Speaker 1: This is Bloomberg day Break Asia for this Monday, May
Speaker 1: first here in Hong Kong, Sunday April thirtieth in New
Speaker 1: York and coming up today.
Speaker 2: The FDIC formally accepts bids for First Republic Bank after
Speaker 2: the lenders stock plunged last week.
Speaker 1: Traders look ahead to key central bank decisions from the
Speaker 1: FED and the ECB.
Speaker 2: China's manufacturing activity unexpectedly contracts, but the country's tourism and
Speaker 2: consumer activities rise sharply over the holiday weekend.
Speaker 3: Australia's Defense minister citing economic coercion as a reason for
Speaker 3: a revamp military Republicans calling for a White House meeting
Speaker 3: on death, ceiling and spending. Biden turns comedian of the
Speaker 3: correspondence dinner. I'm at Baxter with Global News.
Speaker 4: That's all straight ahead on Bloomberg Daybreak Asia, the business
Speaker 4: news you need to start your day in just one
Speaker 4: fifteen minute podcast available on Apples, Spotify, the Bloomberg Business
Speaker 4: app and everywhere you get your podcasts.
Speaker 1: Good morning, I'm Brian Curtiz.
Speaker 2: And I'm Doug Prisner. Here are the stories we're following today.
Speaker 1: And the big one Doug us authorities stepping in after
Speaker 1: First Republic stock plunge last week, leaving it down ninety
Speaker 1: seven percent. This year, we hear the FDIC asked banks
Speaker 1: including JP Morgan, PNC Financial, and Citizens Financial to submit
Speaker 1: bids to take over the San Francisco based lender. If
Speaker 1: no agreement is reached, regulators would then have the option
Speaker 1: of taking control of First Republic. Democratic Representative Rocanna weighed
Speaker 1: in earlier on CBS's Faced the Nation.
Speaker 5: I think that the FDIC needs to look at the
Speaker 5: lowest cost alternative. That's their mandate, and right now they
Speaker 5: may need to work with banks in private capital to
Speaker 5: save First Republic. I mean that is the state we're in.
Speaker 1: That's Rocanna heard here on Bloomberg. A possible option for
Speaker 1: First Republic is for regulators to use a bid for
Speaker 1: a so called open market solution that have void's formally
Speaker 1: declaring First Republic of failure. The stocks drop, leaving the
Speaker 1: firm with a six hundred and fifty million dollar market value,
Speaker 1: has made such a takeover somewhat more feasible now than before.
Speaker 6: Now.
Speaker 2: At the same time, former US Treasury Secretary Larry Summers
Speaker 2: was saying he's surprised and disappointed that US regulators and
Speaker 2: banking giants don't have a solution for First Republic. He
Speaker 2: told us it's in their best interest to find one.
Speaker 6: The big banks and the government both have a strong
Speaker 6: stake in this situation being contained and resolved. The big
Speaker 6: banks have deposits in First Republic Bank in significant quantity.
Speaker 6: They have a huge stake in the financial system staying stable.
Speaker 2: Former Treasury Secretary Larry Summers there He went on to
Speaker 2: call on regulators essentially to make it clear that uninsured
Speaker 2: depas it's in First Republic are going to be okay.
Speaker 2: He warned of the danger of contagion to other banks.
Speaker 1: Meantime, Federal Reserve policymakers meet this week, with another interest
Speaker 1: rate increase considered likely. Bloomberg's Larry Kofski has more on
Speaker 1: the story.
Speaker 7: The Fed's steepest rate tightening campaign in decades is nearing
Speaker 7: an end. Officials will be considering how much more pain
Speaker 7: they need to inflict to restore price stability while trying
Speaker 7: not to send the economy off a cliff or pushing
Speaker 7: already creaking banking system into crisis. The fed's two day
Speaker 7: meeting begins Tuesday. Similar deliberations are likely as officials at
Speaker 7: the European Central Bank and the Bank of England meet
Speaker 7: over the next two weeks. I'm Larry Kovski Bloomberg day
Speaker 7: Break Asia.
Speaker 2: Well, it will be a busy week for economic data
Speaker 2: along with a full plate of corporate earnings. We have
Speaker 2: a preview from Bloomberg's Charlie Pellett.
Speaker 8: It has been a story of strong corporate results counteracting
Speaker 8: concerns over persistent inflationary pressures. Lindsey row Listener is portfolio
Speaker 8: manager at PGUM Fixed Income.
Speaker 9: What we heard, I think resoundingly through the earnings that
Speaker 9: we've received, is that recession launch is going to have
Speaker 9: to happen next quarter. The guides so far from companies
Speaker 9: that we've heard are actually not terrible.
Speaker 8: Apple will be closely watched on Thursday. Earlier in the week,
Speaker 8: it's Qualcomm and AMD. We'll also hear this week from
Speaker 8: automakers Ford and Ferrari, along with Uber, Marriott, Ffeizer, Starbucks,
Speaker 8: Young brands, and oil giants BP, Shell, Conico, Phillipson, Phillips
Speaker 8: sixty six in New York, Charlie Pellett Bloomberg Daybreak Asia.
Speaker 1: And as Doug mentioned earlier, China's economy is sending mixed messages.
Speaker 1: Let's get the story from Bloomberg's Bonnie ou.
Speaker 10: China's manufacturing activity unexpectedly contracted last month. The official PMI
Speaker 10: from from fifty one point nine to forty nine point
Speaker 10: two in March, and growth and services and constructions slowed
Speaker 10: more than expected. The non manufacturing PMI came in at
Speaker 10: fifty six point four, down from fifty eight point two.
Speaker 10: But as the five day Labor Day holiday begins, China's
Speaker 10: tourism and consumer activities roast shoply data showed major retail
Speaker 10: and catering company sales jumped twenty one percent from a
Speaker 10: year ago. The conflicting data show is still unclear if
Speaker 10: the recovery can be sustained in Hong Kong. I'm Bonniel
Speaker 10: Bloomberg day Break Asia.
Speaker 1: I'm Brian Curtis, along with Doug Prisner. Vonnie Quinn will
Speaker 1: join us in a few moments, SI, Doug First, Republic
Speaker 1: Bank really the story of the day today on this Sunday,
Speaker 1: and it's another one of these cases where you know,
Speaker 1: the banks hanging in the balance and regulators are hoping
Speaker 1: that a sale can be made because that's smooth. And then,
Speaker 1: as we pointed out in our story. If that doesn't happen,
Speaker 1: the state regulators would would likely step in and close
Speaker 1: the bank, and then the FDIC would then be appointed receiver.
Speaker 2: I was struck by the interview that Charlie Munger gave
Speaker 2: the Ft over the weekend. He we know, being the
Speaker 2: vice chairman of Berkshire Hathway, he's got his pulse on
Speaker 2: a lot of things, including many of the big banks.
Speaker 2: He was saying that the storm is brewing basically in
Speaker 2: the commercial real estate property market, and he went on
Speaker 2: to say that American banks are full of bad loans
Speaker 2: given the drop that we've seen in property prices, and
Speaker 2: as we know, Brian, with what has been happening in
Speaker 2: the bond market, the value of many of those securities
Speaker 2: now at much much lower levels.
Speaker 1: The question is does it impact earnings and thus the
Speaker 1: stocks fall significantly, or does it become such an issue
Speaker 1: that these banks are then in trouble. And we see
Speaker 1: that now with First Republic, and we actually saw the
Speaker 1: closure of banks before, and so that definitely is something
Speaker 1: to look out for. I wanted to talk a little
Speaker 1: bit about China because it very much was mixed, the
Speaker 1: services and manufacturing sectors coming in very different than expected.
Speaker 1: Non manufacturing pretty decent at fifty six point four, albeit
Speaker 1: down from the previous month, But manufacturing contracting sends a
Speaker 1: bad signal, and then all of a sudden you get
Speaker 1: the beginning of the holiday where you have travel booking
Speaker 1: soring something like seven hundred percent and even getting stronger
Speaker 1: than what we had pre pandemic. So it's hard to figure.
Speaker 1: It'll be interesting to see how the markets interpret these
Speaker 1: numbers today.
Speaker 2: Yeah, that PMI for China on the manufacturing side, definitely
Speaker 2: a disappointment and maybe a little bit discouraging. The question
Speaker 2: for today, though, Brian, is whether or not that trade
Speaker 2: data for South Korea will reinforce that notion.
Speaker 1: Yeah, it's all up there. We won't get a lot
Speaker 1: of market action today, so it's not like we'll be
Speaker 1: getting strong signals, but we're certainly watching what we do get.
Speaker 1: It's time now for Global news. Australia's Defense Minister Richard
Speaker 1: Marles is citing economic coercion as a motivator for a
Speaker 1: revamped military at Baxter has Global News from the nine
Speaker 1: to sixty news room in San Francisco.
Speaker 3: Yeah, that's right, Brian Marless flag potential intimidation and pressure
Speaker 3: on the global rules based order. Those are his words,
Speaker 3: he says, as At pursues sweeping changes to its military
Speaker 3: strategy amid China's rise. Maril's on ABC Australia says, the
Speaker 3: fear of not being invaded.
Speaker 11: When you look at the way in which great power
Speaker 11: contest is playing out, and particularly in our region, you
Speaker 11: look at that military build up and you look at
Speaker 11: our exposure to that throughout a much greater economic connection
Speaker 11: to the world, we are much more vulnerable to coercion
Speaker 11: than we've ever been before.
Speaker 3: And Mars says a nation has to be prepared as
Speaker 3: traded with China's increased in the recent past and is
Speaker 3: more and more reliant on fuel from Russia.
Speaker 11: And what that means is we need a defense force
Speaker 11: which has a much greater power or ability to engage
Speaker 11: in projection because so much of what we need to
Speaker 11: do is beyond our.
Speaker 3: Short Yeah, military has to be more focused on defense,
Speaker 3: he says. Ahead of President Ferdinand Marcos Philippines visit the
Speaker 3: United States, the State Department has put out a statement
Speaker 3: saying the US will defend free transit in the South
Speaker 3: China Sea. An armed attack on Philippine Armed Forces aircraft
Speaker 3: or naval vessels would trigger US defense commitments. Beijing has
Speaker 3: said that its maneuvers in the recent days they're professional
Speaker 3: and restrained, and says the US must not interfere. Republicans
Speaker 3: in the US are calling on President Joe Biden to
Speaker 3: come to the table and talk about debt ceiling and spending.
Speaker 3: Congressman Steve Scalise on ABC says their budget package is
Speaker 3: just common sense.
Speaker 11: We put in the bill are very basic common sense
Speaker 11: things like let's have some work requirements for able bodied
Speaker 11: people who want to get welfare benefits. Shouldn't they at
Speaker 11: least be looking.
Speaker 8: For work now.
Speaker 3: Scalise on ABC is heard here on Bloomberg Today, but
Speaker 3: Senator Chuck Schumer says it will not fly in the Senate.
Speaker 12: Their plan means fewer jobs, higher costs for New York families.
Speaker 12: It would leave policemen, first responders, border patrol, grave veterans
Speaker 12: all hanging out to drive.
Speaker 3: Yeah. Schumer says it weakens a fight against opioids, cuts childcare, clothes,
Speaker 3: social security offices, restricts healthcare, reduces efforts to bring jobs
Speaker 3: back to the US from China. And President Joe Biden
Speaker 3: at the White House Correspondence dinner last night, talking several
Speaker 3: serious issues like Fox, defamation, freedom the press, promised to
Speaker 3: work to secure the release of journalists and America national
Speaker 3: held by foreign governments. But then hold on, hold on,
Speaker 3: who is a new comic on the block?
Speaker 4: I believe in the First Amendment, not just because my
Speaker 4: good friend Jimmy Madison wrote it.
Speaker 3: And Ron de Santa, Where's.
Speaker 4: Re election is?
Speaker 6: Gonor?
Speaker 2: He was asked if he had a man date, He said, hell.
Speaker 3: No, I'm straight Trump.
Speaker 6: Headline Biden's advanced days.
Speaker 4: The big issue Trump's, however.
Speaker 3: Is not and maybe the best for Lass saying, please
Speaker 3: enjoy yourselves tonight, but please take care if you find.
Speaker 4: Yourself disoriented to confuse, it's either your drunk or Marjorie
Speaker 4: Taylor Green.
Speaker 3: Global News powered by more than seven hundred journalists and
Speaker 3: and listen over one hundred and twenty countries in San Francisco.
Speaker 3: I'm d Baxter, and this is Bloomberg.
Speaker 1: And I'm Brian Curtis along with Vonnie Quinn, Doug Krisner
Speaker 1: is looking at markets and at backstraw News. Let's get
Speaker 1: to our guest, the esteemed William Lee, chief economist at
Speaker 1: the Milken Institute. So Bill great to have you with
Speaker 1: us on the program. I know you want to you
Speaker 1: want the FED to stay vigilant here, and that would
Speaker 1: appear to be consensus, so we don't need to spend
Speaker 1: a lot of time sort of describing why you think
Speaker 1: that should be the case. I am interested, though, in
Speaker 1: your response to this, that we did see growth fall
Speaker 1: pretty rapidly right at the end of the first quarter,
Speaker 1: hence the first quarter GDP plummeting down to one point
Speaker 1: one percent when it was looking like two and a
Speaker 1: half percent really just a few weeks before that. Does
Speaker 1: that rapid fall in growth eventually drag inflation lower? Or
Speaker 1: is this a big part of the quandary?
Speaker 13: Brian? That is the question. But you know, is it
Speaker 13: it great that we finally start to see the economy
Speaker 13: slow down after all of the huge amount of increases
Speaker 13: that we've seen and the quantitative tightening and now some
Speaker 13: fears of credit contraction because of the banking issues that
Speaker 13: are popping up, but we are seeing as spalling. And
Speaker 13: the most important number that hasn't really been a report
Speaker 13: a lot is the last quarter we saw gross domestic
Speaker 13: income actually fall turn negative. So that really means that
Speaker 13: the strong consumption that we've been seeing fueling the US
Speaker 13: growth may be slowing down because the fuel of income
Speaker 13: growth is something that is starting to be constrained. Even
Speaker 13: though the job market remains very strong and we have
Speaker 13: very low unemployment rate, income itself is the constraining factor
Speaker 13: on consumption.
Speaker 14: It's the very very first signs of this though, right Billy,
Speaker 14: ECI still rose by one point two percent of the
Speaker 14: first quarter, which is more than forecast and up from
Speaker 14: the revised one point one percent.
Speaker 13: Funny, there's no question inflation is still with us, and
Speaker 13: we're talking not just price inflation, but wage inflation. And
Speaker 13: right now, with the wages growing at above four percent,
Speaker 13: that's consistent with well above two percent inflation target. So
Speaker 13: we really do have to get that inflation down. But
Speaker 13: the fact that the slowdown is beginning is starting to
Speaker 13: at least bring some relief to so much. Former colleagues
Speaker 13: at the said that are wondering, gee, has the economy
Speaker 13: turned such that it's become invulnerable to rate increases? Well,
Speaker 13: I think the answer is coming through. No, it's not invulnerable.
Speaker 13: It just took a little bit more time than they thought.
Speaker 1: Obviously, the big story today Bill is first Republic Bank
Speaker 1: and what happens and why the rush on this Sunday?
Speaker 1: Does it matter if a deal doesn't get done? Why
Speaker 1: wouldn't a deal get done? Given the First Republic's market
Speaker 1: cap is now just a fraction of what it used
Speaker 1: to be. Do you see this as as something that's
Speaker 1: key that needs to be done today?
Speaker 13: Absolutely not, Brian. I think we've talked ourselves into a
Speaker 13: tizzy about all this bank problems that we're having. We've
Speaker 13: discovered that among the over four thousand banks, it's a
Speaker 13: whole bunch of them are really badly managed, and a
Speaker 13: lot of them are pretty excised banks. Silicon Valley was
Speaker 13: the fourteenth argest bank, were sixteenthlargest bank, and First the
Speaker 13: Public is the forty sixteen one. You know, it's one
Speaker 13: of those numbers. So we're talking about fairly sizable banks.
Speaker 13: But each of these banks that have failed started to
Speaker 13: specialize their their business models to cater to high net
Speaker 13: worth individuals who are very sensitive to their returns and
Speaker 13: they'll move their deposits on a dime if they find
Speaker 13: better investment opportunities, or we find them dealing with crypto
Speaker 13: based banks, or we're dealing with a bank that has
Speaker 13: specialized in providing venture capitals and Philici value firs.
Speaker 1: But Billy, you heard Larry Summers. They're saying we're playing
Speaker 1: with fire here.
Speaker 13: Yeah, you know we are. And what I'm asking myself
Speaker 13: is is Larry worried about a campfire getting out of control?
Speaker 13: Or is worried about a forest fire? And I think
Speaker 13: you know, when you look at the amount of bank
Speaker 13: lending in the United States, as far as financing goes,
Speaker 13: it's about twelve percent of all non financial corporate financing.
Speaker 13: So most companies in the United States raise capital through
Speaker 13: equity markets, bond markets, and banks are really critical for
Speaker 13: one segment of the economy, small and medium sized businesses
Speaker 13: and the commercial real estate market. And yes, if the
Speaker 13: banks fail in this in this smaller bank area, then
Speaker 13: the most hard hit companies will be the small the
Speaker 13: medium sized businesses, who are, by the way, the most
Speaker 13: important set of businesses for employment. So what we'll see
Speaker 13: is WHI could see a big hit in the labor
Speaker 13: market if these companies start to lay off people. But
Speaker 13: we haven't seen that yet. We've seen only Silicon Valley
Speaker 13: guys worried about their payrolls because they stufft all their
Speaker 13: money with one bank because they have sweetheart deals, and
Speaker 13: now we have first Republic who is catered to high
Speaker 13: networth individuals, and quite frankly, you know these guys have
Speaker 13: other assets. Not all of their money is in a
Speaker 13: bank deposit the way a lot of you know, poor
Speaker 13: people do.
Speaker 14: It is true that minks would likely loan out a
Speaker 14: little bit less over the next six month, which will
Speaker 14: be a little bit of a buffer for the economy
Speaker 14: as well. What does that mean for how high the
Speaker 14: FED will have to go on how long it'll keep
Speaker 14: it there.
Speaker 13: Ronnie, I think one of the answers to that question
Speaker 13: comes out of the basebook. They said, we've discovered in
Speaker 13: canvassing all of the banks in our various districts that
Speaker 13: the amount of lending will contract, but not because of supply.
Speaker 13: It's because the demand for lending has really eased off
Speaker 13: a bit because people are worried about the coming slowdown.
Speaker 13: They're not going to be investing in inventories that aren't
Speaker 13: going to be sold. They're not going to be expanded
Speaker 13: the capacity if the economy is slowing down. So it's
Speaker 13: really the contraction of loans is coming from the lack
Speaker 13: of demand, not lack of supply. And that's really important
Speaker 13: thing to keep in mind.
Speaker 1: Another big question in markets today will be the China recovery,
Speaker 1: whether or not as stumbling as suggested by the big
Speaker 1: drop in manufacturing. We had a contraction there and manufacturing
Speaker 1: in the previous month, but then the travel sales looking
Speaker 1: pretty solid. Here we had our old friend hung how
Speaker 1: from growing Esman say, China is a country of big numbers,
Speaker 1: but numbers as big as these still stun even old
Speaker 1: hands like me. So your take on China and how
Speaker 1: things I mean there, I have to say there definitely
Speaker 1: are some caveats in the media review. Later I'll report that, yeah,
Speaker 1: we had one hundred and sixty five thousand Mainlanders come
Speaker 1: to Hong Kong in one day, but then one hundred
Speaker 1: and ten thousand left at night. They didn't stay in hotels,
Speaker 1: So there are caveats, but on balance it's looking pretty solid.
Speaker 13: Your thoughts, Brian, I am so glad that China has
Speaker 13: proven to be as difficult to forecast as other large
Speaker 13: advanced economies. And you know the manufacturing sector has slowed
Speaker 13: down because we know the global economy is slowing down,
Speaker 13: manufacturing is blowing down. People aren't buying as much stuff
Speaker 13: as they were before. But the one thing we all
Speaker 13: expected was the opening up of the COVID restrictions would
Speaker 13: cause the Chinese people to start spending like crazy. Well
Speaker 13: they started to do that, but then it seems as
Speaker 13: though the amount of spending may be petering out, unless,
Speaker 13: of course you thought about travel. So yes, there ourselves
Speaker 13: whole bunch of next picture coming through, and I think
Speaker 13: it's going to take a little bit of time to
Speaker 13: sort out where are the Chinese consumers spending and how
Speaker 13: persistent will that spending be? Can they continue to spend
Speaker 13: strongly through the rest of the year and into next
Speaker 13: year if their income is uncertain because of the huge
Speaker 13: amount of use unemployment, and because the real estate market
Speaker 13: wealth is still tied up in a clagmire and they're
Speaker 13: not sure how much wealth they have. So yes, the
Speaker 13: big surge in spending took place, but will it persist?
Speaker 13: And that's been the big open question for China.
Speaker 14: Bill, you're the chief economist at the Milican Institute. Channel
Speaker 14: has its big global conference this we have to ask
Speaker 14: you which of the panels you're most excited about. What
Speaker 14: question you want to answer? Given that there's everything from
Speaker 14: AI presenting potential regulation lags and risks to the health
Speaker 14: equity movement.
Speaker 13: Well, I hate to trump in my own horn, but
Speaker 13: I must say my own panel, which is a private
Speaker 13: session on the FED and the consequences of the credit
Speaker 13: contraction for the US and global economy to me the
Speaker 13: key topic. But I must say my colleagues have put
Speaker 13: together a phenomenal program of AI and other things. And
Speaker 13: in fact, Mike Nolkin has told every one of the staff,
Speaker 13: each one of you has got to find out something
Speaker 13: you didn't know before. Go to sessions that you would
Speaker 13: never gone to and learn something, because that's the whole
Speaker 13: point of this. We're attracting people from all over the world,
Speaker 13: expertsly different field and the whole point of this conference
Speaker 13: is to have people talk to people they wouldn't have
Speaker 13: talked normally.
Speaker 1: This is Bloomberg Daybreak Asia, your morning brief on the
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