WEBVTT - Fed Hawks Push Rate Hikes and BofA Job Cuts

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<v Speaker 1>This is Bloomberg Daybreak Asia for this Friday, February sevent

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<v Speaker 1>in Hong Kong, Thursday February in New York and coming

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<v Speaker 1>up today, US producer prices rebound and a FETE official

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<v Speaker 1>opens the door to a half point rate hike. Next month,

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<v Speaker 1>China imposes sanctions on US companies as tensions flare between

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<v Speaker 1>the two sides, and Tesla recalls cars after US authorities

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<v Speaker 1>say the company's self driving technology could cause a crash.

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<v Speaker 1>Biden says last three objects shot down her apparently civilian

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<v Speaker 1>wants to talk with she. China says US can't have

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<v Speaker 1>dialogue while sharpening attacks. China claims victory over COVID Georgia

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<v Speaker 1>grand jury, sites perjury, and Trump election probe. I'm at

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<v Speaker 1>Baxter with Global News. That's all straight Ahead on Bloomberg

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<v Speaker 1>Daybreak Asia, the business news you need to start your day,

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<v Speaker 1>and just one fifteen minute podcast available on Apple, Spotify,

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<v Speaker 1>the Bloomberg Business app, and everywhere you get your podcast.

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<v Speaker 1>Good morning, I'm Brian Curtis and I'm do Chrisner. Here

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<v Speaker 1>are the stories we're following today. Let's get to the FED.

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<v Speaker 1>Two of the FEDS most hawkish policymakers signaled they may

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<v Speaker 1>favor returning to bigger interest rate hikes in the future.

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<v Speaker 1>One was St. Louis FIT chief Jim Bullard. Bullard said

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<v Speaker 1>he would not rule out supporting a half point right

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<v Speaker 1>a rate hike in March, and he urged additional rate

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<v Speaker 1>hikes to ensure that inflation returns to the FEDS two

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<v Speaker 1>percent target over time. I think we can lock in

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<v Speaker 1>this disinflationary trend by continuing to have policy rate increases

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<v Speaker 1>during even though the real economies looks like it's gonna

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<v Speaker 1>continue to grow and the labor market broadly across the

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<v Speaker 1>country looks like a remain strong. Separately, Cleveland FED Chief

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<v Speaker 1>Loretta Mesters said that she saw a compelling case for

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<v Speaker 1>rolling out another half point hike earlier this month. She

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<v Speaker 1>made the point and that that would have brought the

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<v Speaker 1>top of the FEDS target range to five. Mester said

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<v Speaker 1>the FED has to be prepared to increase rates if

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<v Speaker 1>inflation remains stubbornly high and doug It's probably important to

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<v Speaker 1>point out that neither Bullard nor Mester is a voting

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<v Speaker 1>member this year. Good point. Let's take a closer look

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<v Speaker 1>at that pp I dad to us producer prices rebounding

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<v Speaker 1>in January by more than expected higher energy cost getting

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<v Speaker 1>much of the blame. Overall, wholesale prices have generally been

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<v Speaker 1>cooling in recent months. That said, we know inflation appears

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<v Speaker 1>to be a little more sticky than many had anticipated.

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<v Speaker 1>Here's Bloomberg's Michael McKee. I think that was the big

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<v Speaker 1>takeaway from the numbers that we've gotten this week. People thought,

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<v Speaker 1>given what we saw in November and December, that prices

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<v Speaker 1>would come down very quickly. They're coming down, but not

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<v Speaker 1>very quickly goods prices. Remember, the story was that goods

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<v Speaker 1>prices were going away and services were the issue. One

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<v Speaker 1>rise in goods prices in the pp I for final

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<v Speaker 1>demand during the month of January, and services only up

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<v Speaker 1>four tenths, so the opposite of what we were looking

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<v Speaker 1>for Michael McKee. There Separately, we learned that weekly jobless

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<v Speaker 1>claims were down last week, and that decline suggests the

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<v Speaker 1>American and labor market does remain strong despite those higher

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<v Speaker 1>interest rates. Brian, Yes, but then consider this Bank of

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<v Speaker 1>America planning to hand out some pink slips. Let's get

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<v Speaker 1>the story from Bloomberg's and Kates. Bank of America will

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<v Speaker 1>cut jobs in its investment bank. According to Bloomberg, the

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<v Speaker 1>number of reductions, which are still being discussed, could affect

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<v Speaker 1>less than two hundred bankers globally. It as a sign

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<v Speaker 1>the finance industry will continue to pare down headcounts to

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<v Speaker 1>contain costs prior to any meaningful rebound and deal making activity.

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<v Speaker 1>The size of the layoffs have varied among financial giants.

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<v Speaker 1>City Group eliminated dozens of staffers last fall, while Goldman

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<v Speaker 1>Sacks downsized by thirty positions in Washington and Kates Bloomberg

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<v Speaker 1>Daybreak Asia. Tesla is in the news. The company is

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<v Speaker 1>recalling more than three hundred sixty thousand full self drive

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<v Speaker 1>US vehicles over some crash risk, but Elon Musk is

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<v Speaker 1>objecting to the term recall. We have more from Bloomberg's

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<v Speaker 1>Denise Pellegrini. This includes some model SS and Model XS,

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<v Speaker 1>some to twenty three Model threes and some three Model wise,

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<v Speaker 1>all equipped with full self driving beta software are pending installation,

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<v Speaker 1>and National Highway Traffic Safety Administration officials say the system

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<v Speaker 1>may allow the vehicles to act unsafe around intersections, including

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<v Speaker 1>driving straight through intersections from a turnlane. The officials say

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<v Speaker 1>Tesla did not concur with Nitza's concerns, but agreed to

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<v Speaker 1>go forward with the recall out of an abundance of caution.

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<v Speaker 1>Tesla is expected to issue an over the air software

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<v Speaker 1>update by the middle of April. Denise Pellegrini Bloomberg Day Bracasia.

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<v Speaker 1>China is said to be reviewing the recent deal between

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<v Speaker 1>Ford and Cattle to ensure that no core technology is

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<v Speaker 1>handed over to the US carmaker. That story from bloombergs

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<v Speaker 1>Yvon Man. The agreement would see Cattle's battery technology license

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<v Speaker 1>for use in Ford's new Evy battery plant in southwest Michigan,

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<v Speaker 1>but China is said to be concerned given the sensitivity

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<v Speaker 1>of the deal and its implications for US China relations.

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<v Speaker 1>Sources say the findings will be presented to the country's

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<v Speaker 1>top leadership, with the time frame for that is not

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<v Speaker 1>yet known. Chinese officials will also check that individuals sanctioned

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<v Speaker 1>by Beijing are not involved in the Ford Cattle project. Meantime,

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<v Speaker 1>U S Senate Intelligence Chairman Mark Warner criticized Beijing scrutiny

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<v Speaker 1>as quote ironic and hypocritical. In Hong Kong. I'm eva

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<v Speaker 1>ma'am Bloomberg Day Break Asia. Until Bullard spoke, the market

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<v Speaker 1>had actually kind of made its peace with this hot

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<v Speaker 1>PPI data. And we see that because the spread between

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<v Speaker 1>twos and tens had narrowed from nineties six basis points

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<v Speaker 1>right after the report to seventy six. That's a huge

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<v Speaker 1>move now about seventy eight as it's steepened or widened

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<v Speaker 1>out a little bit. What that might indicate is that

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<v Speaker 1>the market is mindful of inflation being there and interest

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<v Speaker 1>rates being there, but also that maybe there's a little

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<v Speaker 1>bit of a less chance of recession because of some

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<v Speaker 1>of this data. I think that's right. If you look

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<v Speaker 1>at the New York Fed Business Leaders survey, it showed

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<v Speaker 1>that conditions are expected to improve over the next six months.

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<v Speaker 1>So that's on the growth side, but we still have

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<v Speaker 1>to very much focus on the inflation narrative here. A

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<v Speaker 1>separate survey from the Philly Fed shows that businesses are

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<v Speaker 1>expecting the price of their goods their own goods to

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<v Speaker 1>rise next year at a rate of around four and

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<v Speaker 1>a half percent. Now that is going to make the

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<v Speaker 1>FEDS job even more difficult because it's clear, and I

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<v Speaker 1>think Mike McKee alluded to this inflation we know, is

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<v Speaker 1>very very sticky. We may have seen the peak, but

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<v Speaker 1>it's not clear that we're going to see a meaningful

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<v Speaker 1>decline in the rate of inflation. Certainly we're along ways

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<v Speaker 1>away from that two percent target. Well, yeah, but let's

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<v Speaker 1>not forget you remember we had pp I up between

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<v Speaker 1>eleven and twelve percent year on year, and now it's

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<v Speaker 1>it's up six percent year on year from this data.

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<v Speaker 1>But admittedly worry so that goods prices rose as much

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<v Speaker 1>as they did in that pp I report. Al Right,

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<v Speaker 1>it's time now for Global news. US President Joe Biden

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<v Speaker 1>is seeking to cool off tensions with China, saying he

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<v Speaker 1>intends to talk with China's president shi Jinping. Head Baxter

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<v Speaker 1>has Global News in the nine News room in San Francisco. Yeah,

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<v Speaker 1>those are the major points, Brian. This is a speech

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<v Speaker 1>to the nation, Biden says. Analysis to now is that

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<v Speaker 1>the latest three objects shot down. These three objects were

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<v Speaker 1>most likely balloons tied to private companies, recreation or research

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<v Speaker 1>institutions studying whether or conducting other scientific research, and not spying.

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<v Speaker 1>The president says there are not more balloons than in

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<v Speaker 1>the past. About the tweaking of systems have allowed them

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<v Speaker 1>to be detected. Now, he says he's taking steps to

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<v Speaker 1>improve detection even further. We'll update the rules and regulations

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<v Speaker 1>for launching and maintaining unmanned objects in the skies above

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<v Speaker 1>the United States of America. And then more bluntly, make

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<v Speaker 1>no mistake. If any object presents a three to the

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<v Speaker 1>safety security American people, I will take it down, and

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<v Speaker 1>says it points to a better need for communication. Our

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<v Speaker 1>diplomats will be engaging further, and I will remain in

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<v Speaker 1>communication with President she Now. Bloomberg's Joe Matthews says that

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<v Speaker 1>may take some further diplomacy, whether the president gets a

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<v Speaker 1>meeting with President she back on the calendar. It's probably

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<v Speaker 1>going to take a little bit of time here. Speeches

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<v Speaker 1>like today, though, addresses like today, the language he chose

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<v Speaker 1>will help, and that we're looking specifically at one Chinese

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<v Speaker 1>by balloon that was shot down, not necessarily a much

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<v Speaker 1>more broad sort of surveillance effort that included these other

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<v Speaker 1>unidentified objects now running alongside this. Today, China has announced

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<v Speaker 1>trade and investment sanctions on Lockheed Martin and Raathon for

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<v Speaker 1>selling weapons to Taiwan, but Bloomberg's U s national Security Team. Later,

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<v Speaker 1>Nick Waddam says, it has a very strange dynamic. It's

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<v Speaker 1>really interesting because I think it's actually bringing the heat

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<v Speaker 1>down by announcing some largely symbolic measure. So you have

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<v Speaker 1>China sanctioning Lockheed and raytheon. But these two US defense

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<v Speaker 1>contractors don't do any business really in China anyhow, They've

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<v Speaker 1>been sanctioned before. Meanwhile, whether the meeting between US Secretary

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<v Speaker 1>of State Anthony B. Lincoln and China Forger Minister Wang

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<v Speaker 1>Yi is still an open question, and China is questioning

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<v Speaker 1>whether the US genuinely seeks to repair the damage done

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<v Speaker 1>over the balloon dispute. Says it could jeopardize any further talk.

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<v Speaker 1>Says the US cannot ask for communication and dialogue on

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<v Speaker 1>one hand, while sharpening differences on the other. It says

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<v Speaker 1>the balloon saga test US sincerity and capability to properly

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<v Speaker 1>handle crises. Divisive decisive victory over COVID, that's what some

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<v Speaker 1>of China's leadership is saying. They cite the declining death toll.

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<v Speaker 1>It says adjustments to China's COVID policy since November have

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<v Speaker 1>been totally right, and they say the public would agree

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<v Speaker 1>the lack of data released outside China makes it hard

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<v Speaker 1>for the Globe to verify any statements, and the Georgia

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<v Speaker 1>Grand Jury investigating the election interference by Donald Trump and

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<v Speaker 1>allies says it belies perjury or believes perjury was committed

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<v Speaker 1>by one or more of the witnesses, and concluded there

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<v Speaker 1>was no widespread election fraud as claimed by Trump. Global

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<v Speaker 1>News powered by more than twenty seven hundred journalists and

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<v Speaker 1>analysts over one twenty countries. In San Francisco, I'm at

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<v Speaker 1>Baxter and this is Bloomberg. This is Bloomberg day Break Asia.

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<v Speaker 1>I'm Brian Curtis along with Richard Salamat. We're here in

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<v Speaker 1>Hong Kong, and we say good morning to Burns McKinney,

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<v Speaker 1>our guest, senior portfolio manager at n f J Investment Group.

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<v Speaker 1>Burns we asked this question a few times yesterday, but

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<v Speaker 1>it's perhaps even more relevant today given the comments from

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<v Speaker 1>Esther and Bullard might have fed Move fifty at the

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<v Speaker 1>March meeting. It's it's always a possibility, but I think

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<v Speaker 1>one of the things that investors have to you have

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<v Speaker 1>to look at context and not just what is being said,

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<v Speaker 1>but also who's speaking and Buller Buller Semester have always

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<v Speaker 1>kind of been the hawks the FED, and you know,

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<v Speaker 1>when you have a committee like that, someone's going to

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<v Speaker 1>play bad cop. And you know, we've you know, we've

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<v Speaker 1>been saying that if there's really any risk of a

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<v Speaker 1>surprise coming out of the last meeting as well as

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<v Speaker 1>post CPI report, is that that they would have someone

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<v Speaker 1>come in and talk firm and you know, and hawkishly,

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<v Speaker 1>just really to drive home the point that you know

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<v Speaker 1>that even the POWE has been trying to make that

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<v Speaker 1>that he believes the greatest policy here would be to

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<v Speaker 1>repeat the stop and go policy you had in the

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<v Speaker 1>nineteen seventies and announcing mission accomplished a bit prematurely. And

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<v Speaker 1>you know what's been happening time and time again is that,

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<v Speaker 1>you know, during his press conference Powell says these things,

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<v Speaker 1>and the markets here what they want to and so

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<v Speaker 1>you know, periodically you do have some of these FED

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<v Speaker 1>presidents come in and actually, you know, again, just try

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<v Speaker 1>to drive home that hawkish point. Bens, Is it possible?

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<v Speaker 1>I mean, the thing is, everything looks a bit strange.

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<v Speaker 1>We seem to be working off different paradigms in terms

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<v Speaker 1>of the economy and the medicine may not be working

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<v Speaker 1>in quite the traditional way. Is it possible that they

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<v Speaker 1>could bring down inflation with that actually slowing down growth

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<v Speaker 1>in a meaningful way. Yeah, the FED doesn't have a

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<v Speaker 1>great track record for it, but it's absolutely possible. I

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<v Speaker 1>think for starters, you know, you have to bear in

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<v Speaker 1>mind the you know, the Phillips curve that the FED

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<v Speaker 1>dustin to rely upon really hasn't been all that effectual

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<v Speaker 1>for most of this really most of the century. And

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<v Speaker 1>you know, I think that you know, as far as

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<v Speaker 1>inflation coming down, I mean a lot of you know,

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<v Speaker 1>some of the recent points just this week have been

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<v Speaker 1>a little warmer than expected um, but the downtrend remains intact,

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<v Speaker 1>and in many ways it seems that the FED is

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<v Speaker 1>probably already done much of the hard work to get

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<v Speaker 1>inflation down. I think the you know, really the biggest

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<v Speaker 1>driver at all, you know, coming from a macro perspective,

0:12:41.080 --> 0:12:44.840
<v Speaker 1>is there's a really strong correlation between the money supply

0:12:44.920 --> 0:12:48.280
<v Speaker 1>growth M two and what inflation does about twelve to

0:12:48.400 --> 0:12:51.160
<v Speaker 1>fifteen months down the road. And if you look at

0:12:51.200 --> 0:12:53.440
<v Speaker 1>you know that you know, my supply growth peaked in

0:12:53.559 --> 0:12:57.160
<v Speaker 1>early one, sure enough, you know, as just like clockwork.

0:12:57.200 --> 0:12:59.680
<v Speaker 1>You saw inflation princes peak in about in the middle

0:12:59.720 --> 0:13:01.520
<v Speaker 1>of twenty two. And if you look at what that

0:13:01.600 --> 0:13:05.040
<v Speaker 1>money supply growth is doing now, you actually saw, you know,

0:13:05.200 --> 0:13:08.559
<v Speaker 1>last month it actually plunged to the greatest degree we've

0:13:08.600 --> 0:13:11.360
<v Speaker 1>seen since nineteen fifty nine. And so you know, you

0:13:11.400 --> 0:13:14.480
<v Speaker 1>start looking forward in many ways suggests that you know,

0:13:14.559 --> 0:13:16.360
<v Speaker 1>this is already baked in. I think that you know,

0:13:16.400 --> 0:13:18.560
<v Speaker 1>it's clearly going to be coming down a lot more

0:13:19.160 --> 0:13:21.880
<v Speaker 1>quickly than investors think later this year. It's like there's

0:13:21.880 --> 0:13:25.080
<v Speaker 1>a delay in the lagged effect, almost the sort of

0:13:25.120 --> 0:13:27.680
<v Speaker 1>point that the lag effect is tired, because you know,

0:13:27.720 --> 0:13:30.440
<v Speaker 1>it doesn't seem to be having a huge impact. And

0:13:30.480 --> 0:13:33.200
<v Speaker 1>as you say, that's alongside higher rates q T n

0:13:33.520 --> 0:13:37.800
<v Speaker 1>M two dropping. Yeah, absolutely, And you know with now

0:13:37.800 --> 0:13:40.640
<v Speaker 1>with respect to doing that without you know, you basically suggested,

0:13:40.640 --> 0:13:42.400
<v Speaker 1>you know, being able to pull it off without you know,

0:13:42.559 --> 0:13:45.200
<v Speaker 1>causing recession. Um, you know, it's also instructive to note

0:13:45.240 --> 0:13:48.240
<v Speaker 1>that you know that that goes against the FEDS track record.

0:13:48.320 --> 0:13:51.120
<v Speaker 1>I believe that you know, the last fourteen tightening cycles,

0:13:51.760 --> 0:13:53.839
<v Speaker 1>eleven of those have led to recessions. So if you

0:13:53.880 --> 0:13:54.959
<v Speaker 1>kind of I like to think of it in terms

0:13:54.960 --> 0:13:58.280
<v Speaker 1>of a baseball player that's basically batting about two hundred,

0:13:58.360 --> 0:14:00.520
<v Speaker 1>which is not really necessarily or you want to be

0:14:00.520 --> 0:14:03.840
<v Speaker 1>if you're a betting man. Yeah, I mean, it does

0:14:03.880 --> 0:14:06.440
<v Speaker 1>seem as though, you know, we could be returning to

0:14:06.480 --> 0:14:10.320
<v Speaker 1>sort of a Freedman type economics here, looking Milton Freeman,

0:14:10.400 --> 0:14:13.640
<v Speaker 1>we soon be talking about non accelerating of unemployment. But

0:14:14.080 --> 0:14:18.040
<v Speaker 1>you know, they tend to overshoot rates tender overshoot on

0:14:18.120 --> 0:14:21.720
<v Speaker 1>the upside and well under shoot on the downside. That

0:14:21.800 --> 0:14:25.280
<v Speaker 1>that's the thing. Yeah, that and and that's that's that's

0:14:25.320 --> 0:14:26.920
<v Speaker 1>what tends to happen. And you do have that that

0:14:27.000 --> 0:14:29.200
<v Speaker 1>degree in every cycle. I mean, that's generally the reason

0:14:29.240 --> 0:14:31.440
<v Speaker 1>why we do have an economic cycle is that most

0:14:31.480 --> 0:14:34.400
<v Speaker 1>trends tend to overshoot. Now that said, I think that

0:14:34.440 --> 0:14:36.400
<v Speaker 1>what investors really should be focused on is even if

0:14:36.440 --> 0:14:38.840
<v Speaker 1>we do go into recession, how soon would that be

0:14:38.920 --> 0:14:40.920
<v Speaker 1>and how deep would it be? And you know, in

0:14:40.960 --> 0:14:43.040
<v Speaker 1>the near term. They're definitely are factors that are working

0:14:43.160 --> 0:14:46.320
<v Speaker 1>in the you know, investors in the economy's favor, namely

0:14:46.360 --> 0:14:49.960
<v Speaker 1>being that that um, you know, jobs remain tight. I mean,

0:14:49.960 --> 0:14:52.120
<v Speaker 1>not only do you have record low unemployment, but you

0:14:52.160 --> 0:14:54.960
<v Speaker 1>also have UM one point seven at one point eight

0:14:55.280 --> 0:15:00.000
<v Speaker 1>job openings per filer for unemployment, isn't You've got consumers

0:15:00.040 --> 0:15:02.160
<v Speaker 1>still sitting on a decent amount of cash as well,

0:15:02.280 --> 0:15:05.760
<v Speaker 1>And so yeah, there's definitely a lot to actually support

0:15:05.760 --> 0:15:07.720
<v Speaker 1>the economy, even if we do drift it into a

0:15:07.720 --> 0:15:12.200
<v Speaker 1>recession um later this year early next year. This is

0:15:12.240 --> 0:15:15.280
<v Speaker 1>Bloomberg Daybreak Asia, your morning brief on the stories making

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