 1: we see is in UM we have a product that
Speaker 1: focuses on credit ratings, and there's a we have a
Speaker 1: product that only has single b names in it, and
Speaker 1: so we really want people to think about, you know,
Speaker 1: some of the fundamentals that are in high yield right now,
Speaker 1: either in the credit rating side or even in sectors.
Speaker 1: Because there's a lot of resiliency in corporate balance sheets UM,
Speaker 1: that would lend that some of these some of these
Speaker 1: hild issuers have resiliency through this downturn and may actually
Speaker 1: be rising stars out of high yield and maybe being
Speaker 1: upgraded to UM investment grade. But we would think the
Speaker 1: single bum space is one of the sweet spots because
Speaker 1: of its lower duration related you know, in relative to
Speaker 1: investment grade, and people should consider looking at different cuts
Speaker 1: of credit are closely even in hygyel. This is Bloomberg
Speaker 1: Daybreak Asia, your morning brief on the story's making news
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