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Speaker 1: This is Bloomberg day Break Asia for this Monday, May

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Speaker 1: first here in Hong Kong, Sunday April thirtieth in New

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Speaker 1: York and coming up today.

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Speaker 2: The FDIC formally accepts bids for First Republic Bank after

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Speaker 2: the lenders stock plunged last week.

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Speaker 1: Traders look ahead to key central bank decisions from the

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Speaker 1: FED and the ECB.

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Speaker 2: China's manufacturing activity unexpectedly contracts, but the country's tourism and

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Speaker 2: consumer activities rise sharply over the holiday weekend.

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Speaker 3: Australia's Defense minister citing economic coercion as a reason for

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Speaker 3: a revamp military Republicans calling for a White House meeting

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Speaker 3: on death, ceiling and spending. Biden turns comedian of the

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Speaker 3: correspondence dinner. I'm at Baxter with Global News.

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Speaker 4: That's all straight ahead on Bloomberg Daybreak Asia, the business

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Speaker 4: news you need to start your day in just one

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Speaker 4: fifteen minute podcast available on Apples, Spotify, the Bloomberg Business

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Speaker 4: app and everywhere you get your podcasts.

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Speaker 1: Good morning, I'm Brian Curtiz.

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Speaker 2: And I'm Doug Prisner. Here are the stories we're following today.

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Speaker 1: And the big one Doug us authorities stepping in after

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Speaker 1: First Republic stock plunge last week, leaving it down ninety

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Speaker 1: seven percent. This year, we hear the FDIC asked banks

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Speaker 1: including JP Morgan, PNC Financial, and Citizens Financial to submit

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Speaker 1: bids to take over the San Francisco based lender. If

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Speaker 1: no agreement is reached, regulators would then have the option

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Speaker 1: of taking control of First Republic. Democratic Representative Rocanna weighed

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Speaker 1: in earlier on CBS's Faced the Nation.

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Speaker 5: I think that the FDIC needs to look at the

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Speaker 5: lowest cost alternative. That's their mandate, and right now they

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Speaker 5: may need to work with banks in private capital to

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Speaker 5: save First Republic. I mean that is the state we're in.

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Speaker 1: That's Rocanna heard here on Bloomberg. A possible option for

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Speaker 1: First Republic is for regulators to use a bid for

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Speaker 1: a so called open market solution that have void's formally

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Speaker 1: declaring First Republic of failure. The stocks drop, leaving the

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Speaker 1: firm with a six hundred and fifty million dollar market value,

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Speaker 1: has made such a takeover somewhat more feasible now than before.

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Speaker 6: Now.

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Speaker 2: At the same time, former US Treasury Secretary Larry Summers

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Speaker 2: was saying he's surprised and disappointed that US regulators and

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Speaker 2: banking giants don't have a solution for First Republic. He

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Speaker 2: told us it's in their best interest to find one.

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Speaker 6: The big banks and the government both have a strong

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Speaker 6: stake in this situation being contained and resolved. The big

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Speaker 6: banks have deposits in First Republic Bank in significant quantity.

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Speaker 6: They have a huge stake in the financial system staying stable.

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Speaker 2: Former Treasury Secretary Larry Summers there He went on to

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Speaker 2: call on regulators essentially to make it clear that uninsured

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Speaker 2: depas it's in First Republic are going to be okay.

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Speaker 2: He warned of the danger of contagion to other banks.

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Speaker 1: Meantime, Federal Reserve policymakers meet this week, with another interest

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Speaker 1: rate increase considered likely. Bloomberg's Larry Kofski has more on

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Speaker 1: the story.

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Speaker 7: The Fed's steepest rate tightening campaign in decades is nearing

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Speaker 7: an end. Officials will be considering how much more pain

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Speaker 7: they need to inflict to restore price stability while trying

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Speaker 7: not to send the economy off a cliff or pushing

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Speaker 7: already creaking banking system into crisis. The fed's two day

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Speaker 7: meeting begins Tuesday. Similar deliberations are likely as officials at

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Speaker 7: the European Central Bank and the Bank of England meet

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Speaker 7: over the next two weeks. I'm Larry Kovski Bloomberg day

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Speaker 7: Break Asia.

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Speaker 2: Well, it will be a busy week for economic data

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Speaker 2: along with a full plate of corporate earnings. We have

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Speaker 2: a preview from Bloomberg's Charlie Pellett.

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Speaker 8: It has been a story of strong corporate results counteracting

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Speaker 8: concerns over persistent inflationary pressures. Lindsey row Listener is portfolio

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Speaker 8: manager at PGUM Fixed Income.

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Speaker 9: What we heard, I think resoundingly through the earnings that

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Speaker 9: we've received, is that recession launch is going to have

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Speaker 9: to happen next quarter. The guides so far from companies

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Speaker 9: that we've heard are actually not terrible.

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Speaker 8: Apple will be closely watched on Thursday. Earlier in the week,

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Speaker 8: it's Qualcomm and AMD. We'll also hear this week from

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Speaker 8: automakers Ford and Ferrari, along with Uber, Marriott, Ffeizer, Starbucks,

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Speaker 8: Young brands, and oil giants BP, Shell, Conico, Phillipson, Phillips

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Speaker 8: sixty six in New York, Charlie Pellett Bloomberg Daybreak Asia.

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Speaker 1: And as Doug mentioned earlier, China's economy is sending mixed messages.

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Speaker 1: Let's get the story from Bloomberg's Bonnie ou.

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Speaker 10: China's manufacturing activity unexpectedly contracted last month. The official PMI

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Speaker 10: from from fifty one point nine to forty nine point

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Speaker 10: two in March, and growth and services and constructions slowed

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Speaker 10: more than expected. The non manufacturing PMI came in at

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Speaker 10: fifty six point four, down from fifty eight point two.

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Speaker 10: But as the five day Labor Day holiday begins, China's

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Speaker 10: tourism and consumer activities roast shoply data showed major retail

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Speaker 10: and catering company sales jumped twenty one percent from a

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Speaker 10: year ago. The conflicting data show is still unclear if

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Speaker 10: the recovery can be sustained in Hong Kong. I'm Bonniel

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Speaker 10: Bloomberg day Break Asia.

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Speaker 1: I'm Brian Curtis, along with Doug Prisner. Vonnie Quinn will

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Speaker 1: join us in a few moments, SI, Doug First, Republic

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Speaker 1: Bank really the story of the day today on this Sunday,

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Speaker 1: and it's another one of these cases where you know,

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Speaker 1: the banks hanging in the balance and regulators are hoping

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Speaker 1: that a sale can be made because that's smooth. And then,

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Speaker 1: as we pointed out in our story. If that doesn't happen,

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Speaker 1: the state regulators would would likely step in and close

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Speaker 1: the bank, and then the FDIC would then be appointed receiver.

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Speaker 2: I was struck by the interview that Charlie Munger gave

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Speaker 2: the Ft over the weekend. He we know, being the

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Speaker 2: vice chairman of Berkshire Hathway, he's got his pulse on

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Speaker 2: a lot of things, including many of the big banks.

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Speaker 2: He was saying that the storm is brewing basically in

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Speaker 2: the commercial real estate property market, and he went on

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Speaker 2: to say that American banks are full of bad loans

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Speaker 2: given the drop that we've seen in property prices, and

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Speaker 2: as we know, Brian, with what has been happening in

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Speaker 2: the bond market, the value of many of those securities

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Speaker 2: now at much much lower levels.

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Speaker 1: The question is does it impact earnings and thus the

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Speaker 1: stocks fall significantly, or does it become such an issue

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Speaker 1: that these banks are then in trouble. And we see

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Speaker 1: that now with First Republic, and we actually saw the

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Speaker 1: closure of banks before, and so that definitely is something

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Speaker 1: to look out for. I wanted to talk a little

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Speaker 1: bit about China because it very much was mixed, the

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Speaker 1: services and manufacturing sectors coming in very different than expected.

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Speaker 1: Non manufacturing pretty decent at fifty six point four, albeit

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Speaker 1: down from the previous month, But manufacturing contracting sends a

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Speaker 1: bad signal, and then all of a sudden you get

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Speaker 1: the beginning of the holiday where you have travel booking

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Speaker 1: soring something like seven hundred percent and even getting stronger

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Speaker 1: than what we had pre pandemic. So it's hard to figure.

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Speaker 1: It'll be interesting to see how the markets interpret these

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Speaker 1: numbers today.

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Speaker 2: Yeah, that PMI for China on the manufacturing side, definitely

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Speaker 2: a disappointment and maybe a little bit discouraging. The question

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Speaker 2: for today, though, Brian, is whether or not that trade

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Speaker 2: data for South Korea will reinforce that notion.

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Speaker 1: Yeah, it's all up there. We won't get a lot

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Speaker 1: of market action today, so it's not like we'll be

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Speaker 1: getting strong signals, but we're certainly watching what we do get.

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Speaker 1: It's time now for Global news. Australia's Defense Minister Richard

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Speaker 1: Marles is citing economic coercion as a motivator for a

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Speaker 1: revamped military at Baxter has Global News from the nine

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Speaker 1: to sixty news room in San Francisco.

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Speaker 3: Yeah, that's right, Brian Marless flag potential intimidation and pressure

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Speaker 3: on the global rules based order. Those are his words,

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Speaker 3: he says, as At pursues sweeping changes to its military

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Speaker 3: strategy amid China's rise. Maril's on ABC Australia says, the

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Speaker 3: fear of not being invaded.

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Speaker 11: When you look at the way in which great power

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Speaker 11: contest is playing out, and particularly in our region, you

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Speaker 11: look at that military build up and you look at

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Speaker 11: our exposure to that throughout a much greater economic connection

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Speaker 11: to the world, we are much more vulnerable to coercion

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Speaker 11: than we've ever been before.

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Speaker 3: And Mars says a nation has to be prepared as

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Speaker 3: traded with China's increased in the recent past and is

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Speaker 3: more and more reliant on fuel from Russia.

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Speaker 11: And what that means is we need a defense force

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Speaker 11: which has a much greater power or ability to engage

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Speaker 11: in projection because so much of what we need to

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Speaker 11: do is beyond our.

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Speaker 3: Short Yeah, military has to be more focused on defense,

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Speaker 3: he says. Ahead of President Ferdinand Marcos Philippines visit the

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Speaker 3: United States, the State Department has put out a statement

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Speaker 3: saying the US will defend free transit in the South

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Speaker 3: China Sea. An armed attack on Philippine Armed Forces aircraft

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Speaker 3: or naval vessels would trigger US defense commitments. Beijing has

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Speaker 3: said that its maneuvers in the recent days they're professional

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Speaker 3: and restrained, and says the US must not interfere. Republicans

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Speaker 3: in the US are calling on President Joe Biden to

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Speaker 3: come to the table and talk about debt ceiling and spending.

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Speaker 3: Congressman Steve Scalise on ABC says their budget package is

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Speaker 3: just common sense.

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Speaker 11: We put in the bill are very basic common sense

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Speaker 11: things like let's have some work requirements for able bodied

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Speaker 11: people who want to get welfare benefits. Shouldn't they at

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Speaker 11: least be looking.

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Speaker 8: For work now.

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Speaker 3: Scalise on ABC is heard here on Bloomberg Today, but

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Speaker 3: Senator Chuck Schumer says it will not fly in the Senate.

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Speaker 12: Their plan means fewer jobs, higher costs for New York families.

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Speaker 12: It would leave policemen, first responders, border patrol, grave veterans

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Speaker 12: all hanging out to drive.

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Speaker 3: Yeah. Schumer says it weakens a fight against opioids, cuts childcare, clothes,

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Speaker 3: social security offices, restricts healthcare, reduces efforts to bring jobs

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Speaker 3: back to the US from China. And President Joe Biden

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Speaker 3: at the White House Correspondence dinner last night, talking several

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Speaker 3: serious issues like Fox, defamation, freedom the press, promised to

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Speaker 3: work to secure the release of journalists and America national

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Speaker 3: held by foreign governments. But then hold on, hold on,

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Speaker 3: who is a new comic on the block?

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Speaker 4: I believe in the First Amendment, not just because my

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Speaker 4: good friend Jimmy Madison wrote it.

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Speaker 3: And Ron de Santa, Where's.

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Speaker 4: Re election is?

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Speaker 6: Gonor?

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Speaker 2: He was asked if he had a man date, He said, hell.

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Speaker 3: No, I'm straight Trump.

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Speaker 6: Headline Biden's advanced days.

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Speaker 4: The big issue Trump's, however.

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Speaker 3: Is not and maybe the best for Lass saying, please

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Speaker 3: enjoy yourselves tonight, but please take care if you find.

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Speaker 4: Yourself disoriented to confuse, it's either your drunk or Marjorie

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Speaker 4: Taylor Green.

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Speaker 3: Global News powered by more than seven hundred journalists and

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Speaker 3: and listen over one hundred and twenty countries in San Francisco.

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Speaker 3: I'm d Baxter, and this is Bloomberg.

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Speaker 1: And I'm Brian Curtis along with Vonnie Quinn, Doug Krisner

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Speaker 1: is looking at markets and at backstraw News. Let's get

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Speaker 1: to our guest, the esteemed William Lee, chief economist at

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Speaker 1: the Milken Institute. So Bill great to have you with

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Speaker 1: us on the program. I know you want to you

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Speaker 1: want the FED to stay vigilant here, and that would

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Speaker 1: appear to be consensus, so we don't need to spend

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Speaker 1: a lot of time sort of describing why you think

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Speaker 1: that should be the case. I am interested, though, in

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Speaker 1: your response to this, that we did see growth fall

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Speaker 1: pretty rapidly right at the end of the first quarter,

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Speaker 1: hence the first quarter GDP plummeting down to one point

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Speaker 1: one percent when it was looking like two and a

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Speaker 1: half percent really just a few weeks before that. Does

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Speaker 1: that rapid fall in growth eventually drag inflation lower? Or

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Speaker 1: is this a big part of the quandary?

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Speaker 13: Brian? That is the question. But you know, is it

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Speaker 13: it great that we finally start to see the economy

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Speaker 13: slow down after all of the huge amount of increases

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Speaker 13: that we've seen and the quantitative tightening and now some

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Speaker 13: fears of credit contraction because of the banking issues that

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Speaker 13: are popping up, but we are seeing as spalling. And

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Speaker 13: the most important number that hasn't really been a report

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Speaker 13: a lot is the last quarter we saw gross domestic

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Speaker 13: income actually fall turn negative. So that really means that

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Speaker 13: the strong consumption that we've been seeing fueling the US

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Speaker 13: growth may be slowing down because the fuel of income

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Speaker 13: growth is something that is starting to be constrained. Even

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Speaker 13: though the job market remains very strong and we have

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Speaker 13: very low unemployment rate, income itself is the constraining factor

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Speaker 13: on consumption.

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Speaker 14: It's the very very first signs of this though, right Billy,

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Speaker 14: ECI still rose by one point two percent of the

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Speaker 14: first quarter, which is more than forecast and up from

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Speaker 14: the revised one point one percent.

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Speaker 13: Funny, there's no question inflation is still with us, and

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Speaker 13: we're talking not just price inflation, but wage inflation. And

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Speaker 13: right now, with the wages growing at above four percent,

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Speaker 13: that's consistent with well above two percent inflation target. So

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Speaker 13: we really do have to get that inflation down. But

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Speaker 13: the fact that the slowdown is beginning is starting to

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Speaker 13: at least bring some relief to so much. Former colleagues

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Speaker 13: at the said that are wondering, gee, has the economy

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Speaker 13: turned such that it's become invulnerable to rate increases? Well,

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Speaker 13: I think the answer is coming through. No, it's not invulnerable.

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Speaker 13: It just took a little bit more time than they thought.

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Speaker 1: Obviously, the big story today Bill is first Republic Bank

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Speaker 1: and what happens and why the rush on this Sunday?

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Speaker 1: Does it matter if a deal doesn't get done? Why

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Speaker 1: wouldn't a deal get done? Given the First Republic's market

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Speaker 1: cap is now just a fraction of what it used

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Speaker 1: to be. Do you see this as as something that's

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Speaker 1: key that needs to be done today?

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Speaker 13: Absolutely not, Brian. I think we've talked ourselves into a

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Speaker 13: tizzy about all this bank problems that we're having. We've

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Speaker 13: discovered that among the over four thousand banks, it's a

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Speaker 13: whole bunch of them are really badly managed, and a

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Speaker 13: lot of them are pretty excised banks. Silicon Valley was

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Speaker 13: the fourteenth argest bank, were sixteenthlargest bank, and First the

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Speaker 13: Public is the forty sixteen one. You know, it's one

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Speaker 13: of those numbers. So we're talking about fairly sizable banks.

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Speaker 13: But each of these banks that have failed started to

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Speaker 13: specialize their their business models to cater to high net

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Speaker 13: worth individuals who are very sensitive to their returns and

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Speaker 13: they'll move their deposits on a dime if they find

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Speaker 13: better investment opportunities, or we find them dealing with crypto

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Speaker 13: based banks, or we're dealing with a bank that has

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Speaker 13: specialized in providing venture capitals and Philici value firs.

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Speaker 1: But Billy, you heard Larry Summers. They're saying we're playing

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Speaker 1: with fire here.

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Speaker 13: Yeah, you know we are. And what I'm asking myself

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Speaker 13: is is Larry worried about a campfire getting out of control?

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Speaker 13: Or is worried about a forest fire? And I think

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Speaker 13: you know, when you look at the amount of bank

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Speaker 13: lending in the United States, as far as financing goes,

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Speaker 13: it's about twelve percent of all non financial corporate financing.

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Speaker 13: So most companies in the United States raise capital through

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Speaker 13: equity markets, bond markets, and banks are really critical for

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Speaker 13: one segment of the economy, small and medium sized businesses

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Speaker 13: and the commercial real estate market. And yes, if the

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Speaker 13: banks fail in this in this smaller bank area, then

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Speaker 13: the most hard hit companies will be the small the

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Speaker 13: medium sized businesses, who are, by the way, the most

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Speaker 13: important set of businesses for employment. So what we'll see

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Speaker 13: is WHI could see a big hit in the labor

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Speaker 13: market if these companies start to lay off people. But

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Speaker 13: we haven't seen that yet. We've seen only Silicon Valley

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Speaker 13: guys worried about their payrolls because they stufft all their

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Speaker 13: money with one bank because they have sweetheart deals, and

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Speaker 13: now we have first Republic who is catered to high

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Speaker 13: networth individuals, and quite frankly, you know these guys have

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Speaker 13: other assets. Not all of their money is in a

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Speaker 13: bank deposit the way a lot of you know, poor

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Speaker 13: people do.

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Speaker 14: It is true that minks would likely loan out a

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Speaker 14: little bit less over the next six month, which will

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Speaker 14: be a little bit of a buffer for the economy

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Speaker 14: as well. What does that mean for how high the

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Speaker 14: FED will have to go on how long it'll keep

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Speaker 14: it there.

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Speaker 13: Ronnie, I think one of the answers to that question

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Speaker 13: comes out of the basebook. They said, we've discovered in

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Speaker 13: canvassing all of the banks in our various districts that

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Speaker 13: the amount of lending will contract, but not because of supply.

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Speaker 13: It's because the demand for lending has really eased off

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Speaker 13: a bit because people are worried about the coming slowdown.

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Speaker 13: They're not going to be investing in inventories that aren't

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Speaker 13: going to be sold. They're not going to be expanded

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Speaker 13: the capacity if the economy is slowing down. So it's

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Speaker 13: really the contraction of loans is coming from the lack

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Speaker 13: of demand, not lack of supply. And that's really important

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Speaker 13: thing to keep in mind.

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Speaker 1: Another big question in markets today will be the China recovery,

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Speaker 1: whether or not as stumbling as suggested by the big

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Speaker 1: drop in manufacturing. We had a contraction there and manufacturing

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Speaker 1: in the previous month, but then the travel sales looking

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Speaker 1: pretty solid. Here we had our old friend hung how

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Speaker 1: from growing Esman say, China is a country of big numbers,

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Speaker 1: but numbers as big as these still stun even old

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Speaker 1: hands like me. So your take on China and how

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Speaker 1: things I mean there, I have to say there definitely

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Speaker 1: are some caveats in the media review. Later I'll report that, yeah,

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Speaker 1: we had one hundred and sixty five thousand Mainlanders come

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Speaker 1: to Hong Kong in one day, but then one hundred

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Speaker 1: and ten thousand left at night. They didn't stay in hotels,

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Speaker 1: So there are caveats, but on balance it's looking pretty solid.

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Speaker 13: Your thoughts, Brian, I am so glad that China has

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Speaker 13: proven to be as difficult to forecast as other large

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Speaker 13: advanced economies. And you know the manufacturing sector has slowed

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Speaker 13: down because we know the global economy is slowing down,

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Speaker 13: manufacturing is blowing down. People aren't buying as much stuff

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Speaker 13: as they were before. But the one thing we all

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Speaker 13: expected was the opening up of the COVID restrictions would

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Speaker 13: cause the Chinese people to start spending like crazy. Well

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Speaker 13: they started to do that, but then it seems as

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Speaker 13: though the amount of spending may be petering out, unless,

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Speaker 13: of course you thought about travel. So yes, there ourselves

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Speaker 13: whole bunch of next picture coming through, and I think

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Speaker 13: it's going to take a little bit of time to

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Speaker 13: sort out where are the Chinese consumers spending and how

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Speaker 13: persistent will that spending be? Can they continue to spend

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Speaker 13: strongly through the rest of the year and into next

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Speaker 13: year if their income is uncertain because of the huge

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Speaker 13: amount of use unemployment, and because the real estate market

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Speaker 13: wealth is still tied up in a clagmire and they're

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Speaker 13: not sure how much wealth they have. So yes, the

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Speaker 13: big surge in spending took place, but will it persist?

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Speaker 13: And that's been the big open question for China.

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Speaker 14: Bill, you're the chief economist at the Milican Institute. Channel

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Speaker 14: has its big global conference this we have to ask

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Speaker 14: you which of the panels you're most excited about. What

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Speaker 14: question you want to answer? Given that there's everything from

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Speaker 14: AI presenting potential regulation lags and risks to the health

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Speaker 14: equity movement.

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Speaker 13: Well, I hate to trump in my own horn, but

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Speaker 13: I must say my own panel, which is a private

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Speaker 13: session on the FED and the consequences of the credit

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Speaker 13: contraction for the US and global economy to me the

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Speaker 13: key topic. But I must say my colleagues have put

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Speaker 13: together a phenomenal program of AI and other things. And

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Speaker 13: in fact, Mike Nolkin has told every one of the staff,

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Speaker 13: each one of you has got to find out something

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Speaker 13: you didn't know before. Go to sessions that you would

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Speaker 13: never gone to and learn something, because that's the whole

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Speaker 13: point of this. We're attracting people from all over the world,

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Speaker 13: expertsly different field and the whole point of this conference

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Speaker 13: is to have people talk to people they wouldn't have

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Speaker 13: talked normally.

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