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Speaker 1: This is Bloomberg Daybreak Asia, but is Thursday March thirtieth

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Speaker 1: in Hong Kong, Wednesday March twenty ninth in New York

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Speaker 1: and coming up to date. US equities rise as risk

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Speaker 1: appetite returns following turmoil in the banking sector. The FDIC

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Speaker 1: e mills forcing big banks to help cover the almost

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Speaker 1: twenty three billion dollars in cost from the recent bank failures,

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Speaker 1: and China reportedly stations anti graft personnel abroad in a

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Speaker 1: new push to recover stolen assets. China has warned Taiwan

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Speaker 1: and the US about any diplomatic meetings for President Si

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Speaker 1: in the US, the US is urging China not to overreact.

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Speaker 1: President Zelenski invites President she to visit Ukraine. I'm at

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Speaker 1: Baxter with Global News. That's all straight ahead on Bloomberg

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Speaker 1: Daybreak Asia, the business news you need to start your

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Speaker 1: day in just one fifteen minute podcast available on Apple, Spotify,

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Speaker 1: the Bloomberg Business app and everywhere you get your podcast.

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Speaker 1: Good morning, I'm do Prisoner and I'm Brian Curtis. Here

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Speaker 1: are the stories we're following today. The FED Vice chaff

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Speaker 1: of Supervision Michael Barr, said that supervisors could have done

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Speaker 1: more to keep tabs on Silicon Valley Bank before it

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Speaker 1: collapsed this past month. A bar is leading an internal

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Speaker 1: review of the agency's oversight of SVB. It testified today

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Speaker 1: before a House panel. Anytime you have a bank failure

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Speaker 1: like this, bank management clearly failed, supervisors failed, and our

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Speaker 1: regulatory system failed. We're going to look as part of

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Speaker 1: our review at not only our supervisory issues, but also

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Speaker 1: at the regulatory structure that the Federals are put in

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Speaker 1: place in twenty nineteen and see whether the size thresholds

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Speaker 1: we use, the standards we decided to put in place.

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Speaker 1: All of that is on the table. The FED, the FDIC,

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Speaker 1: and Treasury officials testified at the hearing. They also appeared

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Speaker 1: open to the prospect of raising the current two hundred

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Speaker 1: and fifty thousand dollars cap on deposits, but they said

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Speaker 1: that Congressional action would be needed. Treasury Undersecretary Nellie Leang

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Speaker 1: said that she'd support proposals for reform, citing arise in

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Speaker 1: uninsured deposits over recent years. While speaking of the FDIC,

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Speaker 1: the agency is now facing nearly twenty three billion dollars

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Speaker 1: in cost from those recent bank failures, and we are

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Speaker 1: told the FDIC is now considering steering a larger than

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Speaker 1: usual portion of that sum to the nation's largest banks.

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Speaker 1: More from Bloomberg's Charlie Pellet, The agency has set it

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Speaker 1: plans to propose a so called special assessment on the

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Speaker 1: industry in May to shore up a one hundred twenty

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Speaker 1: eight billion dollars deposit insurance fund that is set to

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Speaker 1: take hits after the recent collapses of Silicon Valley Bank

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Speaker 1: and Signature Bank. The regulator, under political pressure to spare

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Speaker 1: small banks, has noted that it has latitude and how

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Speaker 1: it sets those fees. Sources say behind the scenes, officials

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Speaker 1: are looking to limit the strain on community lenders, shifting

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Speaker 1: an outsized portion of the expense toward much larger institutions

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Speaker 1: in New York. Charlie Pellet Bloomberg Daybreak Asia. We could

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Speaker 1: be heading toward a big issue in global currency markets.

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Speaker 1: Bloomberg's Denise Pellegrini is tracking those developments. Bank of America

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Speaker 1: says we could be headed toward a liquidity crunch in

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Speaker 1: currency trading. Ba A warns this could happen later this

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Speaker 1: year as financial conditions tighten and economic growth slows. This

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Speaker 1: one's banking crisis, as we've been reporting, has triggered some

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Speaker 1: unusual volatility and major currency pairs like dollar yen. B

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Speaker 1: of A strategists say while those wounds were far from crisis,

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Speaker 1: levels of volatility could ramp up again. They say the

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Speaker 1: effect of bank credit tightening is still playing out, the

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Speaker 1: economic cycle is likely entering a contractionary phase, and if

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Speaker 1: inflation proves to be overly sticky, they say spot liquidity

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Speaker 1: in currency pairs will likely be tested again. Denise Pellegrini

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Speaker 1: Bloomberg day Break Asia. Well, we know of the changes

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Speaker 1: there have been over at ubs and credit suite, and

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Speaker 1: now the chair of us COM Kelleher, is saying he

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Speaker 1: is keen to keep the most talented investment bankers at

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Speaker 1: the newly acquired Credit Suite, but he said they should

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Speaker 1: expect to be screened for their fit with the bank's

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Speaker 1: values and their approach to risk. There are clearly parts

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Speaker 1: of credit suites that have had a bad culture, right.

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Speaker 1: I think primarily that was focused in the investment bank,

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Speaker 1: and by definition there will be some spill over into

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Speaker 1: some of the control functions. But I think if I

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Speaker 1: look at the Swiss retail bank, if I look at

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Speaker 1: wealth management. If I look at other parts of business,

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Speaker 1: I think they're probably really quite clean. But we need

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Speaker 1: to then look and see what can we bring in,

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Speaker 1: what can we merge, what makes sense. And we also

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Speaker 1: had very big news today at UBS. The bank is

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Speaker 1: bringing back Sergio or Monte to replace a replace rather

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Speaker 1: curren Ceo Ralph Hammers. That will happen as of April fifth,

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Speaker 1: and we are hearing that Swiss regulators encourage the move

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Speaker 1: to ensure a smooth takeover of Credit Suez by UBS.

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Speaker 1: China is said to be deploying anti corruption officials abroad

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Speaker 1: to bring back fugitives in stolen assets. Let's get the

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Speaker 1: story from Bloomberg's Yvonne Man. These officials are being stationed

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Speaker 1: in some Chinese embassies around the world. The Wall Street

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Speaker 1: Journal reports the officials will coordinate with foreign authorities on

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Speaker 1: law enforcement matters. The move is a latest step in

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Speaker 1: Beijing's campaign of tackling corruption. It's unclear which countries will

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Speaker 1: be involved, but it's thought to include many G twenty nations.

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Speaker 1: The journal wrote that the new plan does risk raising

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Speaker 1: alarms and host countries, especially those in the West. In

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Speaker 1: Hong Kong, I'm Ivan Man Bloomberg Daybreak Asia. I'm Bryan

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Speaker 1: Curtis along with Doug Krisner. Roshat Salama will join us

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Speaker 1: in a few moments. So the banking turmoil story continues

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Speaker 1: to run here. Doug, it doesn't seem to be causing

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Speaker 1: strategists to make changes in their forecasts, and the story

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Speaker 1: that we're running on the terminal, which is pretty interesting

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Speaker 1: about whether or not this is just the dough caught

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Speaker 1: in the headlights, or whether or not they're just finding

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Speaker 1: it difficult to formulate some sort of new thesis, whether

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Speaker 1: it's more of a micro than a macro story, and

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Speaker 1: exactly trying to figure out what has happened to effect change.

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Speaker 1: I think that that view is in the market and

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Speaker 1: also the view I think Preamiserra was able to articulate

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Speaker 1: this pretty well, that the market may be underestimating the

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Speaker 1: degree to which the Fed is going to have to

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Speaker 1: cut rates. I thought that was kind of curious. And

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Speaker 1: if you look at what was going on in markets

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Speaker 1: today in the bond market, very little movement. A two

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Speaker 1: year that has been recently trading almost like a memestock.

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Speaker 1: We've talked about that, Brian. Today we were only up

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Speaker 1: about two basis points in New York trading. Even with

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Speaker 1: the level of risk appetite in the equity market, I

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Speaker 1: would have expected a little bit more movement among treasuries. Yes, absolutely,

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Speaker 1: and you know that carries through to the stock markets.

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Speaker 1: So I think both markets are having a difficult time

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Speaker 1: here and figuring out what comes next. If you look

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Speaker 1: at the SMP five hundred year to date, it's up

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Speaker 1: a little under five. Person said, it's not a huge move. Yes,

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Speaker 1: we've seen tech outperform, but overall the market has not

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Speaker 1: made an enormous move and it's frustrating both bulls and

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Speaker 1: bears in both markets. They would expect probably to see

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Speaker 1: more momentum. Well, we do have coming up Catherine Rooney

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Speaker 1: Vera someone that we can talk to about some of

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Speaker 1: these trends, chief investment strategists at Bulltick Capital Markets. But

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Speaker 1: now it's time for global news. China has warned Taiwan

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Speaker 1: and the United States that any meeting while President Tying

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Speaker 1: one is in the United States if it involves her,

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Speaker 1: would be a serious provocation. At Baxter has Global News

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Speaker 1: from the nine sixty News from in San Francisco. Yeah,

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Speaker 1: that's right, Brian Presidents high left Taipei yesterday bound for

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Speaker 1: New York on a plane guarded by F sixteen fighters

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Speaker 1: as it headed over the Pacific. So in New York

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Speaker 1: today and the plan has been for her to meet

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Speaker 1: with Kevin McCarthy House Speaker while in Los Angeles. After

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Speaker 1: McCarthy Cancil plans to go to Taiwan himself. She'll later

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Speaker 1: meet with too Ol Lies in Central America. China says

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Speaker 1: it opposes the visit and will definitely take measures to respond.

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Speaker 1: The US is urging China not to overreact. National Security

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Speaker 1: Council spokesman John Kirby says this is just a transit.

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Speaker 1: Transits are not visits. They are private, and they're unofficial.

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Speaker 1: I would also remind everyone that this is this is

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Speaker 1: not new and Kirby says she's traveled through the US

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Speaker 1: six times since twenty sixteen and has met with members

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Speaker 1: of Congress without any incident. US Defense Secretary Lloyd Austin

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Speaker 1: has told a House hearing today that he does not

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Speaker 1: feel a China attack on Taiwan is imminent or inevitable.

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Speaker 1: He's adding that having said that the US and Taiwan

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Speaker 1: need to maintain a combat ready, credible force. While visiting

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Speaker 1: the front lines in bach Mud to a Ukrainian President,

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Speaker 1: Voladimir Zelenski says he wants to meet with China's president,

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Speaker 1: she Jumpeg. I want to speak with him because I

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Speaker 1: have had contact with him before full scale war. He

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Speaker 1: invites him to visit Ukraine. Banking crisis regulators congressional hearings

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Speaker 1: today in the US, moving to the House of Representatives.

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Speaker 1: Bloomberg Government reporter Emily Wilkins says a regulator seemed to

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Speaker 1: be a well, a bit more reflective today. It was

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Speaker 1: really focused today on whether the FDIC could have done

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Speaker 1: more that weekend right after Silicon Valley Bank collapsed. Could

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Speaker 1: they have found a private buyer. Could they have found

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Speaker 1: something in the private sector that would have kind of

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Speaker 1: kept the bank going to some degree? I think there

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Speaker 1: are some concerns how long that wound up taking. Meanwhile,

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Speaker 1: I think for a lot of Republicans there are some

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Speaker 1: questions about what needs to happen with the FDIC, and

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Speaker 1: Bloomberg's Rick Davis on Bloomberg Sound on Radio says these

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Speaker 1: hearings seem to be bipartisan and that they may feel

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Speaker 1: it's time to catch up to the times we've seen

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Speaker 1: this in crypto, We've seen this in other derivatives. We've

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Speaker 1: seen this now in the banking system. We have a

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Speaker 1: federal government that is still in the twentieth century while

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Speaker 1: they're regulating businesses that are pushing the envelope in the

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Speaker 1: twenty first. So we'll see where it goes from here.

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Speaker 1: US is urgent in the European Union and other allies

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Speaker 1: to sanction a Chinese satellite company for allegedly supporting Russia's

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Speaker 1: military operations, actually sending images of Ukrainian troops to the

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Speaker 1: Wagner Group. To be able to attack global news powered

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Speaker 1: by more than twenty seven hundred journalist and listen over

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Speaker 1: one hundred and twenty countries in San Francisco, I'm Ad Baxter,

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Speaker 1: and this is Bloomberg. This is Bloomberg Gaybreak Asia. I'm

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Speaker 1: Brian Curtis along with Rishad Salamat, and our guest is

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Speaker 1: Katherine Rooney vera chief investment strategist Boltic Capital Markets. So

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Speaker 1: you're a strategist. You've probably heard us musing over how

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Speaker 1: strategists haven't changed their targets much. The banking termol story.

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Speaker 1: Is it a big impact story or a low impact story?

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Speaker 1: You can get all kinds of opinions from many different strategists.

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Speaker 1: They really can go from this is a non issue

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Speaker 1: to this is, you know, going to induce the next

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Speaker 1: large crisis and recession. You can hear people saying the

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Speaker 1: feed is going to cut or the feed is going

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Speaker 1: to have to continue to hike as a result. So

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Speaker 1: what I would say is that we don't know yet,

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Speaker 1: and my perspective is that the FETE has to continue

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Speaker 1: to focus on inflation. I do think Brian that more

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Speaker 1: likely than not, the lending standard, the tightening of lending

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Speaker 1: standards that we should expect to continue to happen from

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Speaker 1: this fallout, will aid the FED in its goal to

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Speaker 1: get inflation lower and perhaps take twenty five to fifty

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Speaker 1: basis points off the table that they may otherwise have increased.

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Speaker 1: So what do they do? I mean, surely it's a

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Speaker 1: bit of a wake up call because no matter what

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Speaker 1: your opinion is on what happened to the banks, there

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Speaker 1: are strange caused by the cost of borrowing going up

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Speaker 1: in an inverted yield could which has made life very difficult,

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Speaker 1: and you don't want it to continue shortly. Yeah, that's right,

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Speaker 1: and I am not with the strategists that are recommending

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Speaker 1: both banks and broad terms and tech as sectors to play.

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Speaker 1: Right now, there are some by the dip type of

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Speaker 1: investors that are making a nice profit off of some

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Speaker 1: of these some of these volatile moves and these rapid

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Speaker 1: swings in the market. But I still believe that this

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Speaker 1: is going to induce and actually probably bring forward the

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Speaker 1: recession that I think is the next phase and the

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Speaker 1: inevitable phase of this economic cycle. So what I'm recommending

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Speaker 1: to our clients, both institutional and retail, is to maintain

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Speaker 1: cautious positions with regard to equities, remain overweight fixed income,

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Speaker 1: gold and cash. And if you are dedicated equity investor,

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Speaker 1: I'm in the camp of remaining in staples, energy state

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Speaker 1: and specifically utilities. So we have all these we have

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Speaker 1: all these is on tightening up conditions in the financial markets,

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Speaker 1: not only the new interest rate hikes that the Fed's doing,

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Speaker 1: but the cumulative weight of the long and variable lag

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Speaker 1: of the rates already done. You've got QT that's sort

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Speaker 1: of running in the background, and then, as you mentioned

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Speaker 1: a moment ago, tighter lending conditions. But I understand that

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Speaker 1: the bulls say that don't worry too much about the

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Speaker 1: tighter lending conditions because there's still a lot of cash

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Speaker 1: left over from the stimulus. We know what the bears

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Speaker 1: are saying, it's the cumulative weight, but the bulls have

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Speaker 1: an answer to it. Yes and no. I mean that's

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Speaker 1: evaporating quickly. You can see consumers are releveraging. I think

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Speaker 1: it's I'm I guess more in the bear camp. I

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Speaker 1: think that that's not the environment that we should be

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Speaker 1: in at this point. There's massive dislocations in the economy

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Speaker 1: and in the markets at this juncture that have to

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Speaker 1: become unwound. The labor market is still remarkably strong, even

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Speaker 1: though even though we are seeing some some some signs

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Speaker 1: of a deceleration therein um inflation is still a major issue.

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Speaker 1: You have sticky inflation that's trending higher, service sector inflation

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Speaker 1: that's remarkably remarkably high. So sorry, that was just Risch

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Speaker 1: and I talking as you were finishing your line, So

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Speaker 1: sorry about that. Rich has got a question for do

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Speaker 1: you think that a recession, with the noise of their

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Speaker 1: being possibly a recession getting louder and louder in your opinion,

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Speaker 1: will there be one? Yeah, that's a good question when

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Speaker 1: everyone when everyone says it probably doesn't happen because consensus

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Speaker 1: is generally generally wrong. I tend to be a contrarian,

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Speaker 1: so I wouldn't I wouldn't go against that thesis. But

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Speaker 1: I do think that, you know, we have to consider

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Speaker 1: that um that this time is really not different they

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Speaker 1: usually isn't. You know. We economic cycles have their ups

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Speaker 1: and downs, but they are by nature cyclical. We are

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Speaker 1: in stagflation, which by definition is below trend growth, below

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Speaker 1: potential trend growth, with sticky high inflation. That's what we're

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Speaker 1: in right now. And if I'm right, and I think,

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Speaker 1: I think that that the leading indicators are indicative of this,

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Speaker 1: and the labor market does in fact roll over, you're

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Speaker 1: going to see a drop in consumption in an economy

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Speaker 1: that's two thirds based on consumption. The next phase of

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Speaker 1: the economic cycle is not going to be you know,

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Speaker 1: we haven't seen the trough here. It's not going to

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Speaker 1: be expansion or re acceleration, or this no landing scenario

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Speaker 1: that some people are postulating a few weeks ago, which

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Speaker 1: I always thought was silly, or this immaculate disinflation, which

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Speaker 1: at some point became you know, the zeitgeist. So so

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Speaker 1: I think that yes, we're instaculation, we're moving to recession.

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Speaker 1: The question is timing. Does happen at the end of

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Speaker 1: this year at the beginning of next year. I think

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Speaker 1: it starts at the end of this year. I think

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Speaker 1: it goes into twenty twenty four. The FETE doesn't cut

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Speaker 1: this year, I think they cut next year. The fet

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Speaker 1: has finally gotten serious with regard to inflation fighting because

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Speaker 1: it realized that it has taken a hit in its

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Speaker 1: credibility and it's going to claw that back. That's my view,

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Speaker 1: and I don't I'm not the guys that think that

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Speaker 1: the FED is going to be cutting this year with

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Speaker 1: inflation above the target. Yeah, but Katherine too. Actually, what

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Speaker 1: I think Brian was alluding to in his question, and

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Speaker 1: that is that with credit conditions where they are right now,

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Speaker 1: liquidity where it is, you know, trying to get a

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Speaker 1: loan is going to be much harder. Collateral is going

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Speaker 1: to be more, collaster is going to be needed, spreads

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Speaker 1: are going to be higher. Rejection rates also will be

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Speaker 1: going to the upside as well, and that's going to

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Speaker 1: have a big, big impact in terms of investment and

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Speaker 1: the like and the whole velocity of money and the

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Speaker 1: economy itself. So surely that's why we possibly are heading

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Speaker 1: more towards a recessionary camp than we weren't before. Yeah,

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Speaker 1: those who perhaps didn't think that we were going to

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Speaker 1: move into recession or that was the next phase of

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Speaker 1: the economic cycle probably have joined our camp, which says

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Speaker 1: that recession is an inevitable part of an economic cycle,

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Speaker 1: and that's what we're moving to. So yes, I would

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Speaker 1: agree that it's increasingly consensus. I would say that the

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Speaker 1: majority of economists now believe that we are we are

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Speaker 1: moving into recession, if not already in one. And I

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Speaker 1: think that this banking crisis, if we're calling it that,

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Speaker 1: I think that's debatable as well, has accelerated the timeline

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Speaker 1: with respect to that contraction and aggregate demand. But we

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Speaker 1: should expect it to come. And I'll finish with one point,

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Speaker 1: which is that that's not the fetes job, nor is

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Speaker 1: it the federal government's job to deter that natural phenomenon

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Speaker 1: from happening. It's not their job. The FETE has a

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Speaker 1: dual mandate. It's you know, price stability and full employment.

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Speaker 1: So it's not to extend the economic cycle. It's not

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Speaker 1: to bring back a bull market. It is to get

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Speaker 1: inflation back to the target, which they might change at

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Speaker 1: some point. But it's way too early to be talking

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Speaker 1: about a change in the target with inflation more than double. Okay,

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Speaker 1: you've mentioned recessions coming and that you've got a defensive

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Speaker 1: posture like healthcare and staples and yes and utilities and such. Well,

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Speaker 1: what about something like gold? Does that fit into the picture? Yeah,

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Speaker 1: of course I'm gonna have gold if you if you

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Speaker 1: kind of get my drift. I like gold, I like cash,

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Speaker 1: I like cash equivalents. I mean you had at the

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Speaker 1: beginning of this year, I was talking about commercial paper

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Speaker 1: at four point seven percent, tea bills three months, six months,

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Speaker 1: nine months, you could get out of five five percent

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Speaker 1: handle that I mean, is there cash instruments, money markets?

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Speaker 1: So this is where I had a lot of our

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Speaker 1: clients position in cash, cash equivalents, in gold. I think

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Speaker 1: it makes sense, and I think if we're dedicated in equities,

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Speaker 1: we have to be in the defensive sectors, not in

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Speaker 1: the high fires. The rotation at the beginning of the

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Speaker 1: year I think was premature. All Right, Catherine, Yeah, you're

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Speaker 1: pretty nervous, pretty careful I'd say in pretty bearish. Katherine

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Speaker 1: Rooney Vero with US chief investment strategist at Baltic Capital Markets.

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