Speaker 1: This is Bloomberg Daybreak Asia for this Thursday, March ninth
Speaker 1: in Hong Kong, Wednesday March eighth in New York and
Speaker 1: coming up today. Fetcher J. Powell says no decision has
Speaker 1: been made on the size of this month's rate hike.
Speaker 1: The Netherlands prepares more restrictions on shipmaking gear to China,
Speaker 1: and Apple shakes up as sales operation to focus more
Speaker 1: on growth in India. President She calls for the need
Speaker 1: for its tech industry to boost China's military. US intelligence
Speaker 1: report says China is aid in Russia during its war effort.
Speaker 1: Australia touts new submarines. I'm at Baxter with Global News.
Speaker 1: That's all straight ahead on Bloomberg Daybreak Asia, the business
Speaker 1: news you need to start your day in just one
Speaker 1: fifteen minute podcast available on Apples, Spotify, the Bloomberg Business
Speaker 1: app and everywhere you get your podcasts. Good morning, I'm
Speaker 1: Deck Prisoner and I'm Brian Curtis. Here the stories we're
Speaker 1: following today. Ben Chair J. Powell, softening his tone a
Speaker 1: little during a second day of congressional testimony, He said
Speaker 1: the FED hadn't made any decision on what it will
Speaker 1: do at its next meeting in March. Larger point, though,
Speaker 1: is that we're not on a preset path and that
Speaker 1: we will be guided by the incoming data any evolving outlook.
Speaker 1: No decision has been made on this, but if the
Speaker 1: totality of the data were to indicate that faster tightening
Speaker 1: is warranted, we'd be prepared to increase the pace of
Speaker 1: rate hikes. PAL signed upcoming payroll and inflation reports as
Speaker 1: potentially key data. In the meantime, Traders up their bets
Speaker 1: on Wednesday that the FED wood hike interest rates by
Speaker 1: half a point at its next meeting. They also saw
Speaker 1: the FED taking rates to a peak of near five
Speaker 1: point seven percent this year, and that he's up from
Speaker 1: five point five percent on Monday. Well, TikTok is making
Speaker 1: a push to convince governments in Europe that the company
Speaker 1: does protect user data. We have that story from Bloomberg's
Speaker 1: ofvon Men. TikTok is planning to build three European data
Speaker 1: center is to store information in the region locally. It'll
Speaker 1: be done with help from an independent third party that
Speaker 1: will oversee data access controls. TikTok's European data is currently
Speaker 1: stored in Singapore and the US. The new data centers
Speaker 1: will take about three years to build and will cost
Speaker 1: one point three billion dollars annually to maintain. TikTok's latest
Speaker 1: move follows an order from the European Commission to ask
Speaker 1: its own staff to delete the app. Germany and Canada
Speaker 1: follows suit, and the Netherlands is said to be considering
Speaker 1: similar steps. In Hong Kong, I'm Ivan Mah Bloomberg Daybreak Asia,
Speaker 1: the Netherlands is preparing more restrictions on chip making gear
Speaker 1: to China. More from Bloomberg's David and Glaze. A new
Speaker 1: proposal will reign in exports a so called immersion DUV
Speaker 1: lithography products that, in addition to restrictions that already exist
Speaker 1: for the most cutting edge lithography machines now, this means
Speaker 1: that Dutch tech firm ASML will be barred from selling
Speaker 1: some additional technology to Chinese companies. Even so, ASML said
Speaker 1: in a separate statement that the measures would not have
Speaker 1: a material effect on its outlook for twenty twenty three.
Speaker 1: The plan comes as the US ramps up restrictions and
Speaker 1: China's access to semiconductor technology, and the US is counting
Speaker 1: on the Netherlands to help stop China from further developing
Speaker 1: its chip industry and its military in Hong Kong. I'm
Speaker 1: David Inglis bloombrig Debrick Asia. We go to Apple next.
Speaker 1: We are told the company is reshuffling management of its
Speaker 1: international businesses with a name of putting a larger focus
Speaker 1: on India. That story from Bloomberg's Charlie Pellet. It is
Speaker 1: a sign of the nation's growing importance. The shift will
Speaker 1: mark the first time that India becomes its own sales
Speaker 1: region at Apple, which has seen demands surge in the country.
Speaker 1: One of the sources says it will give the Asian
Speaker 1: nation increased prominence inside the tech giant. Apple is making
Speaker 1: the change after its vice president in charge of India,
Speaker 1: the Middle East, Mediterranean, East, Europe and Africa recently retired.
Speaker 1: In New York, Charlie Pellet Bloomberg Daybreak Asia. We did
Speaker 1: have Apple gaining about eight tenths of a percent in
Speaker 1: this latest session, probably not really as a result of
Speaker 1: that story and also asml Interestingly, when it traded last
Speaker 1: in Europe, it traded up about one point four percent.
Speaker 1: The Adanni family is said to have paid off all
Speaker 1: borrowings backed by Adanni Group shares investors at a meeting
Speaker 1: in London quoted a Donnie executives for this update. In addition,
Speaker 1: sources say that the group repaid a five hundred million
Speaker 1: dollar bridge loan to banks that was due today. The
Speaker 1: London meeting was part of a global road show that
Speaker 1: included earlier stops in Hong Kong, Singapore, and Dubai. The
Speaker 1: Adonni Group has been trying to reassure investors after a
Speaker 1: scathing short seller report, and the road show may be working.
Speaker 1: US investment firm GQG Partners said it would likely increase
Speaker 1: its stakes in Adanni firms over time. Adanni's roadshow will
Speaker 1: continue this week in the United States. Meetings will be
Speaker 1: held over four days in New York and Los Angeles. So, Doug,
Speaker 1: the bear case is pretty easily made. It's about all
Speaker 1: you hear at the moment. The bull case that's much
Speaker 1: more difficult, But it would become a little easier if
Speaker 1: the upcoming data, the economic data was somewhat muted. Yeah,
Speaker 1: that'll begin Friday with the employment report here in the US,
Speaker 1: and then you look to next week with the inflation
Speaker 1: data that we're going to get on a Wednesday, that's
Speaker 1: the consumer price index. It's going to probably indicate to
Speaker 1: that inflation remains stubbornly high. But in terms of trend line,
Speaker 1: I think that we are beginning to see a little
Speaker 1: bit of a continuation of a softening at least in
Speaker 1: the rate of inflation here in the US. But to
Speaker 1: your point, Brian, as long as the FED is going
Speaker 1: to continue to lean into this fight aggressively, and if
Speaker 1: the market has it right and there is an additional
Speaker 1: one hundred basis points of tightening over the next four meetings,
Speaker 1: then you're also right. The equity market has a bit
Speaker 1: of a headwind to face. Yeah, it's a little bit
Speaker 1: of head scratcher. Then you get comments like we heard
Speaker 1: from Caterpillar that they see demand pretty strong and they
Speaker 1: don't see a recession in the United States. And if
Speaker 1: you look at Caterpillar and also John Deer, the stocks
Speaker 1: typical industrial names have traded up of thirty five to
Speaker 1: forty percent since September, although of late they've been moving
Speaker 1: a little bit more sideways. But there's a lot of
Speaker 1: conflicting signals in the marketplace. Yeah, when it comes to
Speaker 1: cat how much of this is construction, how much of
Speaker 1: it is mining. Right, we talk a lot about the
Speaker 1: transition to cleaner energy that's going to boost consumption of metals.
Speaker 1: The mining cycle is going to be a very very
Speaker 1: critical component for Caterpillar to look at it as the
Speaker 1: need for more natural resources becomes greater. I think that
Speaker 1: a company like cat it's probably going to be a
Speaker 1: big beneficiary. Yeah, so bullcase versus bearcase, inflation versus recession.
Speaker 1: Will put these questions to James aboute coming up in
Speaker 1: a few moments from Center Asset Management. Now it's time
Speaker 1: for Global News. China's president Hijinping is calling for its
Speaker 1: technology advancements to help boost its military might and backs
Speaker 1: to it with Global News in San Francisco in the
Speaker 1: nine sixty news from it Yeah that's right, Brian. She
Speaker 1: clearly says China needs to accelerate its bois for high
Speaker 1: tech independence to achieve advantage over its international rivals. Bloomberg.
Speaker 1: Stephen angel In Honkong says she is telling military delegates
Speaker 1: at the NPC that ties with technology and defense will
Speaker 1: build its military standing in the world. Just about every
Speaker 1: leader has talked about this pressure that China is under
Speaker 1: and the need for a whole nation approach to become
Speaker 1: or reach technology independent, thereby strengthening the military. Meanwhile, the
Speaker 1: US is saying China will deepen its ties with Russia
Speaker 1: despite global pressure. The Director of National Intelligence Abril Haines
Speaker 1: releasing report and appearing before a Senate intelligence today saying,
Speaker 1: despite global backlash, China will maintain its diplomatic defense he
Speaker 1: can technology cooperation with Russia. This in an effort to
Speaker 1: challenge the US. Haynes says China needs the relationship with
Speaker 1: Russia desperately. The IC assesses that China's long term economic
Speaker 1: growth will continue to decelerate because China's era of rapid
Speaker 1: catch up growth is ending. In Structural issues such as debt, demographics, inequality,
Speaker 1: overreliance on investment, and suppressed consumption remain and at the hearing,
Speaker 1: Senator Marc o'rubio drilled down with FBI Director Christopher Ray
Speaker 1: on China and TikTok, but they use it to drive
Speaker 1: narratives like to divide Americans against each other. For example,
Speaker 1: let's say China wants to invade Taiwan to make sure
Speaker 1: that the Americans are seeing videos arguing why Taiwan belongs
Speaker 1: to China and why the US should not intervene yes,
Speaker 1: and I would make the point on that last one,
Speaker 1: in particular, that we're not sure that we would see
Speaker 1: many of the outward signs of it happening if it
Speaker 1: was happening. And Ray confirmed to his knowledge of TikTok
Speaker 1: also had access to privacy of the American public. The
Speaker 1: committee also sought more information about the origins of COVID. Again,
Speaker 1: Abril Haines, there's a broad consensus in the intelligence community
Speaker 1: that the outbreak is not the result of a bioweapon
Speaker 1: or genetic engineering. What there isn't a consensus on is
Speaker 1: whether or not it's a lably or natural exposure to
Speaker 1: an infected animal, Haines says a leading intelligence as it
Speaker 1: did emanate from China. Though, a treasure trove of stories
Speaker 1: coming out of the depositions and the dominion voting System's
Speaker 1: defamation lawsuit against Fox News. Court documents, for example, focusing
Speaker 1: on Tucker Carlson have him passionately writing about Donald Trump quote,
Speaker 1: I hate him passionately this while he's loyally supporting him
Speaker 1: on the air, going on to say, I truly can't
Speaker 1: wait reference to talking about with him too for it
Speaker 1: to end. Now, these statements draw a dark contrast to
Speaker 1: what he and other host were saying on the air
Speaker 1: on Fox and White House Folks when Karine Jean Pierre
Speaker 1: put an exclamation point on it. Today, you agree with
Speaker 1: the Fox Nation's own attorneys and executives who have repeatedly
Speaker 1: stressed in multiple courts of law that Tucker Coulson is
Speaker 1: not credible when it comes to this issue, in particular,
Speaker 1: Global News powered by more than twenty seven hundred journalists
Speaker 1: and analysts and over one hundred twenty countries. In San Francisco,
Speaker 1: I'm at Baxter and this is Bloomberg. This is Bloomberg
Speaker 1: day Break Asia. I'm Brian Curtis, along with Rashad Salama,
Speaker 1: Doug Krisner, and Ed Baxter as well. Our guest on
Speaker 1: the show this morning is James Abatte, Managing director and
Speaker 1: Chief investment Officer at Center Asset Management. James, Doug and
Speaker 1: I were just talking about inflation versus recession, you know,
Speaker 1: which is the greater fear at the moment, and how
Speaker 1: difficult it is to really make the bulk case here
Speaker 1: other than perhaps for individual stories. Always interested in your take,
Speaker 1: How how are you looking at markets these days? Well,
Speaker 1: I think when you're looking at top down indicators as
Speaker 1: the yoke curve being inverted on their own every maturity,
Speaker 1: pm i's other leading indicators and contraction, housing, construction weakness,
Speaker 1: and job losses. You see daily in technology and finance.
Speaker 1: It screams economy wide recession. However, you know, as a
Speaker 1: stock an, it's doing bottom up research across all sectors
Speaker 1: of the market. You know, what we're seeing is that
Speaker 1: it's possible that you know, barring a significant demand shock,
Speaker 1: we might end up with what I consider a rolling
Speaker 1: recession that lasts much longer than the average recession, but
Speaker 1: it's quite shallow as it goes from industry to industry.
Speaker 1: I mean, for example, today today's release of the Federal
Speaker 1: Reserves Page book I highlighted that supply chain disruptions continue
Speaker 1: to ease. Consumer spending has generally held steady. Traveling tourism
Speaker 1: was a bright spot actually and verily strong, while manufacturing
Speaker 1: was quite stable. But when you look at loan demand,
Speaker 1: client credit standard of tightening, delinquency rates edged up, the
Speaker 1: interest rates move higher, you know, from US I think
Speaker 1: the most significant complicating factor to all of this analysis
Speaker 1: is the strength of the labor market. I mean, now
Speaker 1: the side of tech and finance companies are highly reluctant
Speaker 1: to let go of trained workers and remain understaff due
Speaker 1: to the lingering effects of the pandemic crisis. So we
Speaker 1: might just be able to avoid a recession here. So James, ultimately,
Speaker 1: you know, is the FED actually getting it right? You know,
Speaker 1: let's think about it. Assuming the FED races its target
Speaker 1: rate by fifty basis points at the March meeting coming up,
Speaker 1: and we get to a five to five and a
Speaker 1: quarter or target range. You know, let's just point out
Speaker 1: that that may seem high, and in fact that's the
Speaker 1: most significant in terms of the slope in terms of
Speaker 1: rate races that we've seen, you know, in a generation.
Speaker 1: But when core CPI inflation still stands at five point
Speaker 1: six percent, rates are still negative in real terms. I mean,
Speaker 1: more importantly, if you look at interest rates that are
Speaker 1: broadly used in the economy as well as valuation, most
Speaker 1: notably the ten year US treasure yield, which is now
Speaker 1: at four percent, it's still a negative two percent rate
Speaker 1: in terms of real terms. So let's talk of restrictive
Speaker 1: monetary policy stance is simply not true. I mean, until
Speaker 1: real yields, you know, go from negative to positive. I
Speaker 1: think that's where the FED is going to end up.
Speaker 1: So you know, when you think about you know, looking
Speaker 1: at even inflation, you know for falls and coming months,
Speaker 1: when you look at forward looking measures like tips shields,
Speaker 1: they're still well below where we were for before the
Speaker 1: global financial crisis, are around one hundred and fifty basis
Speaker 1: points right now. So I've changed my thought process in
Speaker 1: terms of the FED. I think the FED is and
Speaker 1: this is from interpretation of Powell's comments over the last
Speaker 1: year or so, is that they're going to stop and
Speaker 1: hold rates when the ten year tip rate gets to
Speaker 1: around two percent, which is essentially the real yield, meaning
Speaker 1: either inflation expectations fall down or nominal rates move higher,
Speaker 1: because you still got about one hundred basis points to
Speaker 1: go to basically get to that point where real yields
Speaker 1: on a forward looking basis or at that two two
Speaker 1: and a half percent level, which is where they existed
Speaker 1: prior to the global financial crisis. So it's going back
Speaker 1: to the old normal. So is there an issue, do
Speaker 1: you think in terms of messaging? I think so, because
Speaker 1: what's happening now is that there's an entire generation of
Speaker 1: investors who basically know nothing other than the FED put
Speaker 1: and easy monetary policy, and in essence, as you rightly
Speaker 1: point out, we're kind of getting back to the future,
Speaker 1: which is, you know, really the way things existed in
Speaker 1: terms of a normal rate. I think if you do
Speaker 1: want to look at, you know, a variable that does matter,
Speaker 1: it's credit spreads, and right now BAA spreads are still
Speaker 1: near historic lows, only around you know, two percent. I mean,
Speaker 1: unless you get to three percent levels, you're not even
Speaker 1: close to considering recessionary levels. And when you look at
Speaker 1: even high yield indices, um, they're no, we're near close
Speaker 1: to the levels that we saw during the two thousand
Speaker 1: and two recession, or you know, even very elevated levels
Speaker 1: during two thousand and eight. But James, if you're right
Speaker 1: and we get this sort of long rolling recession, wouldn't
Speaker 1: that do the trick? Wouldn't that get at inflation? In fact,
Speaker 1: it's actually not a bad scenario because it means that,
Speaker 1: you know, because people don't want to fire or companies
Speaker 1: don't want to fire their workers, they will stay employed,
Speaker 1: they will keep getting paychecks, and they will spend and
Speaker 1: even if growth slows down, it just buys you some
Speaker 1: time for ultimately higher interest rates to bring inflation down
Speaker 1: and nobody gets that hurt. Yeah, that's that's kind of
Speaker 1: like what the market has told us, right, because the
Speaker 1: SMP five hundreds at the same level today as it
Speaker 1: was last May, so you know, the earnings collapse is
Speaker 1: not yet evident, whether it's because the FED has not
Speaker 1: constricted the economy to the same degree, but it is
Speaker 1: maxtional frustration for US investors, right because sideways versus this
Speaker 1: trap door draw down like we had in the fall
Speaker 1: two thousand and eight or some er two thousand and two,
Speaker 1: you know, has not yet materialized. So I think we
Speaker 1: continue to kind of have this grinding, sideways type of
Speaker 1: environment unless we see an earnings recession, end doors, some
Speaker 1: type of event that causes major risk aversion. Do you
Speaker 1: hold your nose a little in buy? I think what
Speaker 1: you want to do, And this is a good opportunity
Speaker 1: because what we have seen is correlations within the SMP
Speaker 1: five hundred fall to levels that we haven't seen in
Speaker 1: quite a while, and particularly when you look at intrastsector correlations,
Speaker 1: they're at very little levels, and healthcare, materials, consumers states
Speaker 1: so to the extent where people have gravitated towards technology
Speaker 1: and communication services earlier this year. We've taken the opportunity
Speaker 1: to go back into those sectors, particularly staples and healthcare,
Speaker 1: to amplify positions that we think can give kind of
Speaker 1: an idiosyncratic opportunity and away from kind of broad market risk. Again.
Speaker 1: You know, you look at the the ADP employment report
Speaker 1: here is well again, this is strong too, and you
Speaker 1: know in Jolts also that was a bit of a
Speaker 1: surprise to the upsite, So you know, this goes really
Speaker 1: further your narrative. Ultimately, Yeah, that's right, And clearly the
Speaker 1: number on Friday with a change in non farm payrolls,
Speaker 1: which is estimated to be two hundred twenty five thousand,
Speaker 1: is critically important in terms of what the Fed's decision
Speaker 1: is going to be at its upcoming March meetings, as
Speaker 1: well as the CPI numbers that we're expecting next week.
Speaker 1: So I think, you know, the one worry that I
Speaker 1: do have, and this is a real important issue, is first,
Speaker 1: never underestimate how well run US companies are. You know,
Speaker 1: that's said labor costs and rising input costs from deglobalization
Speaker 1: are significant unknowns, and I think the major point that
Speaker 1: I wanted to point out with regard to kind of
Speaker 1: all the restructuring efforts and cost cutting that we're seeing
Speaker 1: today unlike what happened back in two thousand and nine.
Speaker 1: And one of the reasons back then why we were
Speaker 1: kind of shouting from the rooftops to buy stocks was
Speaker 1: that people were underestimating the operating leverage to earnings of sales.
Speaker 1: Growth turned positive out of the recession, but margins were depressed.
Speaker 1: You know. In fact, you know, margins back then for
Speaker 1: the SMP five hundred expanded over thirty percent in two
Speaker 1: thousand and ten after declining you know, twelve percent in
Speaker 1: two thousand and seven and thirty percent two thousand and eight,
Speaker 1: which led to a huge forty percent increase in EPs
Speaker 1: in two thousand and ten that drove the market higher. Today,
Speaker 1: you know, very important distinguishing issue is that margins have
Speaker 1: contracted by about ten percent from the record highs, but
Speaker 1: they're two standard deviations from trend right now. So in
Speaker 1: other words, you know, the cost cutting we're seeing today
Speaker 1: is just simply slowing down the rate of decline and
Speaker 1: earnings and not setting the foundation for huge increase that
Speaker 1: can drive earnings higher even in a temperate sales growth environment.
Speaker 1: This is Bloomberg Daybreak Asia, your morning brief on the
Speaker 1: stories making news from Hong Kong to Singapore and Wall Street.
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