1
00:00:02,400 --> 00:00:05,560
Speaker 1: This is Bloomberg Daybreak Asia for this Wednesday, March eighth

2
00:00:05,600 --> 00:00:08,520
Speaker 1: in Hong Kong, Tuesday March seventh in New York and

3
00:00:08,640 --> 00:00:11,639
Speaker 1: coming up today, US equities sell off as chair J.

4
00:00:11,840 --> 00:00:14,560
Speaker 1: Powell says that FED may have to high rates, faster

5
00:00:14,760 --> 00:00:19,080
Speaker 1: and two levels above earlier expectations. China will form powerful

6
00:00:19,120 --> 00:00:22,880
Speaker 1: new financial and data regulators as part of a major overhaul,

7
00:00:23,040 --> 00:00:26,520
Speaker 1: and Berlin plans to ban some components made by Huawe

8
00:00:26,720 --> 00:00:30,200
Speaker 1: from Germany's five Gen network. US Senate moving ahead with

9
00:00:30,280 --> 00:00:34,599
Speaker 1: so called TikTok legislation. White House denies china claims of

10
00:00:34,680 --> 00:00:38,960
Speaker 1: containment and suppression. US set to relax requirements on travelers

11
00:00:38,960 --> 00:00:44,520
Speaker 1: from China. I'm at Baxter with Global News. That's all

12
00:00:44,600 --> 00:00:48,159
Speaker 1: straight ahead on Bloomberg Daybreak Asia, The business news you

13
00:00:48,280 --> 00:00:51,120
Speaker 1: need to start your day in just one fifteen minute

14
00:00:51,159 --> 00:00:55,400
Speaker 1: podcast available on Apple, Spotify, the Bloomberg Business App, and

15
00:00:55,560 --> 00:01:01,640
Speaker 1: everywhere you get your podcasts. Good morning, I'm de Prisoner

16
00:01:01,880 --> 00:01:04,920
Speaker 1: and I'm Brian Curtiz. Here are the stories we're following today.

17
00:01:06,000 --> 00:01:09,000
Speaker 1: FED share J Pal opening the door to bigger rate hikes.

18
00:01:09,040 --> 00:01:12,160
Speaker 1: Here's Pal testifying to the Senate Banking Committee. The latest

19
00:01:12,200 --> 00:01:15,520
Speaker 1: economic data have come in stronger than expected, which suggests

20
00:01:15,520 --> 00:01:17,880
Speaker 1: that the ultimate level of interest rates is likely to

21
00:01:18,480 --> 00:01:21,480
Speaker 1: be higher than previously anticipated. If the totality of the

22
00:01:21,560 --> 00:01:24,720
Speaker 1: data were to indicate that faster tightening is warranted, we'd

23
00:01:24,720 --> 00:01:28,119
Speaker 1: be prepared to increase the pace of rate hikes. Pal

24
00:01:28,160 --> 00:01:30,520
Speaker 1: said that the process of getting inflation back down to

25
00:01:30,560 --> 00:01:32,480
Speaker 1: two percent has a long way to go and is

26
00:01:32,520 --> 00:01:35,520
Speaker 1: likely to be bumpy. He also downplayed the impact of

27
00:01:35,640 --> 00:01:39,120
Speaker 1: FED actions on jobs. Pal suggested that there won't be

28
00:01:39,160 --> 00:01:43,360
Speaker 1: a very significant downturn in the labor market. Following his remark,

29
00:01:43,440 --> 00:01:46,480
Speaker 1: some economists did up their expectations for how aggressive the

30
00:01:46,520 --> 00:01:49,000
Speaker 1: FED will be when it meets in two weeks. Bond

31
00:01:49,000 --> 00:01:52,320
Speaker 1: traders boosted bets on a half point March increase and

32
00:01:52,480 --> 00:01:54,680
Speaker 1: priced in a total of one hundred basis points over

33
00:01:54,720 --> 00:01:57,360
Speaker 1: the next four months, though some FED watchers are still

34
00:01:57,400 --> 00:02:00,800
Speaker 1: expecting the Central Bank to roll out a more incremental

35
00:02:00,920 --> 00:02:05,120
Speaker 1: twenty five basis point hike at the March meeting. Well.

36
00:02:05,160 --> 00:02:08,040
Speaker 1: At the same time today, we heard from the CEO

37
00:02:08,080 --> 00:02:11,000
Speaker 1: and founder of Citadel, Ken Griffin. He was saying he

38
00:02:11,080 --> 00:02:13,400
Speaker 1: sees the setup right now for a recession here in

39
00:02:13,440 --> 00:02:16,320
Speaker 1: the US, and he told us the FED is limited

40
00:02:16,480 --> 00:02:19,760
Speaker 1: in how much it can fide inflation through higher interest rates.

41
00:02:20,360 --> 00:02:23,919
Speaker 1: Although they've raised rates considerably, it's not clear how long

42
00:02:23,960 --> 00:02:26,960
Speaker 1: the leg effects are for the impact, and once the

43
00:02:27,000 --> 00:02:31,639
Speaker 1: impact starts to play out, how damaging that impact is.

44
00:02:32,200 --> 00:02:35,360
Speaker 1: So they're an unchartered territory. It's a difficult place to be.

45
00:02:36,200 --> 00:02:37,919
Speaker 1: My you know, if I could, if I could tell

46
00:02:37,919 --> 00:02:39,440
Speaker 1: one thing to the chairman, I would I would tell

47
00:02:39,520 --> 00:02:42,240
Speaker 1: him to say less. Okay, So let's say that's glass

48
00:02:42,280 --> 00:02:44,800
Speaker 1: half empty. Now we go to the glass half full.

49
00:02:45,040 --> 00:02:48,960
Speaker 1: Goldman Sax CEO David Solomon, offering a different perspective, saying

50
00:02:49,200 --> 00:02:53,560
Speaker 1: he sees meaningfully higher chances of a soft landing in

51
00:02:53,639 --> 00:02:56,160
Speaker 1: the American economy, and he said that the FED seems

52
00:02:56,160 --> 00:02:58,920
Speaker 1: to be doing a good job for a time of

53
00:02:58,919 --> 00:03:02,960
Speaker 1: a lot of uncertainty. Well onto China. Now, the country

54
00:03:03,040 --> 00:03:06,799
Speaker 1: unveils the biggest overhaul of its bureaucracy in decades. We

55
00:03:06,919 --> 00:03:10,520
Speaker 1: get the story from Bloomberg's von Man. The revamp strengthens

56
00:03:10,520 --> 00:03:14,000
Speaker 1: the party's oversight of the financial system. It creates a

57
00:03:14,080 --> 00:03:17,600
Speaker 1: new agency to manage data, and restructures the Ministry of

58
00:03:17,639 --> 00:03:21,280
Speaker 1: Science and Technology. Xinhua says the overhaul will make its

59
00:03:21,280 --> 00:03:25,440
Speaker 1: economy more self sufficient and resilient. The new Finance Agency

60
00:03:25,520 --> 00:03:29,720
Speaker 1: will absorb the Banking and Insurance Watchdog and some PBOC functions.

61
00:03:30,200 --> 00:03:33,359
Speaker 1: Beijing will cut five percent of positions in the government

62
00:03:33,440 --> 00:03:37,280
Speaker 1: and redeploy people in strategic areas. The drive comes as

63
00:03:37,280 --> 00:03:40,600
Speaker 1: a US uses export controls and other methods to prevent

64
00:03:40,720 --> 00:03:45,040
Speaker 1: China from obtaining high end technologies technologies the uscs as

65
00:03:45,040 --> 00:03:49,440
Speaker 1: giving China an advantage in Hong Kong. I'm van Man Bloomberg,

66
00:03:49,520 --> 00:03:52,240
Speaker 1: Daybreak Asia. The German government is said to be planning

67
00:03:52,240 --> 00:03:55,839
Speaker 1: a ban on some components made by Huahwei for use

68
00:03:56,000 --> 00:03:59,320
Speaker 1: in Germany's new five G wireless network. We have more

69
00:03:59,360 --> 00:04:02,840
Speaker 1: from Bloomberg Annabel Jewelers. Network operators could be ordered to

70
00:04:02,880 --> 00:04:05,800
Speaker 1: remove some of Huawei's components that are already installed in

71
00:04:05,800 --> 00:04:08,280
Speaker 1: the German network. A source says the band would be

72
00:04:08,320 --> 00:04:12,280
Speaker 1: implemented once an assessment of overall risk is completed. Parts

73
00:04:12,280 --> 00:04:15,560
Speaker 1: made by Zte might also be targeted. Berlin is said

74
00:04:15,600 --> 00:04:17,800
Speaker 1: to be taking a much harder line on components for

75
00:04:17,880 --> 00:04:22,440
Speaker 1: network infrastructure, particularly for its latest mobile technology network. This

76
00:04:22,560 --> 00:04:26,279
Speaker 1: comes as the US, UK and EU all become increasingly

77
00:04:26,279 --> 00:04:30,440
Speaker 1: focused on security risks posed by Chinese companies in Hong Kong.

78
00:04:30,480 --> 00:04:35,160
Speaker 1: I'm Annabel Druler's Bloombo Daybreak Asia. The US government has

79
00:04:35,240 --> 00:04:37,880
Speaker 1: moved to block Jet Blues three point eight billion dollar

80
00:04:37,920 --> 00:04:42,200
Speaker 1: acquisition of Spirit Airlines. Today, the US Justice Department filed

81
00:04:42,200 --> 00:04:45,960
Speaker 1: an antitrust lawsuit in federal court. Attorney General Merritt Garland

82
00:04:45,960 --> 00:04:50,040
Speaker 1: addressed reporters earlier in Washington. We alleged that, if allowed

83
00:04:50,080 --> 00:04:53,400
Speaker 1: to proceed, this merger will limit choices and drive up

84
00:04:53,440 --> 00:04:57,159
Speaker 1: ticket prices for passengers across the country. And we further

85
00:04:57,200 --> 00:04:59,960
Speaker 1: alleged that the impact of this merger will be particular

86
00:05:00,279 --> 00:05:03,520
Speaker 1: harmful for travelers who rely on what are known as

87
00:05:03,680 --> 00:05:07,640
Speaker 1: ultra low cost carriers in order to fly separately. The

88
00:05:07,680 --> 00:05:11,680
Speaker 1: Department of Transportation said it fully supports the Justice Department's action.

89
00:05:12,040 --> 00:05:14,280
Speaker 1: The DOT also said that it will move to block

90
00:05:14,320 --> 00:05:17,840
Speaker 1: the transfer of Spirit Airlines certificate to Jet Blue. This

91
00:05:17,880 --> 00:05:22,280
Speaker 1: certification would be required for the carriers to combine their operations.

92
00:05:22,680 --> 00:05:26,000
Speaker 1: Jet Blue and Spirit said they will vigorously defend their

93
00:05:26,080 --> 00:05:30,000
Speaker 1: planned deal. I'm Brian Curtis, along with Doug Krisner and

94
00:05:30,160 --> 00:05:34,719
Speaker 1: Rashad Salama will be joining us shortly so Doug It's

95
00:05:34,720 --> 00:05:37,360
Speaker 1: an interesting conundrum for the FED, not only what will

96
00:05:37,360 --> 00:05:39,400
Speaker 1: the data tell us and how does that guide what

97
00:05:39,440 --> 00:05:42,480
Speaker 1: they do, but also, I think more importantly is why

98
00:05:43,120 --> 00:05:45,360
Speaker 1: the four hundred and fifty basis points of hikes that

99
00:05:45,400 --> 00:05:48,080
Speaker 1: they've done so far isn't having more of an effect

100
00:05:48,080 --> 00:05:51,520
Speaker 1: to bring inflation down? And you have to say that

101
00:05:51,560 --> 00:05:54,200
Speaker 1: it raises the question why doesn't the FED push back

102
00:05:54,279 --> 00:05:58,320
Speaker 1: more on the Congress on the Biden administration for the

103
00:05:58,520 --> 00:06:01,839
Speaker 1: fiscal contributions to inflation. I think that's a fair point.

104
00:06:02,320 --> 00:06:05,240
Speaker 1: We won't know much more on the inflation story. I

105
00:06:05,279 --> 00:06:08,240
Speaker 1: think it's fair to say until Friday with the employment data,

106
00:06:08,240 --> 00:06:09,960
Speaker 1: and then next week, of course it's going to be

107
00:06:10,000 --> 00:06:14,400
Speaker 1: the February report on consumer prices. Those maybe kind of

108
00:06:14,440 --> 00:06:16,880
Speaker 1: the determining data points as to whether or not the

109
00:06:16,920 --> 00:06:21,240
Speaker 1: FED is as aggressive to go fifty basis points at

110
00:06:21,279 --> 00:06:24,200
Speaker 1: the March meeting. I think it's also fair to talk

111
00:06:24,240 --> 00:06:27,160
Speaker 1: about the extent to which it's not just been the

112
00:06:27,200 --> 00:06:29,680
Speaker 1: FED that's been adding to this liquidity. I mean the

113
00:06:29,839 --> 00:06:33,760
Speaker 1: generosity and physical spending during the pandemic and how that

114
00:06:34,160 --> 00:06:37,359
Speaker 1: massively increased money supply. That's a part of the story

115
00:06:37,400 --> 00:06:39,240
Speaker 1: here that was my whole point. Yeah, it was my

116
00:06:39,279 --> 00:06:41,919
Speaker 1: whole point that you know, he had the opportunity, speaking

117
00:06:41,920 --> 00:06:45,400
Speaker 1: to Congress, to throw it back to them a little bit.

118
00:06:45,440 --> 00:06:48,320
Speaker 1: But of course, you know, the FED, I think realizes

119
00:06:48,360 --> 00:06:50,880
Speaker 1: it's kind of the punching bag on this for levels

120
00:06:50,880 --> 00:06:52,600
Speaker 1: of inflation. And maybe that's the way the whole thing

121
00:06:52,640 --> 00:06:56,000
Speaker 1: was designed in the first place. Hindsight twenty twenty. Right,

122
00:06:56,040 --> 00:06:58,040
Speaker 1: we were in the midst of a pandemic. No one

123
00:06:58,160 --> 00:07:01,360
Speaker 1: knew the extent to which they was going to require

124
00:07:01,400 --> 00:07:04,440
Speaker 1: that level of emergency support. You can argue the case

125
00:07:04,520 --> 00:07:06,599
Speaker 1: now that they overdid it, both I think on the

126
00:07:06,640 --> 00:07:09,680
Speaker 1: fiscal side and perhaps even on the monetary side. Yeah,

127
00:07:09,680 --> 00:07:11,840
Speaker 1: and again, why four hundred and fifty bases point? I

128
00:07:11,840 --> 00:07:13,760
Speaker 1: suppose you could use this as a positive too. If

129
00:07:14,080 --> 00:07:15,680
Speaker 1: you were a bull, you could say, well, look, they've

130
00:07:15,680 --> 00:07:18,160
Speaker 1: already done four hundred and fifty basis points. I was

131
00:07:18,200 --> 00:07:20,560
Speaker 1: planning that they might do another seventy five. Maybe now

132
00:07:20,560 --> 00:07:23,360
Speaker 1: it's another hundred. You know, in the larger scheme of things,

133
00:07:23,480 --> 00:07:25,280
Speaker 1: is that going to bring the whole thing down? You know?

134
00:07:25,320 --> 00:07:28,160
Speaker 1: Maybe not that. Maybe Well we'll put these questions to

135
00:07:28,240 --> 00:07:30,360
Speaker 1: pre amusers. She's coming up in a few moments from

136
00:07:30,640 --> 00:07:35,240
Speaker 1: TD Securities. Now it's time for Global news. The US

137
00:07:35,320 --> 00:07:39,080
Speaker 1: Senate is moving ahead with its so called TikTok legislation.

138
00:07:39,440 --> 00:07:41,880
Speaker 1: Ed Baxter with Global News in then nine sixty newsroom

139
00:07:42,040 --> 00:07:45,040
Speaker 1: in San Francisco, ed Yeah, right, Brian. Although TikTok and

140
00:07:45,120 --> 00:07:47,560
Speaker 1: back to answer not mentioned in the bill, the intent

141
00:07:47,760 --> 00:07:50,880
Speaker 1: is clear. Sponsor Senator Mark Warner says it gives the

142
00:07:50,880 --> 00:07:56,280
Speaker 1: president the ability to force the sale of foreign owned technologies, applications, software,

143
00:07:56,600 --> 00:07:59,960
Speaker 1: e commerce platforms if they present a national security threat

144
00:08:00,240 --> 00:08:04,440
Speaker 1: to the United States. Our concern is that it poses

145
00:08:04,480 --> 00:08:10,160
Speaker 1: both a data collection problem and the potential for TikTok

146
00:08:10,240 --> 00:08:13,040
Speaker 1: to be used as a propaganda tool for the commerce party. Now.

147
00:08:13,120 --> 00:08:16,600
Speaker 1: Warner's co sponsor, Senator John Tune says China has shown

148
00:08:16,880 --> 00:08:20,720
Speaker 1: it will lie about everything. The White House has quickly

149
00:08:20,800 --> 00:08:23,520
Speaker 1: endorsed the bill, the first time the administration has weighed

150
00:08:23,520 --> 00:08:26,040
Speaker 1: in on legislation like this, and it also ups the

151
00:08:26,040 --> 00:08:29,920
Speaker 1: Auntie against the relationship with China and Eurasia. Group President

152
00:08:30,000 --> 00:08:33,360
Speaker 1: Ian Bremer on Bloomberg says relations between China and the

153
00:08:33,480 --> 00:08:36,960
Speaker 1: US are progressively getting worse. So what does he say

154
00:08:37,040 --> 00:08:39,840
Speaker 1: the White House wants? They want to establish a floor

155
00:08:39,920 --> 00:08:43,480
Speaker 1: under the US China relationship. They want more stability increasingly,

156
00:08:43,559 --> 00:08:46,880
Speaker 1: Shiji and Ping doesn't see it that way. That's a problem.

157
00:08:47,080 --> 00:08:49,840
Speaker 1: And the bigger statement from Beijing was not from the

158
00:08:49,840 --> 00:08:53,200
Speaker 1: new Foreign Minister, it was from she himself on Monday,

159
00:08:53,480 --> 00:08:56,800
Speaker 1: where he directly called out and criticized the United States

160
00:08:56,840 --> 00:08:59,959
Speaker 1: for a containment policy. And the Chinese president never does

161
00:09:00,160 --> 00:09:04,360
Speaker 1: that directly. That's unusual. I take notice. So She's statement

162
00:09:04,400 --> 00:09:07,840
Speaker 1: regarding containment, well, Bremer says, could have some merit. He

163
00:09:07,960 --> 00:09:10,240
Speaker 1: says his Tech bill is part of it, in the

164
00:09:10,280 --> 00:09:15,520
Speaker 1: commanding heights of the technology economy, which happens to be

165
00:09:15,600 --> 00:09:17,680
Speaker 1: one of the most critical areas out there. So, I

166
00:09:17,720 --> 00:09:20,240
Speaker 1: mean the Chinese, They're not just making this stuff up.

167
00:09:20,280 --> 00:09:25,160
Speaker 1: I mean this is a strategic policy of the United

168
00:09:25,160 --> 00:09:28,040
Speaker 1: States government. And Bremer says, bring its allies like South

169
00:09:28,120 --> 00:09:31,440
Speaker 1: Korea and Japan, the US into the mixes is part

170
00:09:31,440 --> 00:09:35,000
Speaker 1: of that equation as well in China's thinking. Now, the

171
00:09:35,000 --> 00:09:38,680
Speaker 1: White House has responded to the Chinese assertions of US containment.

172
00:09:39,080 --> 00:09:43,319
Speaker 1: NSC spokesman John Kirby, with all due respect to the

173
00:09:44,400 --> 00:09:48,840
Speaker 1: Chinese Foreign Minister, there is no change to the United

174
00:09:48,840 --> 00:09:51,520
Speaker 1: States posture when it comes to the spilt of relationship

175
00:09:51,720 --> 00:09:55,439
Speaker 1: and Kirby repeating the US wants competition and not confrontation.

176
00:09:55,920 --> 00:09:58,679
Speaker 1: Australia's Prime Minister Anthony Albanis he says he will be

177
00:09:58,840 --> 00:10:01,480
Speaker 1: using his visit to in this week to deepen business

178
00:10:01,559 --> 00:10:04,760
Speaker 1: and defense ties. Also says he hopes to discuss China's

179
00:10:04,760 --> 00:10:09,000
Speaker 1: aggressiveness with Prime Minister Norrendromodi. US President Joe Biden's budget

180
00:10:09,040 --> 00:10:12,959
Speaker 1: will propose hiking payroll taxes on Americans making over four

181
00:10:13,040 --> 00:10:15,880
Speaker 1: hundred thousand dollars per year and allow the government new

182
00:10:15,920 --> 00:10:18,520
Speaker 1: power to negotiate drug prices. He says this part of

183
00:10:18,520 --> 00:10:22,319
Speaker 1: the effort to extend the solvency of key medicare programs.

184
00:10:22,720 --> 00:10:25,920
Speaker 1: US is set to relax COVID testing requirements on travelers

185
00:10:25,920 --> 00:10:29,520
Speaker 1: from China as soon as Friday. This decision reported from

186
00:10:29,600 --> 00:10:33,480
Speaker 1: national security and health officials. Florida Governor Rhonda Santis has

187
00:10:33,520 --> 00:10:38,040
Speaker 1: introduced his annual legislation, asking including an abortion bill that

188
00:10:38,080 --> 00:10:41,079
Speaker 1: would ban the procedure at six weeks. De Santis says,

189
00:10:41,120 --> 00:10:46,400
Speaker 1: also focusing on school curriculum, we need to focus on reading, writing, math,

190
00:10:46,720 --> 00:10:51,000
Speaker 1: all these different things. That is what unites parents and

191
00:10:51,120 --> 00:10:54,520
Speaker 1: Unites US. When you start getting into things like gender ideology,

192
00:10:54,600 --> 00:10:57,920
Speaker 1: it's very divisive parents and the majority of parents in Florida,

193
00:10:57,920 --> 00:10:59,800
Speaker 1: I could tell you do not want that in the schools.

194
00:11:00,360 --> 00:11:03,800
Speaker 1: White House spokesmo when Koarain Jean Pierre calls his proposal shameful,

195
00:11:03,920 --> 00:11:08,320
Speaker 1: their rhetoric doesn't come without consequences. Here. The stories told

196
00:11:08,320 --> 00:11:11,719
Speaker 1: today in twenty twenty three in the United States of

197
00:11:11,760 --> 00:11:16,520
Speaker 1: America are shameful and completely unacceptable. The Santa says a

198
00:11:16,640 --> 00:11:19,920
Speaker 1: US should be more like Florida in San Francisco. I'm

199
00:11:20,040 --> 00:11:24,280
Speaker 1: Ed Baxter and this is Bloomberg Bryan Curtis along with

200
00:11:24,360 --> 00:11:27,640
Speaker 1: Rashad Salama. This is Bloomberg Daybreak, Gaisia. We are both

201
00:11:27,679 --> 00:11:30,640
Speaker 1: here in Hong Kong, and our guest is Priamisra, Global

202
00:11:30,640 --> 00:11:34,720
Speaker 1: head of rate Strategy at TD Securities. So Pal raised

203
00:11:34,720 --> 00:11:38,679
Speaker 1: expectations here for a fifty basis point hike. It's not

204
00:11:38,720 --> 00:11:41,760
Speaker 1: the consensus yet, but he's he's certainly put that on

205
00:11:41,800 --> 00:11:44,800
Speaker 1: the table. And also for the terminal rate to go higher.

206
00:11:45,960 --> 00:11:49,240
Speaker 1: Obviously that's a change. But then again we know that

207
00:11:49,280 --> 00:11:51,120
Speaker 1: the Fed really wants to get up to a certain

208
00:11:51,440 --> 00:11:54,199
Speaker 1: level that it deems as high and then see what happens.

209
00:11:54,240 --> 00:11:57,280
Speaker 1: You know, when will we see the impact of the

210
00:11:57,760 --> 00:12:00,320
Speaker 1: already four hundred and fifty basis points in life could

211
00:12:00,360 --> 00:12:02,760
Speaker 1: be at least five hundred and fifty basis points on

212
00:12:02,880 --> 00:12:06,960
Speaker 1: the economy. When does that happen? Sure, that's the trillion

213
00:12:06,960 --> 00:12:10,559
Speaker 1: dollar question. I mean, I would think, you know, academic

214
00:12:10,600 --> 00:12:14,800
Speaker 1: research suggests that the lag is twelve to eighteen months,

215
00:12:14,800 --> 00:12:18,240
Speaker 1: but you know, I think it's important to put it

216
00:12:18,240 --> 00:12:20,720
Speaker 1: in context of where the starting point was. I actually

217
00:12:20,760 --> 00:12:22,680
Speaker 1: think we should be looking at the lags for when

218
00:12:23,160 --> 00:12:26,119
Speaker 1: fat funds got close to four percent. If you think inflation,

219
00:12:26,559 --> 00:12:27,960
Speaker 1: you know, by the end of this year's in the

220
00:12:28,000 --> 00:12:30,680
Speaker 1: three and a half to four percent range. We really

221
00:12:30,720 --> 00:12:34,200
Speaker 1: reached neutral rate only in December, so you know, I

222
00:12:34,240 --> 00:12:36,719
Speaker 1: think it's too early, and I'm a little surprised that

223
00:12:36,800 --> 00:12:39,200
Speaker 1: the FED wants to see the effect or expected to

224
00:12:39,200 --> 00:12:41,960
Speaker 1: see the effect right away, which is why we're very

225
00:12:41,960 --> 00:12:45,480
Speaker 1: concerned about hard landing here. I think, you know, it's

226
00:12:45,520 --> 00:12:48,040
Speaker 1: been a few months since fat funds got to four percent.

227
00:12:48,280 --> 00:12:52,280
Speaker 1: Our view is it's much later this year, the consumer

228
00:12:52,320 --> 00:12:54,880
Speaker 1: savings buffer starts to come off, the lags start to

229
00:12:54,960 --> 00:12:58,640
Speaker 1: kick in, the economy slows down, fairly substantially. But the

230
00:12:58,720 --> 00:13:00,679
Speaker 1: FED is looking at data right right now, you know,

231
00:13:00,720 --> 00:13:03,920
Speaker 1: I think a data dependent FED should you know, also

232
00:13:03,960 --> 00:13:05,839
Speaker 1: look at lags, and but I think it's it's hard

233
00:13:05,880 --> 00:13:08,440
Speaker 1: to know when it's going to start to show an impact.

234
00:13:08,520 --> 00:13:11,319
Speaker 1: It hasn't yet so far. And so the big question,

235
00:13:11,360 --> 00:13:14,720
Speaker 1: the big macro question we've been debating, is the data

236
00:13:14,800 --> 00:13:17,120
Speaker 1: strong because the lags have not kicked in, and we're

237
00:13:17,200 --> 00:13:19,880
Speaker 1: very much in that camp. Or is the data is

238
00:13:19,920 --> 00:13:22,400
Speaker 1: strong because the Fed's not hiked enough. And I think, well,

239
00:13:22,640 --> 00:13:26,160
Speaker 1: chep out, let's face it, the FED funds rate is

240
00:13:26,280 --> 00:13:29,280
Speaker 1: well below inflation, so I think that's probably the main

241
00:13:29,360 --> 00:13:33,680
Speaker 1: reason right right now, you know ex post, yes, but

242
00:13:33,920 --> 00:13:37,199
Speaker 1: if I look at the next year ahead, the TIPS

243
00:13:37,240 --> 00:13:39,719
Speaker 1: markets pricing in three percent inflation, now maybe you can

244
00:13:39,720 --> 00:13:43,400
Speaker 1: say TIPS is underpricing it. Economists our forecast is three

245
00:13:43,440 --> 00:13:45,680
Speaker 1: and a half. So over the next year, if we

246
00:13:45,720 --> 00:13:47,480
Speaker 1: think inflation is going to be three and a half,

247
00:13:47,760 --> 00:13:49,600
Speaker 1: then a FAT funds rate of five and a half

248
00:13:49,720 --> 00:13:53,160
Speaker 1: is very restrictive. So I think I was actually surprised

249
00:13:53,160 --> 00:13:56,240
Speaker 1: at Chapel didn't spend more time talking about the duration

250
00:13:56,600 --> 00:13:58,719
Speaker 1: you get to whatever that endpoint is five and a

251
00:13:58,760 --> 00:14:02,800
Speaker 1: half six, stay, stay there for a while, don't cut

252
00:14:02,920 --> 00:14:05,920
Speaker 1: rates until you know inflation gets closer to two percent.

253
00:14:06,040 --> 00:14:08,040
Speaker 1: I think they're still trying to figure out their endpoint

254
00:14:08,200 --> 00:14:11,840
Speaker 1: and the pace. It's surprising, but Chap I was talking

255
00:14:11,840 --> 00:14:14,720
Speaker 1: about a faster pace of hikes, which I think raises

256
00:14:14,760 --> 00:14:17,160
Speaker 1: the odds of a hard landing. Well, if it's only

257
00:14:17,200 --> 00:14:20,080
Speaker 1: neutral just a few months ago, it's going to take time.

258
00:14:20,120 --> 00:14:22,640
Speaker 1: And the thing is, if we left we've got a

259
00:14:22,680 --> 00:14:26,480
Speaker 1: neutrality at that level. Are you also perhaps suggesting that

260
00:14:27,600 --> 00:14:30,240
Speaker 1: rates may have to increase more than what's currently being

261
00:14:30,440 --> 00:14:34,160
Speaker 1: talked about. I think the market's done a lot of

262
00:14:34,200 --> 00:14:37,080
Speaker 1: that pricing in, but you know, the data is very strong.

263
00:14:38,000 --> 00:14:40,360
Speaker 1: So if they do go fifty, I think then we

264
00:14:40,400 --> 00:14:42,880
Speaker 1: could absolutely be looking at a terminal rate closer to

265
00:14:42,920 --> 00:14:45,400
Speaker 1: six percent, because I think they can potentially hike up

266
00:14:45,480 --> 00:14:47,880
Speaker 1: until July. We think it's the third and the fourth

267
00:14:47,960 --> 00:14:50,520
Speaker 1: quarter that the lags start to kick in. So if

268
00:14:50,520 --> 00:14:54,200
Speaker 1: the fens going fifty, we're talking six six and a half.

269
00:14:55,080 --> 00:14:57,000
Speaker 1: As much as I'm worried about a hard landing, I

270
00:14:57,000 --> 00:14:59,120
Speaker 1: would stay away from that front end of the treasury

271
00:14:59,120 --> 00:15:01,720
Speaker 1: market because it's going to be very data dependent. We

272
00:15:01,800 --> 00:15:04,600
Speaker 1: know inflation is going to be persistent, So you know,

273
00:15:04,600 --> 00:15:06,400
Speaker 1: I don't want to say that this is the highest

274
00:15:06,400 --> 00:15:08,840
Speaker 1: point in that very front end. I think it's much

275
00:15:08,840 --> 00:15:11,120
Speaker 1: more attractive to be in the long end. We get

276
00:15:11,160 --> 00:15:15,040
Speaker 1: those impacts on the economy, particularly interest rates sensitive, we

277
00:15:15,040 --> 00:15:17,400
Speaker 1: get those first, and it sort of moves along until

278
00:15:17,440 --> 00:15:21,800
Speaker 1: it finally gets to company profits. And once corporate profits

279
00:15:21,840 --> 00:15:25,640
Speaker 1: get seriously dented, then the companies start laying off people.

280
00:15:25,760 --> 00:15:28,880
Speaker 1: And probably that's when you get the biggest impact because

281
00:15:28,960 --> 00:15:31,360
Speaker 1: right now people still have jobs and so they're still spending,

282
00:15:33,280 --> 00:15:35,520
Speaker 1: right and they have savings. You know, there's still that

283
00:15:35,760 --> 00:15:39,880
Speaker 1: post COVID savings that's I think buffering the impact of

284
00:15:39,920 --> 00:15:42,920
Speaker 1: higher interest rates. But absolutely the labor market is very tight,

285
00:15:43,200 --> 00:15:45,640
Speaker 1: and I think that's what's keeping the data strong. The

286
00:15:45,680 --> 00:15:47,760
Speaker 1: FED looks at that and keeps hiking more, and I

287
00:15:47,800 --> 00:15:50,720
Speaker 1: think that's creating a problem for later this year into

288
00:15:50,840 --> 00:15:57,440
Speaker 1: twenty four. Well, I suppose the question also is is

289
00:15:57,880 --> 00:16:00,640
Speaker 1: you know, in trying to achieve a soft LA, can

290
00:16:00,720 --> 00:16:04,960
Speaker 1: you get wage a requests to come down without actually

291
00:16:04,960 --> 00:16:07,160
Speaker 1: losing jobs. I mean, that's what they would like, they'd

292
00:16:07,200 --> 00:16:09,600
Speaker 1: like to see people get scared enough that they're not

293
00:16:09,640 --> 00:16:12,360
Speaker 1: demanding wage hikes or else they're going to leave because

294
00:16:12,360 --> 00:16:14,720
Speaker 1: they're not that confident. That would take some of the

295
00:16:14,720 --> 00:16:18,480
Speaker 1: pressure off inflation, and it would also allow the FED

296
00:16:18,520 --> 00:16:21,040
Speaker 1: to kind of say, you know, we're still maintaining our

297
00:16:21,080 --> 00:16:25,280
Speaker 1: other mandate, which is to keep jobs steady exactly, but

298
00:16:25,440 --> 00:16:29,080
Speaker 1: you know what we're calling that immaculate disinflation. It's hard

299
00:16:29,120 --> 00:16:31,360
Speaker 1: to see how wages can come down. Now, maybe they

300
00:16:31,400 --> 00:16:33,880
Speaker 1: can come down from five percent to four and a half,

301
00:16:34,160 --> 00:16:35,800
Speaker 1: but you need something like three to three and a

302
00:16:35,800 --> 00:16:38,480
Speaker 1: half percent wages to be consistent with two percent inflation.

303
00:16:38,800 --> 00:16:41,200
Speaker 1: How do you get that level of wages without a

304
00:16:41,280 --> 00:16:44,840
Speaker 1: rising the unemployment rate hasn't happened historically, so we think

305
00:16:44,880 --> 00:16:48,080
Speaker 1: the only way to really get wages down would be

306
00:16:48,160 --> 00:16:51,640
Speaker 1: to move the unemployment rate higher, which is going to mean,

307
00:16:51,880 --> 00:16:54,360
Speaker 1: you know, job losses. I don't think it's happening in

308
00:16:54,360 --> 00:16:58,360
Speaker 1: the next few months. But closer to your end, what

309
00:16:58,440 --> 00:17:00,440
Speaker 1: has been the impact as far in your view of

310
00:17:00,520 --> 00:17:05,360
Speaker 1: quantitative tightening? You know, I think it's doing a lot.

311
00:17:05,400 --> 00:17:07,879
Speaker 1: So that there's two impacts. One is on the reserve front.

312
00:17:07,920 --> 00:17:10,119
Speaker 1: Reserves are coming down, but I think the banking sector

313
00:17:10,280 --> 00:17:13,040
Speaker 1: still has enough reserves, so I don't think you see

314
00:17:13,080 --> 00:17:15,920
Speaker 1: pressure on funding just yet. That's probably a next year story.

315
00:17:16,200 --> 00:17:19,160
Speaker 1: The other impact is higher interest rates. Real interest rates

316
00:17:19,160 --> 00:17:21,479
Speaker 1: have been going up in that five to ten year

317
00:17:21,560 --> 00:17:24,480
Speaker 1: part of the curve, which then is impacting housing another

318
00:17:24,640 --> 00:17:28,800
Speaker 1: interrasensitive sectors. So I think QT quantitative tightening, is doing

319
00:17:28,880 --> 00:17:32,399
Speaker 1: as much work as raising that FAT funds rate, but

320
00:17:32,440 --> 00:17:34,840
Speaker 1: it's harder to quantify. I wish the FAT would talk

321
00:17:34,880 --> 00:17:37,919
Speaker 1: about QT, because I think it's absolutely tightening by moving

322
00:17:37,960 --> 00:17:41,680
Speaker 1: those real interest rates higher one hundred and three basis

323
00:17:41,680 --> 00:17:44,840
Speaker 1: points and change. That's the spread between twos and tens.

324
00:17:45,359 --> 00:17:48,919
Speaker 1: We took out last year's high on the two year yield,

325
00:17:49,040 --> 00:17:50,680
Speaker 1: and we also took it out on the three year,

326
00:17:50,960 --> 00:17:53,400
Speaker 1: But that's the only part of the curve that we've

327
00:17:53,440 --> 00:17:58,640
Speaker 1: actually eclipsed the rates the levels that we saw last year.

328
00:17:59,200 --> 00:18:01,000
Speaker 1: Does that get come pleaded? And why is the ten

329
00:18:01,040 --> 00:18:04,680
Speaker 1: year sort of sticky here under four percent? I think

330
00:18:04,680 --> 00:18:07,280
Speaker 1: the ten year is sticky because there's this fear I

331
00:18:07,320 --> 00:18:09,800
Speaker 1: think is a growing fear of a hard landing with

332
00:18:09,920 --> 00:18:13,480
Speaker 1: the FED that's remaining data dependent, that is not able

333
00:18:13,520 --> 00:18:16,600
Speaker 1: to really figure out or have a view on the lags,

334
00:18:17,040 --> 00:18:19,360
Speaker 1: the risk that they're going to overdo it, especially as

335
00:18:19,400 --> 00:18:22,720
Speaker 1: they're doing a quantitative tightening. Is you highlighted they continue

336
00:18:22,720 --> 00:18:25,160
Speaker 1: to raise rates to five and a half or six,

337
00:18:25,440 --> 00:18:27,120
Speaker 1: the risk of hard landing is high, and I think

338
00:18:27,160 --> 00:18:30,120
Speaker 1: that constrains that long end. The other thing we've seen

339
00:18:30,119 --> 00:18:33,639
Speaker 1: is significant influence into fixed income, not just foreign investors,

340
00:18:33,640 --> 00:18:37,600
Speaker 1: but we've seen Japanese buying. We've seen you influence into

341
00:18:37,600 --> 00:18:41,000
Speaker 1: bond mutual funds as a recession hedge. I think that's

342
00:18:41,000 --> 00:18:42,800
Speaker 1: going to keep the long end anchored. In fact, I'm

343
00:18:42,880 --> 00:18:47,919
Speaker 1: long hence very quickly. Is that affecting liquidity. I think

344
00:18:47,920 --> 00:18:51,120
Speaker 1: it's actually liquidity is better now because there is demand

345
00:18:51,200 --> 00:18:53,840
Speaker 1: for bonds, and it's it's further out the curve rather

346
00:18:53,880 --> 00:18:58,080
Speaker 1: than the front end. This is Bloomberg Gaybreak Asia, your

347
00:18:58,119 --> 00:19:00,520
Speaker 1: morning brief on this story is making news from Hong

348
00:19:00,600 --> 00:19:03,320
Speaker 1: Kong to Singapore and Wall Street. Book for us on

349
00:19:03,400 --> 00:19:07,640
Speaker 1: your podcast feed every day on Apple, Spotify, and anywhere

350
00:19:07,640 --> 00:19:10,200
Speaker 1: else you get your podcast. You can also listen live

351
00:19:10,240 --> 00:19:12,760
Speaker 1: each day on Bloomberg eleven three zero in New York,

352
00:19:12,960 --> 00:19:16,399
Speaker 1: Bloomberg ninety nine one in Washington, Bloomberg one oh sixty

353
00:19:16,400 --> 00:19:20,200
Speaker 1: one in Boston, and Bloomberg nine sixty in San Francisco.

354
00:19:20,440 --> 00:19:23,400
Speaker 1: Our flagship New York station, is also available on your

355
00:19:23,440 --> 00:19:28,160
Speaker 1: Amazon Alexa devices. Just say Alexa play Bloomberg eleven thirty

356
00:19:28,320 --> 00:19:31,440
Speaker 1: plus listen coast to coast on the Bloomberg Business app,

357
00:19:31,760 --> 00:19:36,000
Speaker 1: Sirius XM Channel one nineteen, the iHeartRadio app, and on

358
00:19:36,040 --> 00:19:39,600
Speaker 1: Bloomberg dot Com. I'm Ryan Curtis and I'm Doug Prisoner.

359
00:19:39,760 --> 00:19:41,760
Speaker 1: Join us again tomorrow for all the news you need

360
00:19:41,840 --> 00:19:47,080
Speaker 1: to start your day right here on Bloomberg Daybreak Asia