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Speaker 1: This is Bloomberg Daybreak Asia for this Wednesday, May seventeenth

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Speaker 1: in Hong Kong, Tuesday May sixteenth in New York and

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Speaker 1: coming up today.

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Speaker 2: US equities decline as lawmakers struggle to hammer out a

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Speaker 2: deal on raising the debt ceiling.

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Speaker 1: Some Fed officials hint they may not be done hiking

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Speaker 1: interest rates, and Bydu's quarterly revenue tops estimates.

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Speaker 2: Has ad sales benefited from China's reopening.

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Speaker 3: Debt ceiling talks and with a framework to negotiate, both

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Speaker 3: sides say they are still far apart and the default

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Speaker 3: is not going to happen. Biden shortens his G seven

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Speaker 3: trip to Asia. I'm at Baxter with Global News.

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

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

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

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Speaker 4: and everywhere you get your podcasts.

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Speaker 2: Morning.

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Speaker 5: I'm Doug Prisner and I'm Brian Curtiz.

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Speaker 1: Here are the stories we're following today. FED officials debated

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Speaker 1: today over whether the US Central Bank will need to

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Speaker 1: keep hiking interest rates to lower inflation. Cleveland Fed President

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Speaker 1: Loretta Mester said that the FED has yet to reach

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Speaker 1: a point where interest rates are sufficiently restrictive, and she

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Speaker 1: said she's open to more rate hikes. Her Richmond counterpart,

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Speaker 1: Thomas Barkin, said that he was open minded about what

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Speaker 1: to do in the fed's June meeting, however, Barkin told

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Speaker 1: us he's still looking to be convinced that inflation has

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Speaker 1: been defeated.

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Speaker 6: We're going to have a full month's worth of data coming.

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Speaker 6: You've got questions about the debt sailing and what impact

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Speaker 6: that might have. You've got questions about credit tightening and

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Speaker 6: how significant that might be. So I think it gives

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Speaker 6: you time and optionality to say, either there's still more

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Speaker 6: we need to do, so let's do more, or it's

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Speaker 6: still okay to wait, and we'll wait a bit.

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Speaker 1: Other officials were less hawkish. New York Fed President John

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Speaker 1: Williams said that the FED needs to first watch and

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Speaker 1: gather feedback about the way the economy is being affected

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Speaker 1: by the rate hikes already made, and Chicago's Austin Goulesby

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Speaker 1: is leaning more toward a pause. He said, though it

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Speaker 1: may be too premature to talk about cutting interest rates

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Speaker 1: as soon as next month, and by the way the

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Speaker 1: FED meets next on June thirteenth and fourteenth.

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Speaker 2: The treasury market was under a bit of pressure today

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Speaker 2: given the weight of new corporate supply center stage a

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Speaker 2: thirty one billion dollar debt deal from Pfizer. We have

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Speaker 2: the story from Bloomberg's and Kates.

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Speaker 7: The pharmaceutical giant is selling debt in eight parts to

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Speaker 7: help fund its purchase of biotechnology firm Segen. It is

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Speaker 7: set to be the fourth largest US bond sale ever.

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Speaker 7: Piser and its bankers are forced to modify terms of

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Speaker 7: the deal on the fly after the Federal Trade Commission

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Speaker 7: sued to block a separate multi billion dollar debt funded

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Speaker 7: acquisition by Amgen. Weiser agreed to March to buy Segen

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Speaker 7: with a deal valued at forty three billion dollars. It

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Speaker 7: is expected to close late this year or in early

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Speaker 7: twenty twenty four. In Washington and Kates Bloomberg Daybreak Asia.

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Speaker 1: Peiser a little changed today, traded down, actually just a

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Speaker 1: little down, zero point four percent. Commerce Department data showing

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Speaker 1: that US retail sales rose zero point four percent in April.

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Speaker 1: That's after an upwardly revised zero point seven percent decrease

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Speaker 1: back in March. Seven out of thirteen retail categories rose

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Speaker 1: last month, including advances at auto dealers, general merchandise outlets,

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Speaker 1: and online merchants. Overall, it's the first climb in US

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Speaker 1: retail sales since January. We heard from PIMCO economist Tiffany Wilding.

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Speaker 8: We would suggest you are seeing some decline or growth

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Speaker 8: deceleration in consumption, but overall, the consumers are hanging in there,

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Speaker 8: you know. And of course that's also going to be

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Speaker 8: a function of the labor market. And it is still

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Speaker 8: it is still reasonably strong.

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Speaker 1: Still, recent data show that credit card balances are growing

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Speaker 1: and are carrying higher financing rates, and that could ultimately

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Speaker 1: impact spending. And if the latest results from Home Depot

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Speaker 1: are any indication, retailers may be seeing some tough sledding ahead.

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Speaker 1: Earlier today, the home improvement retailer cut its out look

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Speaker 1: for the year after first quarter sales dropped more than expected.

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Speaker 2: Well, we have shares in Western Alliance Bank Corporate by

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Speaker 2: more than seven percent right now in late US trading.

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Speaker 2: This is after the bank said deposits increased by more

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Speaker 2: than two billion dollars since the end of March. The

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Speaker 2: story from Bloomberg's Charlie Pellett that is.

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Speaker 5: About two hundred million dollars, higher than last week's update.

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Speaker 5: The bank previously reported the deposit levels had increased by

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Speaker 5: one point eight billion dollars from the end of the

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Speaker 5: prior quarter to forty nine point four billion as of

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Speaker 5: May ninth. Western Alliance was one of the regional banks

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Speaker 5: initially swept up in the turmoil that followed the collapse

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Speaker 5: of four other lenders, which were felled by a combination

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Speaker 5: of rising interest rates and fleeing depositors. In New York,

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Speaker 5: Charlie Pellett Bloomberg Daybreak.

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Speaker 1: Asia China's internet search leader by DO reporting revenue that

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Speaker 1: rose is stronger than expected ten percent last quarter. We

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Speaker 1: get more from Bloomberg's Joan Wong in Hong Kong.

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Speaker 9: By do's results suggest and its largest internet firms are

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Speaker 9: making some headway and revival efforts after two years of

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Speaker 9: regulatory crackdowns and COVID restrictions. Bydo's advertising and cloud businesses

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Speaker 9: saw a rebounded demand, especially post Chinese New Year. Bid

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Speaker 9: may have also benefited from its chat GPT style surface

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Speaker 9: called Erniebod, which is China's first major response to Open AI.

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Speaker 9: The Chinese chatbot scored positive reviews among bide selective testers.

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Speaker 9: Lifting the company's stock by the Hostess technology will help

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Speaker 9: it transition to a provider of AI technology and autonomous driving.

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Speaker 9: For now, by Doo still counts on advertising sales to

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Speaker 9: generate cash and fun riskier projects as smart Speaker. Unit

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Speaker 9: is also set to unveil a new phone this week,

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Speaker 9: building out a hardware ecosystem to complement its Internet surfaces.

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Speaker 9: In Hong Kong, Joan One Bloomberg dbrigaisia BID is actually.

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Speaker 1: Up four percent in US trading, while generally speaking Chinese

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Speaker 1: stocks listed there we're down about a half of a percent.

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Speaker 1: I'm brand Curtis along with Doug Grisner. Paul Allen will

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Speaker 1: join us shortly. So one of the big issues obviously

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Speaker 1: is the debt ceiling talks. Doug, I think we can

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Speaker 1: kind of sum it up by just saying, not much progress,

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Speaker 1: a lot of work to do, and of course we'll

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Speaker 1: get more from Ed Baxter coming up. And it's not

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Speaker 1: that the markets are ignoring this. So we had the

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Speaker 1: equal weight S and P down one point four percent

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Speaker 1: today and the down Johns Industrial Average is actually down

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Speaker 1: year to date now, so people are, they're watching it,

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Speaker 1: they're mindful and they're hedging.

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Speaker 2: And perhaps cautiously optimistic at the same time. You know, Brian,

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Speaker 2: you and I have been talking about this divergence between

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Speaker 2: what the Fed is saying and what the market is saying.

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Speaker 2: The Fed is of the view that interest rates are

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Speaker 2: going to remain higher for longer. The market, at the

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Speaker 2: same time, is convinced that rate cuts may be in

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Speaker 2: store before the end of the year. Today, we had

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Speaker 2: a conversation our colleagues, I should say, had a conversation

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Speaker 2: with Gershawn Distantfeld of Alliance Bernstein, and he was pointing

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Speaker 2: out that the spread between the two year Treasury note

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Speaker 2: and the FED funds rate is now a negative one

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Speaker 2: hundred basis points, and he went on to say it's

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Speaker 2: only happened four times in the past, and in those

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Speaker 2: cases it's foretold a negative market event. You've got to

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Speaker 2: wonder it may not be a default on US debt.

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Speaker 2: That is the event that is trying to be foretold

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Speaker 2: by the treasury market. But maybe there's something else afoot

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Speaker 2: that we need to pay attention to.

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Speaker 1: Well, I think maybe we've already had it, and that

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Speaker 1: is the bank blow up. You know, it's not exactly

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Speaker 1: a crisis, but when we saw the two year really

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Speaker 1: start to move down and bring in that one hundred

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Speaker 1: basis point gap. It was basically around March or so

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Speaker 1: when the bank thing was happening. So I guess they've

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Speaker 1: gotten out in front of that. And we talked a

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Speaker 1: little bit about the mixed nature of FED speak. You've

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Speaker 1: got Bostick and Gulsby who seemingly want to pause, and

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Speaker 1: maybe Williams two and then Mester and Bark and thinking

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Speaker 1: more as needed.

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Speaker 2: Yeah, and the regional banking crisis may still be simmering,

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Speaker 2: we don't know, and the extent to which we could

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Speaker 2: see further contraction and credit and how that may negatively

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Speaker 2: impact the economy as well.

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Speaker 1: Yeah. The way I like to look at it is

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Speaker 1: it's not exactly like we're stuck in the mud and

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Speaker 1: not moving. We're just moving sideways, you know. It's like

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Speaker 1: it's like jogging in the mud or in water. But yeah,

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Speaker 1: we'll see what today portends. Now it's time for global news.

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Speaker 1: The US president and legislative leaders, well, they've had their

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Speaker 1: second meeting on the debt ceiling and spending cuts.

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Speaker 8: Now.

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Speaker 1: Speaker Kevin McCarthy says the sides are still far apart.

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Speaker 1: A Baxter has Global News in San Francisco.

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Speaker 3: Yeah, that's exactly right, Briant. No agreement, no significant agreement.

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Speaker 3: Both sides say they're positive signs. Look, Chuck Schumer, the

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Speaker 3: Senator and majority leader of the Senate takes well, a

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Speaker 3: big take.

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Speaker 10: Everyone including the Speaker, agreed we need to be bipartisan.

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Speaker 10: The idea of having a partisan bill we knew would

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Speaker 10: get us nowhere, and everyone freely admitted that in the room.

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Speaker 3: Now. Schumer also total agreement that default cannot happen. How

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Speaker 3: Speaker McCarthy says, a mechanism has been set up for negotiation,

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Speaker 3: so the president.

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Speaker 11: Of the President of United States, he can make that

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Speaker 11: decision one way or another.

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Speaker 12: But all I know is we got sixteen more days

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Speaker 12: to go. I don't think it's been eight days some point.

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Speaker 3: Yeah, talking about the G seven and Schumer says total

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Speaker 3: agreement that the fault cannot happen. Howse Speaker McCarthy says,

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Speaker 3: a mechanism has been set up, and How's Minority Leader

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Speaker 3: Hakim Jeffrey says the job will get done.

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Speaker 11: It was a very positive development that everyone agrees we're

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Speaker 11: going to work with the fast urgency of now, over

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Speaker 11: the next week or two, reach an agreement, avoid into

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Speaker 11: the fault, and continue our efforts to be there for

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Speaker 11: every day America.

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Speaker 3: So Schumer says, an arrangement to negotiate.

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Speaker 10: We'll not sacrifice our values. They'll probably not sacrifice their values,

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Speaker 10: but we'll have to come together on something that can

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Speaker 10: avoid default. Default is a disaster, full stop.

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Speaker 3: So what has happened here, Well, Bloomberg's at Megan Scully,

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Speaker 3: So it sounds like.

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Speaker 13: What McCarthy did was he succeeded in edging out Chuck

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Speaker 13: Schumer and Hakeem Jeffries, and he's speaking directly to the

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Speaker 13: president and the president's staff. Now what we're hearing is

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Speaker 13: that President's advisor, Steve Raschetti will be in the meetings.

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Speaker 13: McCarthy had been suggesting earlier today he might want Treasury

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Speaker 13: Secretary yell.

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Speaker 3: In and the end of the week target Well, Bloomberg's

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Speaker 3: Ben Bain says, markets could influence that.

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Speaker 14: Things start to really get volatile. I suspect a lot

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Speaker 14: of those places where the Democrats and the progressors are

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Speaker 14: dug in, you know, maybe things get a little more flexible,

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Speaker 14: and maybe on the Republican side the same thing happens.

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Speaker 3: Yeah, they say they'll be negotiating daily from this point forward.

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Speaker 3: Now mean well mention the G seven. President Biden is

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Speaker 3: shortening the trip. He's canceled as Australia New Guinea stops.

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Speaker 3: He will leave tomorrow for Japan for the G seven,

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Speaker 3: but will return to the US on Sunday early. National

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Speaker 3: Security Council Coordinator John Kirby defends the to go on

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Speaker 3: the trip at all.

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Speaker 15: President of the United States can do both things. He

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Speaker 15: can travel overseas and manage our foreign policy and our

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Speaker 15: defense policy and look after our national security commitments in

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Speaker 15: an important region like the Indo Pacific, and also work

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Speaker 15: with congressional leaders to do the right thing.

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Speaker 3: So shortened at this point, but still on global news

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Speaker 3: power by more than twenty seven hundred journalists and analysts

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

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

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Speaker 1: I'm Brian Curtis in Hong Kong, along with Paul Allen

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Speaker 1: in Sydney, and our guest is Chuck Cumello, President and

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Speaker 1: CEO at Essex Financial Services. So looking at equity market

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Speaker 1: performance here, I think there's this feeling that equities are

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Speaker 1: up a lot and everything. It's not really the case.

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Speaker 1: You point out that less than half of stocks are

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Speaker 1: trading above their two hundred day moving average. I mentioned

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Speaker 1: before that the equal weight S and P was actually

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Speaker 1: down today and it's basically gone nowhere this year. It's

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Speaker 1: flat for the year. The S and P itself is

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Speaker 1: up seventy eight percent, But that's just those those big companies.

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Speaker 1: How do you see equities moving here, Chuck, over the

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Speaker 1: next say, six to nine months.

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Speaker 16: Well, yeah, thank you so much for having me on. Yeah,

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Speaker 16: it's been at least we're at least we're positive coming

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Speaker 16: into May with all the all the things that we've

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Speaker 16: had going on. But at that point, about the average stock,

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Speaker 16: if you look at the equal weight S and P

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Speaker 16: five hundred, being flat to negative is really an eye

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Speaker 16: opener for a lot of people, given the fact that

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Speaker 16: you know, the big capstocks Apple or Microsoft, you know,

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Speaker 16: make up thirteen fourteen percent of the S and P

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Speaker 16: five hundred on a cap weighted basis. But you know,

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Speaker 16: you were describing running in mud, right, So, I mean

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Speaker 16: slog is a word that we've used at the office,

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Speaker 16: not exactly your most technical term, but you know, it's

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Speaker 16: a it's going to be just a grinding year. I mean,

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Speaker 16: obviously with the debt ceiling, you know, issue right in

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Speaker 16: front of us. You know, I think a lot of

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Speaker 16: investors are sort of looking past it with the assumption

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Speaker 16: that it will get resolved. And I think the commentary

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Speaker 16: after today's meeting was very positive considering what the alternative

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Speaker 16: could have been. So I think we're hopeful that will

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Speaker 16: get done. And then really I think, you know, the

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Speaker 16: unemployment and the job will. You know, the job story

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Speaker 16: in the country really is one of the biggest drivers

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Speaker 16: of what's going to happen going forward.

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Speaker 12: Yeah, history says the day's sealing issue does get resolved.

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Speaker 12: But in the meantime, have you changed your positioning at

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Speaker 12: all to hedge against whatever the outcome might be.

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Speaker 16: Yeah, No, I wouldn't say we've changed any positioning based

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Speaker 16: upon that. I mean, it is funny because as the

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Speaker 16: closer and closer politicians get to a deadline, the more

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Speaker 16: and more they're the pressures on to do something. And also,

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Speaker 16: you know, if people just take a few minutes and

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Speaker 16: think back and read about what the Summber of twenty

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Speaker 16: eleven was during the last debt crisis, where literally, we

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Speaker 16: were seventy two hours away from a default S and

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Speaker 16: P five hundred down nineteen percent. A year that saw

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Speaker 16: the S and P five S and P five hundred

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Speaker 16: finished flat to up two percent. A few count dividends,

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Speaker 16: but it was an ugly time in a lot of

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Speaker 16: different areas. So I'm very optimistic and hopeful that the

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Speaker 16: politicians will not repeat that mistake.

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Speaker 1: We've sort of been holding our own in the markets

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Speaker 1: US with the economy as well, and if you think

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Speaker 1: about it, you know, we've had we've had this period

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Speaker 1: where the S and P five hundred essentially if you

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Speaker 1: strip out those top names, is sideways. But that's with

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Speaker 1: growth growth holding up pretty well and jobs holding up

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Speaker 1: pretty well. It feels like that is slipping now. I mean,

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Speaker 1: we had the jobless claims up, we had retail sales

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Speaker 1: are sort of okay, but we've had some disappointing manufacturing.

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Speaker 1: Look at the Empire State data this week. If the

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Speaker 1: economy does crack and jobs crack, are you thinking that

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Speaker 1: maybe equities can't hold here and we revisit some of

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Speaker 1: those October loads.

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Speaker 16: Yeah, it's a great point, right, I mean, because I

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Speaker 16: think you are definitely seeing some cracks. But if you

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Speaker 16: do think about the two biggest drivers of the market,

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Speaker 16: which is earnings and interest rates. Right, rates have come

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Speaker 16: down very positive, very bullish growth especially, and you're starting

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Speaker 16: to see that, and certainly on the earning side, not

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Speaker 16: a bad story on average, and the earnings about one percent,

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Speaker 16: much better than people thought. Certainly, no guarantee that we

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Speaker 16: don't see a different story as we're moving forward, but

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Speaker 16: without any question, if there become if there are more

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Speaker 16: cracks in the labor market and you start to see

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Speaker 16: that really sort of fall out of bed. That's there's

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Speaker 16: a firm we work with that has a recession checklist.

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Speaker 16: Every box on the recession checklist is checked off except labor.

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Speaker 16: And if the unemployment situation changes, that's the big game changer.

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Speaker 16: And I think that's when you might start to see

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Speaker 16: this set do something before the end of the year.

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Speaker 16: But barring that, I think the FED stays right where

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Speaker 16: it is. And again, if earnings hold up and rates

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Speaker 16: day you know, somewhat constrained here. Even if the FED

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Speaker 16: pauses in June, which you know eighty three percent of

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Speaker 16: the folks you know believe that's going to happen, I

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Speaker 16: think you still can have an environment where you finished

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Speaker 16: the year positively in the equity market.

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Speaker 5: Yeah.

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Speaker 12: We have heard from a lot of FED speakers in

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Speaker 12: the past few days, and there seems to be some

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Speaker 12: equivocation about what's next, you know, is it another rise,

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Speaker 12: is it a pause? What's your view?

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Speaker 16: Yeah, personally, I think you're going to see a pause

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Speaker 16: in June. I am a firm believer in the Powell

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Speaker 16: means exactly what he says. They are going to get

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Speaker 16: inflation control. They've stated, you know, months ago, that they'd

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Speaker 16: rather overshoot to the high side and correct rather than

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Speaker 16: do a start and stop, you know. So I think

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Speaker 16: there's my guess is that in June they're going to pause,

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Speaker 16: wait to see what happens in the market, and then revisit.

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Speaker 16: I certainly think it's possible you see another twenty five

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Speaker 16: basis point rise in the FED funds rate if again

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Speaker 16: labor stays strong, if inflation CPI wage growth does not

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Speaker 16: come down a little bit from where they want it.

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Speaker 16: But I think it will be you know, I think

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Speaker 16: you possibly could see another twenty five basis point increase.

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Speaker 16: So in twenty twenty three.

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Speaker 1: When I'm feeling in a positive mood, I start thinking, well,

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Speaker 1: we had the twenty seven percent draw down last year,

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Speaker 1: and Doug and I just talked about how the two

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Speaker 1: year yield is now one hundred basis points below the

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Speaker 1: Fed funds rate. We had the bank instability, the regional

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Speaker 1: bank instability this year, so maybe we've actually discounted a

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Speaker 1: lot of this. And again, when I'm feeling positive, I'm

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Speaker 1: thinking maybe we can grind higher this year. It seems

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Speaker 1: like you're sort of thinking in a similar.

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Speaker 16: Way I do. I mean, I think there is a

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Speaker 16: lot to be said about that, right, I mean, it

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Speaker 16: is funny because you know, the debt crisis, you know,

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Speaker 16: the debt ceiling talks came off the front page as

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Speaker 16: soon as you SDB failed, and you had and you

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Speaker 16: had the financial crisis. And again we're about almost seven

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Speaker 16: months to the day off of the October lows, and

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Speaker 16: you've got a couple parts of the market, you know,

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Speaker 16: not acting like they have historically acted, some of them

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Speaker 16: seven months off of below banks being the first thing

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Speaker 16: where banks and financials you know, down twenty two percent

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Speaker 16: off of that that you know from seven months ago,

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Speaker 16: and that's never happened in literally almost one hundred years

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Speaker 16: of record of keeping those records, and small caps also

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Speaker 16: coming off of US seven months after a record low

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Speaker 16: or a low of the S and P five hundred

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Speaker 16: are usually quite candidly screaming, and they're only up three percent.

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Speaker 16: The SMP is up fifteen and a half percent from

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Speaker 16: that low, So it is it is a bit of

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Speaker 16: a bit of a very strange market. But we're also

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Speaker 16: coming into an environment where we came off zero percent

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Speaker 16: interest rates for so long, you know, the fastest rise

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Speaker 16: in sed fundrates in forver forty years, so that that

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Speaker 16: dynamic has definitely changed things. But if rates can stay

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Speaker 16: roughly where they are, earning thing in there, you can

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Speaker 16: just continue to grind it out, just.

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Speaker 12: Quickly check you're looking at any opportunities off show.

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Speaker 16: Yeah, I mean, I think that's the big story, because

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Speaker 16: you know, the average US investors underweight international, and the

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Speaker 16: international markets are doing pretty darn well. You know, I

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Speaker 16: wull perform in the S and P five hundred in

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Speaker 16: the Dow, So we have certainly booked a little bit

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Speaker 16: more internationally and are starting to look at more emerging

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Speaker 16: market exposure.

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