Speaker 1: This is Bloomberg Day Break Asia for this Tuesday June
Speaker 1: sixth in Hong Kong, Monday June fifth in New York
Speaker 1: and coming up today.
Speaker 2: The SEC accuses Binance and its CEO of breaking US
Speaker 2: securities rules.
Speaker 1: Apple debuts its mixed reality headset.
Speaker 2: And China Evergrand's property management unit post a profit for
Speaker 2: twenty twenty two.
Speaker 3: Former Vice president Mike pennsfile's paper to run for president,
Speaker 3: heavy fighting report in the Ukraine, and the FBI director
Speaker 3: faces a contempt of Congress hearing. I'm Dan Schwartzman with
Speaker 3: Global News.
Speaker 4: That's all straight ahead on Bloomberg Daybreak Asia, the business
Speaker 4: news you need to start your day, and just one
Speaker 4: fifteen minute podcast available on Apple, Spotify, the Bloomberg Business App,
Speaker 4: and everywhere you get your podcasts.
Speaker 1: Good morning, I'm Doug Krisner and I'm Brian Curtiz. Here
Speaker 1: are the stories we're following today. The US Securities and
Speaker 1: Exchange Commission has accused Binance and it's CEO, Chug Pung
Speaker 1: Jau of breaking securities rules. The SEC alleged that Jaw
Speaker 1: and Binance mishandled customer funds and misled investors and regulators,
Speaker 1: among the allegations. The SEC said that two Binance linked tokens,
Speaker 1: BnB and busd were securities that the firm improperly offered
Speaker 1: and sold. The regulator also alleged that Binance and its
Speaker 1: US affiliate were not actually independent from one another and
Speaker 1: improperly functioned as an exchange. We heard from Bloomberg's Lydia Beyoud.
Speaker 5: The US entity of Binance, which has long claimed that
Speaker 5: it walls off US customers from accessing the international site.
Speaker 5: The SEC seems to be alleging that that was not
Speaker 5: in fact the case, or that controls weren't sufficient.
Speaker 1: Finance called the SEC complaint disappointing, saying it had engaged
Speaker 1: with the regulator in good faith negotiations to settle the matter.
Speaker 1: The Crypto Exchange also said that the SEC was misguided
Speaker 1: in not providing clarity over rules for digital assets, and
Speaker 1: we did see Crypto's take a hit. Bitcoin traded down
Speaker 1: to twenty five thousand and change. At the moment, it
Speaker 1: has ticked up two tens percent twenty five thousand and
Speaker 1: six eighty eight well.
Speaker 2: US regulators have a plan to fortify the US financial system.
Speaker 2: Larger US banks may have to boost their capital by
Speaker 2: an average of twenty percent. We have more from Bloomberg's
Speaker 2: and Kates.
Speaker 6: Bank regulators are considering new rules after several smaller regional
Speaker 6: lenders collapsed earlier this year. That means a broader swath
Speaker 6: of banks would face strict requirements for setting money aside
Speaker 6: under a draft plan designed to bolster the US financial system.
Speaker 6: Specific increases would depend on a lender's business model, and
Speaker 6: banks with at least one hundred billion dollars in assets
Speaker 6: may have to adhere to the regulation. A trade group
Speaker 6: that represents major financial institutions says the proposal would burden
Speaker 6: businesses and borrowers and hamper the economy in Washington and
Speaker 6: Kates Bloomberg Daybreak Asia.
Speaker 1: Well, we mentioned it was a big day for Apple.
Speaker 1: Let me say first that Apple stock did trade down
Speaker 1: a little bit, but more or less in line with
Speaker 1: what we saw in the marketplace, off about three quarters
Speaker 1: of one percent. The big day announcing the long awaited
Speaker 1: mixed reality headset at the Worldwide Developers Conference, and also
Speaker 1: some other new products and updates. Bloomberg's Tom Busby has more.
Speaker 7: After more than seven years of development, Apple finally unveiled
Speaker 7: the Apple Vision pro a thirty five hundred dollars mixed
Speaker 7: reality headset. It'll be available next year. It's Apple's first
Speaker 7: totally new hardware products since the Apple Watch made its
Speaker 7: debut about eight years ago, seen by some as a
Speaker 7: successor to its wildly popular iPhone in terms of future revenue.
Speaker 7: The company also announced a new fifteen inch MacBook Air laptop,
Speaker 7: as well as updated software and features for the iPad
Speaker 7: and the iPhone, but investors didn't seem all that impressed
Speaker 7: on Monday, sending shares of Apple down three quarters of
Speaker 7: one percent. Tom busby Bloomberg Daybreak.
Speaker 2: Asia well as I mentioned a short while ago decision
Speaker 2: day for the Reserve Bank of Australia and economist and
Speaker 2: money markets seem to be divided on which way the
Speaker 2: RBA will go. Today's decision two thirty pm Sydney time,
Speaker 2: and we have a preview now from Bloomberg's Paul.
Speaker 8: One third of the thirty economists surveyed by Bloomberg expect
Speaker 8: the RBA will raise its cash rate to four point
Speaker 8: one percent. The majority, including the Commonwealth Bank of Australia,
Speaker 8: anticipate it will stampat at three point eighty five percent,
Speaker 8: and traders pricing in about fifty to fifty odds. Last month,
Speaker 8: Governor Philip Low took RBA watches by surprise when he
Speaker 8: unexpectedly hiked interest rates following a pause in April. His rhetoric, however,
Speaker 8: has recently turned more hawkish as he weighs renewed price
Speaker 8: pressures against the slowing economy. Last week, Low said that
Speaker 8: the RBA Board will do whatever is necessary to bring
Speaker 8: consumer price gains back down to the Central banks two
Speaker 8: to three percent target. The RBA's own forecast show inflation
Speaker 8: only returning to the top of its target in mid
Speaker 8: twenty twenty five. I'm Paul Allen Bloomberg Daybreak Asia.
Speaker 1: The Australian dollar pretty steady here this morning, sixty six
Speaker 1: point one nine US sense, but up from yesterday. Well.
Speaker 1: Everground Group's property management unit has posted a profit for
Speaker 1: twenty twenty Twoobrigs Juan Wong has more from Hong Kong.
Speaker 9: Evergrand Property Services saw net income of one point four
Speaker 9: to two billion yuan or about two hundred million US
Speaker 9: dollars in twenty twenty two. That's an improvement over a
Speaker 9: loss in twenty twenty one, according to a delayed earnings report,
Speaker 9: but profit was far less than an estimate of three
Speaker 9: point eight billion yuan. The disclosure is a key milestone
Speaker 9: toward the lifting of a stock trading suspension. The suspension
Speaker 9: has been in place for more than a year. If
Speaker 9: the band were to be lifted, it would help creditors
Speaker 9: work out the merits of a restructuring of debt. Evergrant
Speaker 9: has offered to the swap debt for equity as part
Speaker 9: of the overhaul, But in order for the band to
Speaker 9: be lifted, Evergrand still needs to show that there are
Speaker 9: no reasonable regulatory concerns on management integrity that's hanging in
Speaker 9: the balance in Hong Kong, joined Wang, Bloomberg, Day Brigasia.
Speaker 1: And Thok some other developments who will be taking a
Speaker 1: look at this morning. This may disappoint some investors. China
Speaker 1: is sticking with targeted steps to help the economy instead
Speaker 1: of any broad measures. They'll be looking at property and manufacturing.
Speaker 1: It suggests that at least for the moment, the broader
Speaker 1: stimulus like interest rate cuts, seem to be off the table.
Speaker 1: And it was an interesting quote from jershaud jaw at
Speaker 1: Credit Agricole saying that Chinese officials are eyeing more quality
Speaker 1: of growth, not just the pace of the expansion.
Speaker 2: Yeah, it's kind of an exercise in surgery, isn't it,
Speaker 2: Where you really get in and you've become much more
Speaker 2: specific and targeted about the areas in which you'd like
Speaker 2: to see the economy do better. One of the things
Speaker 2: that I was struck by, Brian, if you look at
Speaker 2: this services PMI that we had today, and coupled with
Speaker 2: the fact that that manufacturing PMI last week showing contraction
Speaker 2: for a seven straight month, we seem to be you know,
Speaker 2: world where some pmis, particularly in Asia, are improving a
Speaker 2: little bit, but it seems to be a different story
Speaker 2: here in the US. I wonder what that says about
Speaker 2: global growth right now.
Speaker 1: Yeah, it's interesting that you point that out. I was
Speaker 1: looking at the ISM number there it's just barely and expansion.
Speaker 1: And we have the taishin services yesterday, which doesn't get
Speaker 1: a lot of coverage because it comes after the official PMIS,
Speaker 1: but it was up to fifty seven point one in May,
Speaker 1: and that's higher than what we saw fifty six point
Speaker 1: four the month before, and it was also stronger than
Speaker 1: the survey estimate. So even though we're thinking of a
Speaker 1: stumbling recovery in China, the services number was pretty strong.
Speaker 2: So and if you believe what the consensus call is
Speaker 2: for the Fed to hold rate steady next t week,
Speaker 2: keep it options open maybe for hikes later this year.
Speaker 2: Bloomberg Economics right now says, when you take everything into consideration,
Speaker 2: we're looking at a recession before the end of the
Speaker 2: year is out.
Speaker 1: Yeah, we'll put that question to James Abonte's coming up,
Speaker 1: managing director and chief investment officer at Center Asset Management,
Speaker 1: one of our favorite guests here on the program. Well,
Speaker 1: we love them all, but James definitely is a standout.
Speaker 1: Now it's time for global news. Well, let's take a
Speaker 1: closer look here. I had some of the top stories
Speaker 1: We've got Dan Schwartzman and the Bloomberg Newsroom Dan Hey Brian.
Speaker 3: Tensions remaining high between the US and China. Two recent
Speaker 3: incidents highlighting that tension, as a Chinese warship sailed in
Speaker 3: front of the US destroyer, missing the ship by about
Speaker 3: one hundred and fifty yards, while a Chinese jet recently
Speaker 3: crossed in front of an American spyplane over international waters.
Speaker 3: US National Security Council Coordinator John Kirby talking about the incidents.
Speaker 10: These are part and parcel of an increasing level of
Speaker 10: aggressiveness by the PLA PRC's military in particularly in the
Speaker 10: area of the Taiwan Straits and in the South China Sea.
Speaker 3: Kirby was speaking at the White House. Former Vice President
Speaker 3: Mike pens has filed the necessary paperwork to run for
Speaker 3: President President Trump's former VP, joining a field that continues
Speaker 3: to get more crowded, as former New Jersey Governor Chris
Speaker 3: Christi and North Dakota Governor Doug Bergham are expected to
Speaker 3: announce this week. One name that has decided not to
Speaker 3: run is New Hampshire Governor Chris Sununu. A House committee
Speaker 3: will vote on the contempt of Congress resolution against FBI
Speaker 3: Director Christopher Ray on Thursday. The move comes after Ray
Speaker 3: did not comply with the subpoena for a document held
Speaker 3: by the FBI the Republicans say links President Biden to
Speaker 3: a five million dollar bribery scheme with an unnamed foreign national.
Speaker 3: The FBI says it produced a document in a reading
Speaker 3: room at the Capitol. New details emerging regarding the private
Speaker 3: plane entering restricted airspace over Washington yesterday before crashing in Montebello, Virginia,
Speaker 3: with four fatalities Bloomberg's Nancy Lions with more.
Speaker 11: The incident prompted F sixteen fighter jets to scramble to
Speaker 11: see why the plane was in restricted airspace. They discovered
Speaker 11: the pilot was unconscious. Adam Gerhart with the National Transportation
Speaker 11: Safety Board says there are plenty of unanswered questions.
Speaker 2: When exactly did the pilot become unresponsive and why did
Speaker 2: the airplane fly the flight track that it did fly.
Speaker 11: The plane eventually crashed near Stanton, Virginia, and Gearhart says
Speaker 11: the wreckage is scattered and in mountainous terrain, making for
Speaker 11: a tough recovery Thanks Nancy.
Speaker 3: An ongoing hacking campaign has claimed British Airways, Pharmacy Chain, Boots,
Speaker 3: and the BBC as victims. The payroll provider to those companies,
Speaker 3: Zealous says a cyber Attech may have compromised personal information
Speaker 3: of thousands of employees to those companies. The government of
Speaker 3: Nova Scotia, Canada, has also been named a victim in
Speaker 3: this scheme, with potentially thousands of companies still vulnerable to
Speaker 3: be compromised as well. California state leaders are blasting Florida
Speaker 3: governor and Republican presidential hopeful rond de Santis. The anger
Speaker 3: stems from two flights of migrants from New Mexico to
Speaker 3: Sacramento that were sent there allegedly at the direction of
Speaker 3: Florida officials. California Governor Gavin Newsom has hinted that the
Speaker 3: state could pursue criminal charges against DeSantis for the moves.
Speaker 3: Global News twenty four hours a day, power by more
Speaker 3: than twenty seven hundred journalists and analysts in over one
Speaker 3: hundred and twenty countries. I'm Dan Schwartzman, and this is Bloomberg.
Speaker 1: I'm Brian Curtis in Hong Kong along with Rashad Salmon.
Speaker 1: Our guest is James Demonte, managing director and chief investment Officer,
Speaker 1: Center Asset Management. So a little bit of weak data
Speaker 1: there today, but the data has been mixed of late.
Speaker 1: There's been a few things that were stronger than expected.
Speaker 1: How do you see the FED moving at this this
Speaker 1: month's meeting, James, Well, I.
Speaker 12: Think if you look and really during the entire cycle,
Speaker 12: the one year treasure yield has led the FED funds
Speaker 12: rate over this entire period, and similar to the peak
Speaker 12: of the rate cycle tops in two thousand and two
Speaker 12: thousand and six. Right now, we see the FED funds
Speaker 12: rate trading at about fifty basis points premium above the
Speaker 12: one year treasure note, and that's the widest we've seen
Speaker 12: of this cycle. And each time that's occurred, that has
Speaker 12: indicated that the FED be on hold. And as we've
Speaker 12: always said, we think that the Fed's targets here during
Speaker 12: this entire cycle was to raise the real Fed funds
Speaker 12: rate that's the FED funds rate minus inflation to positive territory.
Speaker 12: And if you look at tips, whether it's five years
Speaker 12: or out through ten years, they're around one and a
Speaker 12: half percent positives. So I think the FED could say
Speaker 12: mission accomplished in terms of the hiking cycle, but they
Speaker 12: will definitely wait for inflation to subside further before I
Speaker 12: think moving again. But they will basically pause I think
Speaker 12: at the upcoming meeting.
Speaker 13: Well, I mean they should, don't you think here, James.
Speaker 12: Absolutely, because what you see is, you know, inflation figures
Speaker 12: coming down in goods. If you look at commodity prices today,
Speaker 12: even with the very positive news with regards to the
Speaker 12: Saudi Arabia cutting supply of oil, oil prices and industrial
Speaker 12: commodity prices were relatively muted what that tells you is
Speaker 12: is a demand problem and that indicates some kind of
Speaker 12: cyclical downturn. And perhaps if you think about where inflation
Speaker 12: has been embedded in the last few months, it's been
Speaker 12: in the services sector. And to the extent that the
Speaker 12: ISM services figure came in today at around fifty, you know,
Speaker 12: indicating no longer expansion and less pricing pressure in the
Speaker 12: services sector. I think it gives the FED the opportunity
Speaker 12: to really pause here at this point in time.
Speaker 13: Well, certainly with all these t builders are going to
Speaker 13: be coming to the market as well. I mean we're
Speaker 13: talking in a veritable tsunami nearly a trillion dollars worth.
Speaker 13: Now my point here is also that's going to suck
Speaker 13: liquidity out of the system. That's number one. Number two,
Speaker 13: who's going to buy them?
Speaker 12: Well, I think you'll see the banks and pension funds
Speaker 12: continue to be buyers, particularly as we saw an announcement
Speaker 12: of a potential raise in capital requirements for banks. Banks
Speaker 12: have been the most voracious buyers of treasury bills and
Speaker 12: bonds over this period of time since the fedes launched
Speaker 12: quantitative easing, and even during the current period of time.
Speaker 12: So you're still going to see very healthy demand for
Speaker 12: particularly these types of yields from the major institutions in
Speaker 12: the financial services sector, insurance, banking, et cetera.
Speaker 1: You noted the slowing, but what was unusual was at
Speaker 1: the end of last week we had a real bounce
Speaker 1: in cyclical stocks, as though people might give the NASDAQ
Speaker 1: one hundred stocks a little bit of a pause and
Speaker 1: pile into the more or equal weight companies. But it
Speaker 1: seems to run counter to that slowing economy that you mentioned.
Speaker 12: It does, and I think one of the most frustrating
Speaker 12: things for you know, active managers is that what we
Speaker 12: have witnessed thus far is, you know, the dominance of
Speaker 12: cap weighted inducees against equal weighted induses. It is frankly
Speaker 12: unheard of. If you're thinking about this being a new
Speaker 12: bull market. You know, if you look at any beginning
Speaker 12: of a bull market, whether it goes back to even
Speaker 12: nineteen ninety, two thousand and two, two thousand and nine,
Speaker 12: twenty twenty, equal weighted is always outperformed cap weighted. I
Speaker 12: think that's consistent with what we're seeing in the sense
Speaker 12: that people are gravitating towards higher quality, larger companies because
Speaker 12: we're still in the phase where profits are decelerating, sales
Speaker 12: growth is decelerating, the ANALYP is kind of deteriorating, but
Speaker 12: not at a at a expedited manner, so people want
Speaker 12: to gravitate source quality. We're nowhere near the bottom of
Speaker 12: the economic cycle or the profit cycle, which is why,
Speaker 12: you know, it's been an environment where quality and larger
Speaker 12: cap companies has demonstrated about the differential between cap weighted
Speaker 12: and equated in disease.
Speaker 13: Have shown well, I just thought it was you know,
Speaker 13: the second part of my question was of course about liquidity,
Speaker 13: and I just want to ask how much do you
Speaker 13: think the FED is cognizant of the way that credit
Speaker 13: has tightened and how that's doing their job for them?
Speaker 12: Partly, Yeah, I think that's the other thing to look
Speaker 12: at in the fixed income world, and probably more important,
Speaker 12: it's not so much what the FED funds rate is doing,
Speaker 12: but to look at the spreads, and right now we've
Speaker 12: actually seen for the first time, you know, a noticeable
Speaker 12: uptick in junk bond yields. This has been you know,
Speaker 12: quite significant. It's nowhere near the levels that we saw
Speaker 12: back in the global financial crisis or even back in
Speaker 12: two thousand but the FED has to be well aware
Speaker 12: that the risk off and the spike in junk bond
Speaker 12: and even investment grade bonds has been quite dramatic and
Speaker 12: something to be another another notch to basically give them
Speaker 12: some caution here to let it play out.
Speaker 1: We don't often talk extensively about China, but we can
Speaker 1: do for a moment or two. I think some investors
Speaker 1: may be looking for more stimulus from authorities in China,
Speaker 1: but it seems that they want to stick with the
Speaker 1: targeted approach. It's it's a mixed environment there and much
Speaker 1: the same way it's mixed in the US. So would
Speaker 1: you deploy capital to China at this juncture?
Speaker 12: It's been very frustrating, you know, in our Global Infrastructure
Speaker 12: Fund and other global investments that we manage. You know, China,
Speaker 12: whether it's via Hong Kong or on shore, has been
Speaker 12: you know, a continuing source of frustration and continues to
Speaker 12: stay in a trading range. You know, we seem to
Speaker 12: continue and was touched upon in the news segment of
Speaker 12: having this uneven recovery globally, and a lot of it
Speaker 12: has to do with when individual economies unleashed or allowed
Speaker 12: COVID restrictions to come off. And that's what makes this
Speaker 12: cycle so difficult to navigate, whether it's here in the
Speaker 12: United States here in China, is to somehow reconcile a
Speaker 12: historical business cycle, stock market cycle to the very unusual
Speaker 12: set of circumstances, both in terms of the drop in recovery,
Speaker 12: drop in economic activity and the extraordinary stimulus following COVID,
Speaker 12: which was really a very short period of time ago.
Speaker 12: And I'm almost of the belief that we have to
Speaker 12: kind of, you know, think about this cycle within a
Speaker 12: longer period of time. This is not a very specific
Speaker 12: set of quarters to look at, but look back and
Speaker 12: somehow blend the COVID environment to this current cycle to
Speaker 12: somehow give a better picture, to compare it to other
Speaker 12: periods of time.
Speaker 13: Well, this is it, isn't it The base effects of
Speaker 13: you have thought would have been flattering the economic data
Speaker 13: coming out of China of late, But no.
Speaker 1: Not really.
Speaker 13: It's actually just highlighted how perhaps things looking back. But
Speaker 13: then again, you look at the market there and it's
Speaker 13: incredibly good in terms of valuations being inexpensive. And I
Speaker 13: think as Bank of America came up with a great
Speaker 13: language was China's too cheap to shortened, too mediocre to
Speaker 13: go long.
Speaker 12: Yeah. That being said, you know, one of the biggest
Speaker 12: dangers that or traps that value investors fall into is
Speaker 12: buying low PE companies just before the E disappears and
Speaker 12: they become you know, PE with which are incalculable because
Speaker 12: there's no earnings. The fact is China's market is much
Speaker 12: more cyclical than the United States. You know, what we've seen,
Speaker 12: particularly with the offshoring over the past couple of decades,
Speaker 12: is the inventory and capital intensity cycles that used to
Speaker 12: be resident here in the United States and Europe have
Speaker 12: been basically imported into China. So that capital cyclicality, you know,
Speaker 12: gives operating leverage a much kind of larger standard deviation.
Speaker 12: So if indeed the global economy started to slow down,
Speaker 12: and US consumers in particular are going to slow down,
Speaker 12: that's going to have a significant impact on China's manufacturing
Speaker 12: capabilities and productivity utilization rates. And you'll see, you know,
Speaker 12: companies that are earning in very low PE attractiveness from
Speaker 12: an optical perspective go to loss making, which will basically
Speaker 12: make that valuation seem you know, not so appealing.
Speaker 1: James Thanks for being with us today. We appreciate it.
Speaker 1: James Abote, Managing Director, Chief Investment Officer, Center Asset Management.
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