Speaker 1: This is Bloomberg Daybreak Asia for this Wednesday, March eighth
Speaker 1: in Hong Kong, Tuesday March seventh in New York and
Speaker 1: coming up today, US equities sell off as chair J.
Speaker 1: Powell says that FED may have to high rates, faster
Speaker 1: and two levels above earlier expectations. China will form powerful
Speaker 1: new financial and data regulators as part of a major overhaul,
Speaker 1: and Berlin plans to ban some components made by Huawe
Speaker 1: from Germany's five Gen network. US Senate moving ahead with
Speaker 1: so called TikTok legislation. White House denies china claims of
Speaker 1: containment and suppression. US set to relax requirements on travelers
Speaker 1: from China. I'm at Baxter with Global News. That's all
Speaker 1: straight ahead on Bloomberg Daybreak Asia, The business news you
Speaker 1: need to start your day in just one fifteen minute
Speaker 1: podcast available on Apple, Spotify, the Bloomberg Business App, and
Speaker 1: everywhere you get your podcasts. Good morning, I'm de Prisoner
Speaker 1: and I'm Brian Curtiz. Here are the stories we're following today.
Speaker 1: FED share J Pal opening the door to bigger rate hikes.
Speaker 1: Here's Pal testifying to the Senate Banking Committee. The latest
Speaker 1: economic data have come in stronger than expected, which suggests
Speaker 1: that the ultimate level of interest rates is likely to
Speaker 1: be higher than previously anticipated. If the totality of the
Speaker 1: data were to indicate that faster tightening is warranted, we'd
Speaker 1: be prepared to increase the pace of rate hikes. Pal
Speaker 1: said that the process of getting inflation back down to
Speaker 1: two percent has a long way to go and is
Speaker 1: likely to be bumpy. He also downplayed the impact of
Speaker 1: FED actions on jobs. Pal suggested that there won't be
Speaker 1: a very significant downturn in the labor market. Following his remark,
Speaker 1: some economists did up their expectations for how aggressive the
Speaker 1: FED will be when it meets in two weeks. Bond
Speaker 1: traders boosted bets on a half point March increase and
Speaker 1: priced in a total of one hundred basis points over
Speaker 1: the next four months, though some FED watchers are still
Speaker 1: expecting the Central Bank to roll out a more incremental
Speaker 1: twenty five basis point hike at the March meeting. Well.
Speaker 1: At the same time today, we heard from the CEO
Speaker 1: and founder of Citadel, Ken Griffin. He was saying he
Speaker 1: sees the setup right now for a recession here in
Speaker 1: the US, and he told us the FED is limited
Speaker 1: in how much it can fide inflation through higher interest rates.
Speaker 1: Although they've raised rates considerably, it's not clear how long
Speaker 1: the leg effects are for the impact, and once the
Speaker 1: impact starts to play out, how damaging that impact is.
Speaker 1: So they're an unchartered territory. It's a difficult place to be.
Speaker 1: My you know, if I could, if I could tell
Speaker 1: one thing to the chairman, I would I would tell
Speaker 1: him to say less. Okay, So let's say that's glass
Speaker 1: half empty. Now we go to the glass half full.
Speaker 1: Goldman Sax CEO David Solomon, offering a different perspective, saying
Speaker 1: he sees meaningfully higher chances of a soft landing in
Speaker 1: the American economy, and he said that the FED seems
Speaker 1: to be doing a good job for a time of
Speaker 1: a lot of uncertainty. Well onto China. Now, the country
Speaker 1: unveils the biggest overhaul of its bureaucracy in decades. We
Speaker 1: get the story from Bloomberg's von Man. The revamp strengthens
Speaker 1: the party's oversight of the financial system. It creates a
Speaker 1: new agency to manage data, and restructures the Ministry of
Speaker 1: Science and Technology. Xinhua says the overhaul will make its
Speaker 1: economy more self sufficient and resilient. The new Finance Agency
Speaker 1: will absorb the Banking and Insurance Watchdog and some PBOC functions.
Speaker 1: Beijing will cut five percent of positions in the government
Speaker 1: and redeploy people in strategic areas. The drive comes as
Speaker 1: a US uses export controls and other methods to prevent
Speaker 1: China from obtaining high end technologies technologies the uscs as
Speaker 1: giving China an advantage in Hong Kong. I'm van Man Bloomberg,
Speaker 1: Daybreak Asia. The German government is said to be planning
Speaker 1: a ban on some components made by Huahwei for use
Speaker 1: in Germany's new five G wireless network. We have more
Speaker 1: from Bloomberg Annabel Jewelers. Network operators could be ordered to
Speaker 1: remove some of Huawei's components that are already installed in
Speaker 1: the German network. A source says the band would be
Speaker 1: implemented once an assessment of overall risk is completed. Parts
Speaker 1: made by Zte might also be targeted. Berlin is said
Speaker 1: to be taking a much harder line on components for
Speaker 1: network infrastructure, particularly for its latest mobile technology network. This
Speaker 1: comes as the US, UK and EU all become increasingly
Speaker 1: focused on security risks posed by Chinese companies in Hong Kong.
Speaker 1: I'm Annabel Druler's Bloombo Daybreak Asia. The US government has
Speaker 1: moved to block Jet Blues three point eight billion dollar
Speaker 1: acquisition of Spirit Airlines. Today, the US Justice Department filed
Speaker 1: an antitrust lawsuit in federal court. Attorney General Merritt Garland
Speaker 1: addressed reporters earlier in Washington. We alleged that, if allowed
Speaker 1: to proceed, this merger will limit choices and drive up
Speaker 1: ticket prices for passengers across the country. And we further
Speaker 1: alleged that the impact of this merger will be particular
Speaker 1: harmful for travelers who rely on what are known as
Speaker 1: ultra low cost carriers in order to fly separately. The
Speaker 1: Department of Transportation said it fully supports the Justice Department's action.
Speaker 1: The DOT also said that it will move to block
Speaker 1: the transfer of Spirit Airlines certificate to Jet Blue. This
Speaker 1: certification would be required for the carriers to combine their operations.
Speaker 1: Jet Blue and Spirit said they will vigorously defend their
Speaker 1: planned deal. I'm Brian Curtis, along with Doug Krisner and
Speaker 1: Rashad Salama will be joining us shortly so Doug It's
Speaker 1: an interesting conundrum for the FED, not only what will
Speaker 1: the data tell us and how does that guide what
Speaker 1: they do, but also, I think more importantly is why
Speaker 1: the four hundred and fifty basis points of hikes that
Speaker 1: they've done so far isn't having more of an effect
Speaker 1: to bring inflation down? And you have to say that
Speaker 1: it raises the question why doesn't the FED push back
Speaker 1: more on the Congress on the Biden administration for the
Speaker 1: fiscal contributions to inflation. I think that's a fair point.
Speaker 1: We won't know much more on the inflation story. I
Speaker 1: think it's fair to say until Friday with the employment data,
Speaker 1: and then next week, of course it's going to be
Speaker 1: the February report on consumer prices. Those maybe kind of
Speaker 1: the determining data points as to whether or not the
Speaker 1: FED is as aggressive to go fifty basis points at
Speaker 1: the March meeting. I think it's also fair to talk
Speaker 1: about the extent to which it's not just been the
Speaker 1: FED that's been adding to this liquidity. I mean the
Speaker 1: generosity and physical spending during the pandemic and how that
Speaker 1: massively increased money supply. That's a part of the story
Speaker 1: here that was my whole point. Yeah, it was my
Speaker 1: whole point that you know, he had the opportunity, speaking
Speaker 1: to Congress, to throw it back to them a little bit.
Speaker 1: But of course, you know, the FED, I think realizes
Speaker 1: it's kind of the punching bag on this for levels
Speaker 1: of inflation. And maybe that's the way the whole thing
Speaker 1: was designed in the first place. Hindsight twenty twenty. Right,
Speaker 1: we were in the midst of a pandemic. No one
Speaker 1: knew the extent to which they was going to require
Speaker 1: that level of emergency support. You can argue the case
Speaker 1: now that they overdid it, both I think on the
Speaker 1: fiscal side and perhaps even on the monetary side. Yeah,
Speaker 1: and again, why four hundred and fifty bases point? I
Speaker 1: suppose you could use this as a positive too. If
Speaker 1: you were a bull, you could say, well, look, they've
Speaker 1: already done four hundred and fifty basis points. I was
Speaker 1: planning that they might do another seventy five. Maybe now
Speaker 1: it's another hundred. You know, in the larger scheme of things,
Speaker 1: is that going to bring the whole thing down? You know?
Speaker 1: Maybe not that. Maybe Well we'll put these questions to
Speaker 1: pre amusers. She's coming up in a few moments from
Speaker 1: TD Securities. Now it's time for Global news. The US
Speaker 1: Senate is moving ahead with its so called TikTok legislation.
Speaker 1: Ed Baxter with Global News in then nine sixty newsroom
Speaker 1: in San Francisco, ed Yeah, right, Brian. Although TikTok and
Speaker 1: back to answer not mentioned in the bill, the intent
Speaker 1: is clear. Sponsor Senator Mark Warner says it gives the
Speaker 1: president the ability to force the sale of foreign owned technologies, applications, software,
Speaker 1: e commerce platforms if they present a national security threat
Speaker 1: to the United States. Our concern is that it poses
Speaker 1: both a data collection problem and the potential for TikTok
Speaker 1: to be used as a propaganda tool for the commerce party. Now.
Speaker 1: Warner's co sponsor, Senator John Tune says China has shown
Speaker 1: it will lie about everything. The White House has quickly
Speaker 1: endorsed the bill, the first time the administration has weighed
Speaker 1: in on legislation like this, and it also ups the
Speaker 1: Auntie against the relationship with China and Eurasia. Group President
Speaker 1: Ian Bremer on Bloomberg says relations between China and the
Speaker 1: US are progressively getting worse. So what does he say
Speaker 1: the White House wants? They want to establish a floor
Speaker 1: under the US China relationship. They want more stability increasingly,
Speaker 1: Shiji and Ping doesn't see it that way. That's a problem.
Speaker 1: And the bigger statement from Beijing was not from the
Speaker 1: new Foreign Minister, it was from she himself on Monday,
Speaker 1: where he directly called out and criticized the United States
Speaker 1: for a containment policy. And the Chinese president never does
Speaker 1: that directly. That's unusual. I take notice. So She's statement
Speaker 1: regarding containment, well, Bremer says, could have some merit. He
Speaker 1: says his Tech bill is part of it, in the
Speaker 1: commanding heights of the technology economy, which happens to be
Speaker 1: one of the most critical areas out there. So, I
Speaker 1: mean the Chinese, They're not just making this stuff up.
Speaker 1: I mean this is a strategic policy of the United
Speaker 1: States government. And Bremer says, bring its allies like South
Speaker 1: Korea and Japan, the US into the mixes is part
Speaker 1: of that equation as well in China's thinking. Now, the
Speaker 1: White House has responded to the Chinese assertions of US containment.
Speaker 1: NSC spokesman John Kirby, with all due respect to the
Speaker 1: Chinese Foreign Minister, there is no change to the United
Speaker 1: States posture when it comes to the spilt of relationship
Speaker 1: and Kirby repeating the US wants competition and not confrontation.
Speaker 1: Australia's Prime Minister Anthony Albanis he says he will be
Speaker 1: using his visit to in this week to deepen business
Speaker 1: and defense ties. Also says he hopes to discuss China's
Speaker 1: aggressiveness with Prime Minister Norrendromodi. US President Joe Biden's budget
Speaker 1: will propose hiking payroll taxes on Americans making over four
Speaker 1: hundred thousand dollars per year and allow the government new
Speaker 1: power to negotiate drug prices. He says this part of
Speaker 1: the effort to extend the solvency of key medicare programs.
Speaker 1: US is set to relax COVID testing requirements on travelers
Speaker 1: from China as soon as Friday. This decision reported from
Speaker 1: national security and health officials. Florida Governor Rhonda Santis has
Speaker 1: introduced his annual legislation, asking including an abortion bill that
Speaker 1: would ban the procedure at six weeks. De Santis says,
Speaker 1: also focusing on school curriculum, we need to focus on reading, writing, math,
Speaker 1: all these different things. That is what unites parents and
Speaker 1: Unites US. When you start getting into things like gender ideology,
Speaker 1: it's very divisive parents and the majority of parents in Florida,
Speaker 1: I could tell you do not want that in the schools.
Speaker 1: White House spokesmo when Koarain Jean Pierre calls his proposal shameful,
Speaker 1: their rhetoric doesn't come without consequences. Here. The stories told
Speaker 1: today in twenty twenty three in the United States of
Speaker 1: America are shameful and completely unacceptable. The Santa says a
Speaker 1: US should be more like Florida in San Francisco. I'm
Speaker 1: Ed Baxter and this is Bloomberg Bryan Curtis along with
Speaker 1: Rashad Salama. This is Bloomberg Daybreak, Gaisia. We are both
Speaker 1: here in Hong Kong, and our guest is Priamisra, Global
Speaker 1: head of rate Strategy at TD Securities. So Pal raised
Speaker 1: expectations here for a fifty basis point hike. It's not
Speaker 1: the consensus yet, but he's he's certainly put that on
Speaker 1: the table. And also for the terminal rate to go higher.
Speaker 1: Obviously that's a change. But then again we know that
Speaker 1: the Fed really wants to get up to a certain
Speaker 1: level that it deems as high and then see what happens.
Speaker 1: You know, when will we see the impact of the
Speaker 1: already four hundred and fifty basis points in life could
Speaker 1: be at least five hundred and fifty basis points on
Speaker 1: the economy. When does that happen? Sure, that's the trillion
Speaker 1: dollar question. I mean, I would think, you know, academic
Speaker 1: research suggests that the lag is twelve to eighteen months,
Speaker 1: but you know, I think it's important to put it
Speaker 1: in context of where the starting point was. I actually
Speaker 1: think we should be looking at the lags for when
Speaker 1: fat funds got close to four percent. If you think inflation,
Speaker 1: you know, by the end of this year's in the
Speaker 1: three and a half to four percent range. We really
Speaker 1: reached neutral rate only in December, so you know, I
Speaker 1: think it's too early, and I'm a little surprised that
Speaker 1: the FED wants to see the effect or expected to
Speaker 1: see the effect right away, which is why we're very
Speaker 1: concerned about hard landing here. I think, you know, it's
Speaker 1: been a few months since fat funds got to four percent.
Speaker 1: Our view is it's much later this year, the consumer
Speaker 1: savings buffer starts to come off, the lags start to
Speaker 1: kick in, the economy slows down, fairly substantially. But the
Speaker 1: FED is looking at data right right now, you know,
Speaker 1: I think a data dependent FED should you know, also
Speaker 1: look at lags, and but I think it's it's hard
Speaker 1: to know when it's going to start to show an impact.
Speaker 1: It hasn't yet so far. And so the big question,
Speaker 1: the big macro question we've been debating, is the data
Speaker 1: strong because the lags have not kicked in, and we're
Speaker 1: very much in that camp. Or is the data is
Speaker 1: strong because the Fed's not hiked enough. And I think, well,
Speaker 1: chep out, let's face it, the FED funds rate is
Speaker 1: well below inflation, so I think that's probably the main
Speaker 1: reason right right now, you know ex post, yes, but
Speaker 1: if I look at the next year ahead, the TIPS
Speaker 1: markets pricing in three percent inflation, now maybe you can
Speaker 1: say TIPS is underpricing it. Economists our forecast is three
Speaker 1: and a half. So over the next year, if we
Speaker 1: think inflation is going to be three and a half,
Speaker 1: then a FAT funds rate of five and a half
Speaker 1: is very restrictive. So I think I was actually surprised
Speaker 1: at Chapel didn't spend more time talking about the duration
Speaker 1: you get to whatever that endpoint is five and a
Speaker 1: half six, stay, stay there for a while, don't cut
Speaker 1: rates until you know inflation gets closer to two percent.
Speaker 1: I think they're still trying to figure out their endpoint
Speaker 1: and the pace. It's surprising, but Chap I was talking
Speaker 1: about a faster pace of hikes, which I think raises
Speaker 1: the odds of a hard landing. Well, if it's only
Speaker 1: neutral just a few months ago, it's going to take time.
Speaker 1: And the thing is, if we left we've got a
Speaker 1: neutrality at that level. Are you also perhaps suggesting that
Speaker 1: rates may have to increase more than what's currently being
Speaker 1: talked about. I think the market's done a lot of
Speaker 1: that pricing in, but you know, the data is very strong.
Speaker 1: So if they do go fifty, I think then we
Speaker 1: could absolutely be looking at a terminal rate closer to
Speaker 1: six percent, because I think they can potentially hike up
Speaker 1: until July. We think it's the third and the fourth
Speaker 1: quarter that the lags start to kick in. So if
Speaker 1: the fens going fifty, we're talking six six and a half.
Speaker 1: As much as I'm worried about a hard landing, I
Speaker 1: would stay away from that front end of the treasury
Speaker 1: market because it's going to be very data dependent. We
Speaker 1: know inflation is going to be persistent, So you know,
Speaker 1: I don't want to say that this is the highest
Speaker 1: point in that very front end. I think it's much
Speaker 1: more attractive to be in the long end. We get
Speaker 1: those impacts on the economy, particularly interest rates sensitive, we
Speaker 1: get those first, and it sort of moves along until
Speaker 1: it finally gets to company profits. And once corporate profits
Speaker 1: get seriously dented, then the companies start laying off people.
Speaker 1: And probably that's when you get the biggest impact because
Speaker 1: right now people still have jobs and so they're still spending,
Speaker 1: right and they have savings. You know, there's still that
Speaker 1: post COVID savings that's I think buffering the impact of
Speaker 1: higher interest rates. But absolutely the labor market is very tight,
Speaker 1: and I think that's what's keeping the data strong. The
Speaker 1: FED looks at that and keeps hiking more, and I
Speaker 1: think that's creating a problem for later this year into
Speaker 1: twenty four. Well, I suppose the question also is is
Speaker 1: you know, in trying to achieve a soft LA, can
Speaker 1: you get wage a requests to come down without actually
Speaker 1: losing jobs. I mean, that's what they would like, they'd
Speaker 1: like to see people get scared enough that they're not
Speaker 1: demanding wage hikes or else they're going to leave because
Speaker 1: they're not that confident. That would take some of the
Speaker 1: pressure off inflation, and it would also allow the FED
Speaker 1: to kind of say, you know, we're still maintaining our
Speaker 1: other mandate, which is to keep jobs steady exactly, but
Speaker 1: you know what we're calling that immaculate disinflation. It's hard
Speaker 1: to see how wages can come down. Now, maybe they
Speaker 1: can come down from five percent to four and a half,
Speaker 1: but you need something like three to three and a
Speaker 1: half percent wages to be consistent with two percent inflation.
Speaker 1: How do you get that level of wages without a
Speaker 1: rising the unemployment rate hasn't happened historically, so we think
Speaker 1: the only way to really get wages down would be
Speaker 1: to move the unemployment rate higher, which is going to mean,
Speaker 1: you know, job losses. I don't think it's happening in
Speaker 1: the next few months. But closer to your end, what
Speaker 1: has been the impact as far in your view of
Speaker 1: quantitative tightening? You know, I think it's doing a lot.
Speaker 1: So that there's two impacts. One is on the reserve front.
Speaker 1: Reserves are coming down, but I think the banking sector
Speaker 1: still has enough reserves, so I don't think you see
Speaker 1: pressure on funding just yet. That's probably a next year story.
Speaker 1: The other impact is higher interest rates. Real interest rates
Speaker 1: have been going up in that five to ten year
Speaker 1: part of the curve, which then is impacting housing another
Speaker 1: interrasensitive sectors. So I think QT quantitative tightening, is doing
Speaker 1: as much work as raising that FAT funds rate, but
Speaker 1: it's harder to quantify. I wish the FAT would talk
Speaker 1: about QT, because I think it's absolutely tightening by moving
Speaker 1: those real interest rates higher one hundred and three basis
Speaker 1: points and change. That's the spread between twos and tens.
Speaker 1: We took out last year's high on the two year yield,
Speaker 1: and we also took it out on the three year,
Speaker 1: But that's the only part of the curve that we've
Speaker 1: actually eclipsed the rates the levels that we saw last year.
Speaker 1: Does that get come pleaded? And why is the ten
Speaker 1: year sort of sticky here under four percent? I think
Speaker 1: the ten year is sticky because there's this fear I
Speaker 1: think is a growing fear of a hard landing with
Speaker 1: the FED that's remaining data dependent, that is not able
Speaker 1: to really figure out or have a view on the lags,
Speaker 1: the risk that they're going to overdo it, especially as
Speaker 1: they're doing a quantitative tightening. Is you highlighted they continue
Speaker 1: to raise rates to five and a half or six,
Speaker 1: the risk of hard landing is high, and I think
Speaker 1: that constrains that long end. The other thing we've seen
Speaker 1: is significant influence into fixed income, not just foreign investors,
Speaker 1: but we've seen Japanese buying. We've seen you influence into
Speaker 1: bond mutual funds as a recession hedge. I think that's
Speaker 1: going to keep the long end anchored. In fact, I'm
Speaker 1: long hence very quickly. Is that affecting liquidity. I think
Speaker 1: it's actually liquidity is better now because there is demand
Speaker 1: for bonds, and it's it's further out the curve rather
Speaker 1: than the front end. This is Bloomberg Gaybreak Asia, your
Speaker 1: morning brief on this story is making news from Hong
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