WEBVTT - Powell Testifies, China Unveils Financial Overhaul

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<v Speaker 1>This is Bloomberg Daybreak Asia for this Wednesday, March eighth

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<v Speaker 1>in Hong Kong, Tuesday March seventh in New York and

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<v Speaker 1>coming up today, US equities sell off as chair J.

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<v Speaker 1>Powell says that FED may have to high rates, faster

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<v Speaker 1>and two levels above earlier expectations. China will form powerful

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<v Speaker 1>new financial and data regulators as part of a major overhaul,

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<v Speaker 1>and Berlin plans to ban some components made by Huawe

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<v Speaker 1>from Germany's five Gen network. US Senate moving ahead with

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<v Speaker 1>so called TikTok legislation. White House denies china claims of

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<v Speaker 1>containment and suppression. US set to relax requirements on travelers

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<v Speaker 1>from China. I'm at Baxter with Global News. That's all

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<v Speaker 1>straight ahead on Bloomberg Daybreak Asia, The business news you

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<v Speaker 1>need to start your day in just one fifteen minute

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<v Speaker 1>podcast available on Apple, Spotify, the Bloomberg Business App, and

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<v Speaker 1>everywhere you get your podcasts. Good morning, I'm de Prisoner

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<v Speaker 1>and I'm Brian Curtiz. Here are the stories we're following today.

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<v Speaker 1>FED share J Pal opening the door to bigger rate hikes.

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<v Speaker 1>Here's Pal testifying to the Senate Banking Committee. The latest

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<v Speaker 1>economic data have come in stronger than expected, which suggests

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<v Speaker 1>that the ultimate level of interest rates is likely to

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<v Speaker 1>be higher than previously anticipated. If the totality of the

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<v Speaker 1>data were to indicate that faster tightening is warranted, we'd

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<v Speaker 1>be prepared to increase the pace of rate hikes. Pal

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<v Speaker 1>said that the process of getting inflation back down to

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<v Speaker 1>two percent has a long way to go and is

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<v Speaker 1>likely to be bumpy. He also downplayed the impact of

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<v Speaker 1>FED actions on jobs. Pal suggested that there won't be

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<v Speaker 1>a very significant downturn in the labor market. Following his remark,

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<v Speaker 1>some economists did up their expectations for how aggressive the

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<v Speaker 1>FED will be when it meets in two weeks. Bond

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<v Speaker 1>traders boosted bets on a half point March increase and

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<v Speaker 1>priced in a total of one hundred basis points over

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<v Speaker 1>the next four months, though some FED watchers are still

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<v Speaker 1>expecting the Central Bank to roll out a more incremental

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<v Speaker 1>twenty five basis point hike at the March meeting. Well.

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<v Speaker 1>At the same time today, we heard from the CEO

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<v Speaker 1>and founder of Citadel, Ken Griffin. He was saying he

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<v Speaker 1>sees the setup right now for a recession here in

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<v Speaker 1>the US, and he told us the FED is limited

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<v Speaker 1>in how much it can fide inflation through higher interest rates.

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<v Speaker 1>Although they've raised rates considerably, it's not clear how long

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<v Speaker 1>the leg effects are for the impact, and once the

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<v Speaker 1>impact starts to play out, how damaging that impact is.

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<v Speaker 1>So they're an unchartered territory. It's a difficult place to be.

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<v Speaker 1>My you know, if I could, if I could tell

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<v Speaker 1>one thing to the chairman, I would I would tell

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<v Speaker 1>him to say less. Okay, So let's say that's glass

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<v Speaker 1>half empty. Now we go to the glass half full.

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<v Speaker 1>Goldman Sax CEO David Solomon, offering a different perspective, saying

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<v Speaker 1>he sees meaningfully higher chances of a soft landing in

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<v Speaker 1>the American economy, and he said that the FED seems

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<v Speaker 1>to be doing a good job for a time of

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<v Speaker 1>a lot of uncertainty. Well onto China. Now, the country

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<v Speaker 1>unveils the biggest overhaul of its bureaucracy in decades. We

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<v Speaker 1>get the story from Bloomberg's von Man. The revamp strengthens

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<v Speaker 1>the party's oversight of the financial system. It creates a

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<v Speaker 1>new agency to manage data, and restructures the Ministry of

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<v Speaker 1>Science and Technology. Xinhua says the overhaul will make its

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<v Speaker 1>economy more self sufficient and resilient. The new Finance Agency

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<v Speaker 1>will absorb the Banking and Insurance Watchdog and some PBOC functions.

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<v Speaker 1>Beijing will cut five percent of positions in the government

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<v Speaker 1>and redeploy people in strategic areas. The drive comes as

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<v Speaker 1>a US uses export controls and other methods to prevent

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<v Speaker 1>China from obtaining high end technologies technologies the uscs as

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<v Speaker 1>giving China an advantage in Hong Kong. I'm van Man Bloomberg,

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<v Speaker 1>Daybreak Asia. The German government is said to be planning

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<v Speaker 1>a ban on some components made by Huahwei for use

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<v Speaker 1>in Germany's new five G wireless network. We have more

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<v Speaker 1>from Bloomberg Annabel Jewelers. Network operators could be ordered to

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<v Speaker 1>remove some of Huawei's components that are already installed in

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<v Speaker 1>the German network. A source says the band would be

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<v Speaker 1>implemented once an assessment of overall risk is completed. Parts

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<v Speaker 1>made by Zte might also be targeted. Berlin is said

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<v Speaker 1>to be taking a much harder line on components for

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<v Speaker 1>network infrastructure, particularly for its latest mobile technology network. This

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<v Speaker 1>comes as the US, UK and EU all become increasingly

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<v Speaker 1>focused on security risks posed by Chinese companies in Hong Kong.

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<v Speaker 1>I'm Annabel Druler's Bloombo Daybreak Asia. The US government has

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<v Speaker 1>moved to block Jet Blues three point eight billion dollar

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<v Speaker 1>acquisition of Spirit Airlines. Today, the US Justice Department filed

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<v Speaker 1>an antitrust lawsuit in federal court. Attorney General Merritt Garland

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<v Speaker 1>addressed reporters earlier in Washington. We alleged that, if allowed

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<v Speaker 1>to proceed, this merger will limit choices and drive up

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<v Speaker 1>ticket prices for passengers across the country. And we further

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<v Speaker 1>alleged that the impact of this merger will be particular

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<v Speaker 1>harmful for travelers who rely on what are known as

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<v Speaker 1>ultra low cost carriers in order to fly separately. The

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<v Speaker 1>Department of Transportation said it fully supports the Justice Department's action.

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<v Speaker 1>The DOT also said that it will move to block

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<v Speaker 1>the transfer of Spirit Airlines certificate to Jet Blue. This

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<v Speaker 1>certification would be required for the carriers to combine their operations.

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<v Speaker 1>Jet Blue and Spirit said they will vigorously defend their

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<v Speaker 1>planned deal. I'm Brian Curtis, along with Doug Krisner and

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<v Speaker 1>Rashad Salama will be joining us shortly so Doug It's

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<v Speaker 1>an interesting conundrum for the FED, not only what will

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<v Speaker 1>the data tell us and how does that guide what

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<v Speaker 1>they do, but also, I think more importantly is why

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<v Speaker 1>the four hundred and fifty basis points of hikes that

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<v Speaker 1>they've done so far isn't having more of an effect

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<v Speaker 1>to bring inflation down? And you have to say that

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<v Speaker 1>it raises the question why doesn't the FED push back

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<v Speaker 1>more on the Congress on the Biden administration for the

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<v Speaker 1>fiscal contributions to inflation. I think that's a fair point.

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<v Speaker 1>We won't know much more on the inflation story. I

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<v Speaker 1>think it's fair to say until Friday with the employment data,

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<v Speaker 1>and then next week, of course it's going to be

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<v Speaker 1>the February report on consumer prices. Those maybe kind of

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<v Speaker 1>the determining data points as to whether or not the

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<v Speaker 1>FED is as aggressive to go fifty basis points at

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<v Speaker 1>the March meeting. I think it's also fair to talk

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<v Speaker 1>about the extent to which it's not just been the

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<v Speaker 1>FED that's been adding to this liquidity. I mean the

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<v Speaker 1>generosity and physical spending during the pandemic and how that

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<v Speaker 1>massively increased money supply. That's a part of the story

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<v Speaker 1>here that was my whole point. Yeah, it was my

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<v Speaker 1>whole point that you know, he had the opportunity, speaking

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<v Speaker 1>to Congress, to throw it back to them a little bit.

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<v Speaker 1>But of course, you know, the FED, I think realizes

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<v Speaker 1>it's kind of the punching bag on this for levels

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<v Speaker 1>of inflation. And maybe that's the way the whole thing

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<v Speaker 1>was designed in the first place. Hindsight twenty twenty. Right,

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<v Speaker 1>we were in the midst of a pandemic. No one

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<v Speaker 1>knew the extent to which they was going to require

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<v Speaker 1>that level of emergency support. You can argue the case

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<v Speaker 1>now that they overdid it, both I think on the

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<v Speaker 1>fiscal side and perhaps even on the monetary side. Yeah,

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<v Speaker 1>and again, why four hundred and fifty bases point? I

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<v Speaker 1>suppose you could use this as a positive too. If

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<v Speaker 1>you were a bull, you could say, well, look, they've

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<v Speaker 1>already done four hundred and fifty basis points. I was

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<v Speaker 1>planning that they might do another seventy five. Maybe now

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<v Speaker 1>it's another hundred. You know, in the larger scheme of things,

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<v Speaker 1>is that going to bring the whole thing down? You know?

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<v Speaker 1>Maybe not that. Maybe Well we'll put these questions to

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<v Speaker 1>pre amusers. She's coming up in a few moments from

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<v Speaker 1>TD Securities. Now it's time for Global news. The US

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<v Speaker 1>Senate is moving ahead with its so called TikTok legislation.

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<v Speaker 1>Ed Baxter with Global News in then nine sixty newsroom

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<v Speaker 1>in San Francisco, ed Yeah, right, Brian. Although TikTok and

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<v Speaker 1>back to answer not mentioned in the bill, the intent

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<v Speaker 1>is clear. Sponsor Senator Mark Warner says it gives the

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<v Speaker 1>president the ability to force the sale of foreign owned technologies, applications, software,

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<v Speaker 1>e commerce platforms if they present a national security threat

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<v Speaker 1>to the United States. Our concern is that it poses

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<v Speaker 1>both a data collection problem and the potential for TikTok

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<v Speaker 1>to be used as a propaganda tool for the commerce party. Now.

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<v Speaker 1>Warner's co sponsor, Senator John Tune says China has shown

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<v Speaker 1>it will lie about everything. The White House has quickly

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<v Speaker 1>endorsed the bill, the first time the administration has weighed

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<v Speaker 1>in on legislation like this, and it also ups the

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<v Speaker 1>Auntie against the relationship with China and Eurasia. Group President

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<v Speaker 1>Ian Bremer on Bloomberg says relations between China and the

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<v Speaker 1>US are progressively getting worse. So what does he say

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<v Speaker 1>the White House wants? They want to establish a floor

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<v Speaker 1>under the US China relationship. They want more stability increasingly,

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<v Speaker 1>Shiji and Ping doesn't see it that way. That's a problem.

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<v Speaker 1>And the bigger statement from Beijing was not from the

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<v Speaker 1>new Foreign Minister, it was from she himself on Monday,

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<v Speaker 1>where he directly called out and criticized the United States

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<v Speaker 1>for a containment policy. And the Chinese president never does

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<v Speaker 1>that directly. That's unusual. I take notice. So She's statement

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<v Speaker 1>regarding containment, well, Bremer says, could have some merit. He

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<v Speaker 1>says his Tech bill is part of it, in the

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<v Speaker 1>commanding heights of the technology economy, which happens to be

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<v Speaker 1>one of the most critical areas out there. So, I

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<v Speaker 1>mean the Chinese, They're not just making this stuff up.

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<v Speaker 1>I mean this is a strategic policy of the United

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<v Speaker 1>States government. And Bremer says, bring its allies like South

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<v Speaker 1>Korea and Japan, the US into the mixes is part

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<v Speaker 1>of that equation as well in China's thinking. Now, the

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<v Speaker 1>White House has responded to the Chinese assertions of US containment.

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<v Speaker 1>NSC spokesman John Kirby, with all due respect to the

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<v Speaker 1>Chinese Foreign Minister, there is no change to the United

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<v Speaker 1>States posture when it comes to the spilt of relationship

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<v Speaker 1>and Kirby repeating the US wants competition and not confrontation.

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<v Speaker 1>Australia's Prime Minister Anthony Albanis he says he will be

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<v Speaker 1>using his visit to in this week to deepen business

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<v Speaker 1>and defense ties. Also says he hopes to discuss China's

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<v Speaker 1>aggressiveness with Prime Minister Norrendromodi. US President Joe Biden's budget

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<v Speaker 1>will propose hiking payroll taxes on Americans making over four

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<v Speaker 1>hundred thousand dollars per year and allow the government new

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<v Speaker 1>power to negotiate drug prices. He says this part of

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<v Speaker 1>the effort to extend the solvency of key medicare programs.

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<v Speaker 1>US is set to relax COVID testing requirements on travelers

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<v Speaker 1>from China as soon as Friday. This decision reported from

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<v Speaker 1>national security and health officials. Florida Governor Rhonda Santis has

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<v Speaker 1>introduced his annual legislation, asking including an abortion bill that

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<v Speaker 1>would ban the procedure at six weeks. De Santis says,

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<v Speaker 1>also focusing on school curriculum, we need to focus on reading, writing, math,

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<v Speaker 1>all these different things. That is what unites parents and

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<v Speaker 1>Unites US. When you start getting into things like gender ideology,

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<v Speaker 1>it's very divisive parents and the majority of parents in Florida,

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<v Speaker 1>I could tell you do not want that in the schools.

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<v Speaker 1>White House spokesmo when Koarain Jean Pierre calls his proposal shameful,

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<v Speaker 1>their rhetoric doesn't come without consequences. Here. The stories told

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<v Speaker 1>today in twenty twenty three in the United States of

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<v Speaker 1>America are shameful and completely unacceptable. The Santa says a

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<v Speaker 1>US should be more like Florida in San Francisco. I'm

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<v Speaker 1>Ed Baxter and this is Bloomberg Bryan Curtis along with

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<v Speaker 1>Rashad Salama. This is Bloomberg Daybreak, Gaisia. We are both

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<v Speaker 1>here in Hong Kong, and our guest is Priamisra, Global

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<v Speaker 1>head of rate Strategy at TD Securities. So Pal raised

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<v Speaker 1>expectations here for a fifty basis point hike. It's not

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<v Speaker 1>the consensus yet, but he's he's certainly put that on

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<v Speaker 1>the table. And also for the terminal rate to go higher.

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<v Speaker 1>Obviously that's a change. But then again we know that

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<v Speaker 1>the Fed really wants to get up to a certain

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<v Speaker 1>level that it deems as high and then see what happens.

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<v Speaker 1>You know, when will we see the impact of the

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<v Speaker 1>already four hundred and fifty basis points in life could

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<v Speaker 1>be at least five hundred and fifty basis points on

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<v Speaker 1>the economy. When does that happen? Sure, that's the trillion

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<v Speaker 1>dollar question. I mean, I would think, you know, academic

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<v Speaker 1>research suggests that the lag is twelve to eighteen months,

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<v Speaker 1>but you know, I think it's important to put it

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<v Speaker 1>in context of where the starting point was. I actually

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<v Speaker 1>think we should be looking at the lags for when

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<v Speaker 1>fat funds got close to four percent. If you think inflation,

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<v Speaker 1>you know, by the end of this year's in the

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<v Speaker 1>three and a half to four percent range. We really

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<v Speaker 1>reached neutral rate only in December, so you know, I

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<v Speaker 1>think it's too early, and I'm a little surprised that

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<v Speaker 1>the FED wants to see the effect or expected to

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<v Speaker 1>see the effect right away, which is why we're very

0:12:41.960 --> 0:12:45.480
<v Speaker 1>concerned about hard landing here. I think, you know, it's

0:12:45.520 --> 0:12:48.040
<v Speaker 1>been a few months since fat funds got to four percent.

0:12:48.280 --> 0:12:52.280
<v Speaker 1>Our view is it's much later this year, the consumer

0:12:52.320 --> 0:12:54.880
<v Speaker 1>savings buffer starts to come off, the lags start to

0:12:54.960 --> 0:12:58.640
<v Speaker 1>kick in, the economy slows down, fairly substantially. But the

0:12:58.720 --> 0:13:00.679
<v Speaker 1>FED is looking at data right right now, you know,

0:13:00.720 --> 0:13:03.920
<v Speaker 1>I think a data dependent FED should you know, also

0:13:03.960 --> 0:13:05.839
<v Speaker 1>look at lags, and but I think it's it's hard

0:13:05.880 --> 0:13:08.440
<v Speaker 1>to know when it's going to start to show an impact.

0:13:08.520 --> 0:13:11.319
<v Speaker 1>It hasn't yet so far. And so the big question,

0:13:11.360 --> 0:13:14.720
<v Speaker 1>the big macro question we've been debating, is the data

0:13:14.800 --> 0:13:17.120
<v Speaker 1>strong because the lags have not kicked in, and we're

0:13:17.200 --> 0:13:19.880
<v Speaker 1>very much in that camp. Or is the data is

0:13:19.920 --> 0:13:22.400
<v Speaker 1>strong because the Fed's not hiked enough. And I think, well,

0:13:22.640 --> 0:13:26.160
<v Speaker 1>chep out, let's face it, the FED funds rate is

0:13:26.280 --> 0:13:29.280
<v Speaker 1>well below inflation, so I think that's probably the main

0:13:29.360 --> 0:13:33.680
<v Speaker 1>reason right right now, you know ex post, yes, but

0:13:33.920 --> 0:13:37.199
<v Speaker 1>if I look at the next year ahead, the TIPS

0:13:37.240 --> 0:13:39.719
<v Speaker 1>markets pricing in three percent inflation, now maybe you can

0:13:39.720 --> 0:13:43.400
<v Speaker 1>say TIPS is underpricing it. Economists our forecast is three

0:13:43.440 --> 0:13:45.680
<v Speaker 1>and a half. So over the next year, if we

0:13:45.720 --> 0:13:47.480
<v Speaker 1>think inflation is going to be three and a half,

0:13:47.760 --> 0:13:49.600
<v Speaker 1>then a FAT funds rate of five and a half

0:13:49.720 --> 0:13:53.160
<v Speaker 1>is very restrictive. So I think I was actually surprised

0:13:53.160 --> 0:13:56.240
<v Speaker 1>at Chapel didn't spend more time talking about the duration

0:13:56.600 --> 0:13:58.719
<v Speaker 1>you get to whatever that endpoint is five and a

0:13:58.760 --> 0:14:02.800
<v Speaker 1>half six, stay, stay there for a while, don't cut

0:14:02.920 --> 0:14:05.920
<v Speaker 1>rates until you know inflation gets closer to two percent.

0:14:06.040 --> 0:14:08.040
<v Speaker 1>I think they're still trying to figure out their endpoint

0:14:08.200 --> 0:14:11.840
<v Speaker 1>and the pace. It's surprising, but Chap I was talking

0:14:11.840 --> 0:14:14.720
<v Speaker 1>about a faster pace of hikes, which I think raises

0:14:14.760 --> 0:14:17.160
<v Speaker 1>the odds of a hard landing. Well, if it's only

0:14:17.200 --> 0:14:20.080
<v Speaker 1>neutral just a few months ago, it's going to take time.

0:14:20.120 --> 0:14:22.640
<v Speaker 1>And the thing is, if we left we've got a

0:14:22.680 --> 0:14:26.480
<v Speaker 1>neutrality at that level. Are you also perhaps suggesting that

0:14:27.600 --> 0:14:30.240
<v Speaker 1>rates may have to increase more than what's currently being

0:14:30.440 --> 0:14:34.160
<v Speaker 1>talked about. I think the market's done a lot of

0:14:34.200 --> 0:14:37.080
<v Speaker 1>that pricing in, but you know, the data is very strong.

0:14:38.000 --> 0:14:40.360
<v Speaker 1>So if they do go fifty, I think then we

0:14:40.400 --> 0:14:42.880
<v Speaker 1>could absolutely be looking at a terminal rate closer to

0:14:42.920 --> 0:14:45.400
<v Speaker 1>six percent, because I think they can potentially hike up

0:14:45.480 --> 0:14:47.880
<v Speaker 1>until July. We think it's the third and the fourth

0:14:47.960 --> 0:14:50.520
<v Speaker 1>quarter that the lags start to kick in. So if

0:14:50.520 --> 0:14:54.200
<v Speaker 1>the fens going fifty, we're talking six six and a half.

0:14:55.080 --> 0:14:57.000
<v Speaker 1>As much as I'm worried about a hard landing, I

0:14:57.000 --> 0:14:59.120
<v Speaker 1>would stay away from that front end of the treasury

0:14:59.120 --> 0:15:01.720
<v Speaker 1>market because it's going to be very data dependent. We

0:15:01.800 --> 0:15:04.600
<v Speaker 1>know inflation is going to be persistent, So you know,

0:15:04.600 --> 0:15:06.400
<v Speaker 1>I don't want to say that this is the highest

0:15:06.400 --> 0:15:08.840
<v Speaker 1>point in that very front end. I think it's much

0:15:08.840 --> 0:15:11.120
<v Speaker 1>more attractive to be in the long end. We get

0:15:11.160 --> 0:15:15.040
<v Speaker 1>those impacts on the economy, particularly interest rates sensitive, we

0:15:15.040 --> 0:15:17.400
<v Speaker 1>get those first, and it sort of moves along until

0:15:17.440 --> 0:15:21.800
<v Speaker 1>it finally gets to company profits. And once corporate profits

0:15:21.840 --> 0:15:25.640
<v Speaker 1>get seriously dented, then the companies start laying off people.

0:15:25.760 --> 0:15:28.880
<v Speaker 1>And probably that's when you get the biggest impact because

0:15:28.960 --> 0:15:31.360
<v Speaker 1>right now people still have jobs and so they're still spending,

0:15:33.280 --> 0:15:35.520
<v Speaker 1>right and they have savings. You know, there's still that

0:15:35.760 --> 0:15:39.880
<v Speaker 1>post COVID savings that's I think buffering the impact of

0:15:39.920 --> 0:15:42.920
<v Speaker 1>higher interest rates. But absolutely the labor market is very tight,

0:15:43.200 --> 0:15:45.640
<v Speaker 1>and I think that's what's keeping the data strong. The

0:15:45.680 --> 0:15:47.760
<v Speaker 1>FED looks at that and keeps hiking more, and I

0:15:47.800 --> 0:15:50.720
<v Speaker 1>think that's creating a problem for later this year into

0:15:50.840 --> 0:15:57.440
<v Speaker 1>twenty four. Well, I suppose the question also is is

0:15:57.880 --> 0:16:00.640
<v Speaker 1>you know, in trying to achieve a soft LA, can

0:16:00.720 --> 0:16:04.960
<v Speaker 1>you get wage a requests to come down without actually

0:16:04.960 --> 0:16:07.160
<v Speaker 1>losing jobs. I mean, that's what they would like, they'd

0:16:07.200 --> 0:16:09.600
<v Speaker 1>like to see people get scared enough that they're not

0:16:09.640 --> 0:16:12.360
<v Speaker 1>demanding wage hikes or else they're going to leave because

0:16:12.360 --> 0:16:14.720
<v Speaker 1>they're not that confident. That would take some of the

0:16:14.720 --> 0:16:18.480
<v Speaker 1>pressure off inflation, and it would also allow the FED

0:16:18.520 --> 0:16:21.040
<v Speaker 1>to kind of say, you know, we're still maintaining our

0:16:21.080 --> 0:16:25.280
<v Speaker 1>other mandate, which is to keep jobs steady exactly, but

0:16:25.440 --> 0:16:29.080
<v Speaker 1>you know what we're calling that immaculate disinflation. It's hard

0:16:29.120 --> 0:16:31.360
<v Speaker 1>to see how wages can come down. Now, maybe they

0:16:31.400 --> 0:16:33.880
<v Speaker 1>can come down from five percent to four and a half,

0:16:34.160 --> 0:16:35.800
<v Speaker 1>but you need something like three to three and a

0:16:35.800 --> 0:16:38.480
<v Speaker 1>half percent wages to be consistent with two percent inflation.

0:16:38.800 --> 0:16:41.200
<v Speaker 1>How do you get that level of wages without a

0:16:41.280 --> 0:16:44.840
<v Speaker 1>rising the unemployment rate hasn't happened historically, so we think

0:16:44.880 --> 0:16:48.080
<v Speaker 1>the only way to really get wages down would be

0:16:48.160 --> 0:16:51.640
<v Speaker 1>to move the unemployment rate higher, which is going to mean,

0:16:51.880 --> 0:16:54.360
<v Speaker 1>you know, job losses. I don't think it's happening in

0:16:54.360 --> 0:16:58.360
<v Speaker 1>the next few months. But closer to your end, what

0:16:58.440 --> 0:17:00.440
<v Speaker 1>has been the impact as far in your view of

0:17:00.520 --> 0:17:05.360
<v Speaker 1>quantitative tightening? You know, I think it's doing a lot.

0:17:05.400 --> 0:17:07.879
<v Speaker 1>So that there's two impacts. One is on the reserve front.

0:17:07.920 --> 0:17:10.119
<v Speaker 1>Reserves are coming down, but I think the banking sector

0:17:10.280 --> 0:17:13.040
<v Speaker 1>still has enough reserves, so I don't think you see

0:17:13.080 --> 0:17:15.920
<v Speaker 1>pressure on funding just yet. That's probably a next year story.

0:17:16.200 --> 0:17:19.160
<v Speaker 1>The other impact is higher interest rates. Real interest rates

0:17:19.160 --> 0:17:21.479
<v Speaker 1>have been going up in that five to ten year

0:17:21.560 --> 0:17:24.480
<v Speaker 1>part of the curve, which then is impacting housing another

0:17:24.640 --> 0:17:28.800
<v Speaker 1>interrasensitive sectors. So I think QT quantitative tightening, is doing

0:17:28.880 --> 0:17:32.399
<v Speaker 1>as much work as raising that FAT funds rate, but

0:17:32.440 --> 0:17:34.840
<v Speaker 1>it's harder to quantify. I wish the FAT would talk

0:17:34.880 --> 0:17:37.919
<v Speaker 1>about QT, because I think it's absolutely tightening by moving

0:17:37.960 --> 0:17:41.680
<v Speaker 1>those real interest rates higher one hundred and three basis

0:17:41.680 --> 0:17:44.840
<v Speaker 1>points and change. That's the spread between twos and tens.

0:17:45.359 --> 0:17:48.919
<v Speaker 1>We took out last year's high on the two year yield,

0:17:49.040 --> 0:17:50.680
<v Speaker 1>and we also took it out on the three year,

0:17:50.960 --> 0:17:53.400
<v Speaker 1>But that's the only part of the curve that we've

0:17:53.440 --> 0:17:58.640
<v Speaker 1>actually eclipsed the rates the levels that we saw last year.

0:17:59.200 --> 0:18:01.000
<v Speaker 1>Does that get come pleaded? And why is the ten

0:18:01.040 --> 0:18:04.680
<v Speaker 1>year sort of sticky here under four percent? I think

0:18:04.680 --> 0:18:07.280
<v Speaker 1>the ten year is sticky because there's this fear I

0:18:07.320 --> 0:18:09.800
<v Speaker 1>think is a growing fear of a hard landing with

0:18:09.920 --> 0:18:13.480
<v Speaker 1>the FED that's remaining data dependent, that is not able

0:18:13.520 --> 0:18:16.600
<v Speaker 1>to really figure out or have a view on the lags,

0:18:17.040 --> 0:18:19.360
<v Speaker 1>the risk that they're going to overdo it, especially as

0:18:19.400 --> 0:18:22.720
<v Speaker 1>they're doing a quantitative tightening. Is you highlighted they continue

0:18:22.720 --> 0:18:25.160
<v Speaker 1>to raise rates to five and a half or six,

0:18:25.440 --> 0:18:27.120
<v Speaker 1>the risk of hard landing is high, and I think

0:18:27.160 --> 0:18:30.120
<v Speaker 1>that constrains that long end. The other thing we've seen

0:18:30.119 --> 0:18:33.639
<v Speaker 1>is significant influence into fixed income, not just foreign investors,

0:18:33.640 --> 0:18:37.600
<v Speaker 1>but we've seen Japanese buying. We've seen you influence into

0:18:37.600 --> 0:18:41.000
<v Speaker 1>bond mutual funds as a recession hedge. I think that's

0:18:41.000 --> 0:18:42.800
<v Speaker 1>going to keep the long end anchored. In fact, I'm

0:18:42.880 --> 0:18:47.919
<v Speaker 1>long hence very quickly. Is that affecting liquidity. I think

0:18:47.920 --> 0:18:51.120
<v Speaker 1>it's actually liquidity is better now because there is demand

0:18:51.200 --> 0:18:53.840
<v Speaker 1>for bonds, and it's it's further out the curve rather

0:18:53.880 --> 0:18:58.080
<v Speaker 1>than the front end. This is Bloomberg Gaybreak Asia, your

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