Speaker 1: Good morning. I'm Brian Curtiz.
Speaker 2: And I'm Doug Krisner. Here are the stories we're following today.
Speaker 1: The US is trying to find the right line to
Speaker 1: walk in response to the deadly drone attack in Jordan.
Speaker 1: At Baxter has the story and more from San Francisco.
Speaker 3: Ed.
Speaker 4: Yeah, that's right, Brian. At the same time, it is
Speaker 4: saying iron is behind the attacks for sure. Now, NSC
Speaker 4: official John Kirby says the US response will be at
Speaker 4: the right time, on its timeline.
Speaker 5: We'll do that on our schedule, in our time, and
Speaker 5: we'll do it in the manner of the President's choosing
Speaker 5: as commander in chief. We'll also do it fully cognizant
Speaker 5: of the fact that these groups backed by Teyran have
Speaker 5: just taken the lives of American troops.
Speaker 4: Now, Defense Secretary Lloyd Austin is a bit stronger in
Speaker 4: his response.
Speaker 6: President and I will not tolerate attack on US forces
Speaker 6: and we will take all necessary actions to defend the US.
Speaker 4: So what are the options, Well, Bloomberg's Jennifer Welsh.
Speaker 7: Everything in terms of military tactics, from mer surgical strike,
Speaker 7: cyber attacks to more traditional option, and then in terms
Speaker 7: of targets. There's the more espiratory option of actually striking
Speaker 7: Iranian targets in irong to striking Iranian forces outside of
Speaker 7: the country to Iranian proxies and the infrastructure that supports them.
Speaker 4: So the US preliminary findings on how the defense systems
Speaker 4: could have missed the incoming drone, well, they say that
Speaker 4: it apparently flew directly behind a US drone that was
Speaker 4: landing at the base, confusing the human and the digital defenders.
Speaker 4: Is Ready Prime Minister Benjamin net Yahoo in Paris to
Speaker 4: try to get a hostage return deal, says the meetings
Speaker 4: were constructive, but that significant gaps remain. As office says
Speaker 4: those differences will be discussed at additional meetings this week. Meanwhile,
Speaker 4: Israel is saying that as many as as much as
Speaker 4: ten percent of the UN relief agencies twelve thousand works
Speaker 4: in Goza this un where members of Hamas or Palestinian
Speaker 4: Islamic Jihad Senate negotiators continue to work on a border deal.
Speaker 4: House Republican Greg Murphy on Bloomberg's balance of power says,
Speaker 4: the answer really is pretty clear.
Speaker 6: We have to go back to the stay in Mexico policy.
Speaker 6: I mean, I think that was the star work of
Speaker 6: where all this began. We had Central American countries that
Speaker 6: had bought into this that they folks that seek asylum
Speaker 6: in the country of entry rather than transgressing across all
Speaker 6: of Central America.
Speaker 4: Says the president has executive powers that he could use
Speaker 4: to get it done. Egene Carroll says that she is
Speaker 4: wanting to donate the award money that she wanted her
Speaker 4: civil suit against Donald Trump. Donate it. On ABC with
Speaker 4: George Stephanopoulos. She says that she does have a vague
Speaker 4: plan to now, I like to.
Speaker 3: Give the money to something Donald Trump hates if it
Speaker 3: will cause him pay for me to give money to
Speaker 3: certain certain things. That is mind well, perhaps fund for
Speaker 3: the women who have been sexually assaulted by Donald Trump.
Speaker 4: Trump's attorneys are, of course appealing that award. Meanwhile, Trump
Speaker 4: is facing the pair of major legal verdicts that could
Speaker 4: wipe out most, if not all, the cash that he
Speaker 4: says he has on hand. Global News twenty four hours
Speaker 4: a day and whenever you want it with Bloomberg News
Speaker 4: Now in San Francisco. I'm Ed Baxter. This is Bloomberg Brian, and.
Speaker 1: Thanks very much. Six minutes here passed the hour. Brian
Speaker 1: Curtis and Grisner, Let's take a look at the top
Speaker 1: business stories of the hour. The US Justice Department has
Speaker 1: announced charges against several individuals for conducting a massive cryptocurrency
Speaker 1: fraud scheme. The scheme ran to just under one point
Speaker 1: nine billion dollars. In a statement today, the DOJ said
Speaker 1: the defendants falsely represented that investors would receive substantial returns
Speaker 1: paid from cryptocurrency mining operations. It said those returns did
Speaker 1: not exist well.
Speaker 2: Today, the US Treasury reduced its estimate for federal borrowing
Speaker 2: for the current quarter, despite a widening fiscal deficit. Here in,
Speaker 2: the US Treasury cut net borrowing. This is the estimate
Speaker 2: from the period January through March down to seven hundred
Speaker 2: sixty billion dollars. Here's the thing, The previous projection was
Speaker 2: eight hundred sixty billion. That number we received in late October.
Speaker 2: The reduction was really not that expected by many primary dealers,
Speaker 2: so you had to move higher in bond prices yields
Speaker 2: coming down. The ten year Treasury was last quoted in
Speaker 2: New York at four point zero seven percent.
Speaker 1: Brian, and we'll get a little bit more on this
Speaker 1: from Garfield Reynolds coming up. Bloomberg Chief rates correspondent for Asia,
Speaker 1: well Elon Musk says the first human patient has received
Speaker 1: a brain implant from his startup, Neuralink. Musk said that
Speaker 1: the patient is recovering well and that initial results are promising.
Speaker 1: Neuralink's brain implant aims to help people with traumatic injuries
Speaker 1: operate computers using only the thoughts. The firm received FDA
Speaker 1: approval for the first human trials in May of last year.
Speaker 2: Done so we know China, Evergrand has been ordered by
Speaker 2: a judge in Hong Kong to liquidate. Well, now what
Speaker 2: is sure to be a very complicated process begins. Evergrand
Speaker 2: is a massive enterprise across hundreds of cities, a number
Speaker 2: of businesses. Here's Bloomberg Steven Engel.
Speaker 8: Will that court order be followed in Mainland, where there's
Speaker 8: a different legal system obviously, which obviously takes direction essentially
Speaker 8: from the Communist Party. So if there's a dispersal of
Speaker 8: these assets, is it going to happen in China?
Speaker 3: Right?
Speaker 8: Because essentially there's no precedence for a large company like
Speaker 8: this with a spaghetti bowl of different assets and liabilities
Speaker 8: and priorities and international bondholders and different kinds of creditors.
Speaker 8: Who's going to be left with the lion's share.
Speaker 2: That is Bloomberg Steven Engel talking about the spaghetti bowl.
Speaker 2: This company amassed more than three hundred billion dollars three
Speaker 2: hundred billion in debt during the property boom in China. Well,
Speaker 2: now Evergrand is valued valued at just two hundred and
Speaker 2: seventy nine million, with an m SO ninety nine percent
Speaker 2: below its peak. This, as Stephen highlighted, this liquidation is
Speaker 2: going to be a key legal test for the courts
Speaker 2: in Hong Kong. Where and on the mainland, I should
Speaker 2: say as well, where most of Evergrand's assets reside.
Speaker 1: Right, Well, you just wonder, Doug whether or not the
Speaker 1: liquidator can get their hands on some of these assets
Speaker 1: that are operated or on land that local governments operate in.
Speaker 1: So it is going to be a fascinating story. We're
Speaker 1: not going to know the answer, but absolutely international investors,
Speaker 1: investor confidence will will be hinging a lot on this
Speaker 1: as we go forward. Well, let's talk a little bit
Speaker 1: more about the US Treasury reducing the estimate for federal
Speaker 1: borrowing for the current quarter. We're joined now by Garfield Reynolds,
Speaker 1: who's Bloomberg's chief rates correspondent for Asia. So in a
Speaker 1: sense it's a good thing, Garfield, because the Treasury said, look,
Speaker 1: you know, we've we had higher than projected net fiscal flows.
Speaker 1: In otherwise, they just have more money on hand or
Speaker 1: at hand than they expected. So from that standpoint, it's
Speaker 1: a good thing. But then it also raises some questions
Speaker 1: about the deficit and overall debt. Your thoughts on the announcement.
Speaker 9: Well, you know, the Treasury, the last couple of times
Speaker 9: they've made funding announcements have been very much you careful
Speaker 9: not to set off the sort of response they got
Speaker 9: middle of last year when they surprised the upside. Back then,
Speaker 9: the assumption was that, you know, whatever you want to borrow,
Speaker 9: people will borrow it, because what else are they going
Speaker 9: to do? It's treasuries. That didn't turn out to be
Speaker 9: the case, because you yield spiked in September and October
Speaker 9: for a number of reasons. But that certainly didn't help. So,
Speaker 9: you know, they avoided boosting bond issuance last time round
Speaker 9: by increasing sales of bills. This time round, you know,
Speaker 9: they've they've managed to come up with some numbers through
Speaker 9: these better fiscal flows, through more cash on hand, so
Speaker 9: that they're they're going to borrow less than they can
Speaker 9: initially estimate estimated in the first quarter, and they're very
Speaker 9: much looking forward to next quarter as being a quarter
Speaker 9: where they will need to borrow even less. Uh. The
Speaker 9: one concern there is that if there are tax cuts enacted,
Speaker 9: you know, that that could throw a spanner in those works.
Speaker 9: So they definitely are moving to a very careful management
Speaker 9: of this issue because of all the concern the market
Speaker 9: tomol that it helped to cause, you know, late last year.
Speaker 2: One of the things that I find interesting is that,
Speaker 2: you know, the Treasury has been under pressure because of
Speaker 2: these rising yields in the market, so it's automatically forced
Speaker 2: to pay a higher coupon than it would otherwise. It
Speaker 2: seems like when you're talking about less money being needed
Speaker 2: on the part of tapping the market in the face
Speaker 2: of higher trade yields, that's also, I mean, kind of
Speaker 2: a positive development, one would think.
Speaker 9: Yeah, you could also argue in fact that it's a
Speaker 9: sort of prudent management technique if you're the anticipation is
Speaker 9: that the Fed will cut interest rates later on this year,
Speaker 9: maybe not as much as the market is looking for,
Speaker 9: but they will cut interest rates. That means bond yields,
Speaker 9: all things being equal, should come down noticeably. So it
Speaker 9: does make a lot of sense to try and hold
Speaker 9: back on any borrowings until you get those lower rates
Speaker 9: coming through. That way, you avoid those high coupons that
Speaker 9: you were mentioning.
Speaker 1: But in a sense, it's the fiscal working against the
Speaker 1: Fed subjective to a degree, because with the lower bond
Speaker 1: yields you had a tech stock spike, and that would
Speaker 1: seem to be something that runs a little counter to
Speaker 1: what the FED wants at at the moment. However, you know,
Speaker 1: every department, every government agency does what it feels as best,
Speaker 1: and this is the way the system works.
Speaker 9: Yeah. Well, I mean, the one of the interesting factors
Speaker 9: you're with those tech and other stocks was the way
Speaker 9: that day rose yesterday and so did bonds. And that
Speaker 9: continues this somewhat anomalous situation where bonds and stocks, the
Speaker 9: prices of bonds and stocks are moving you fairly strongly
Speaker 9: correlated together. That doesn't usually happen outside of what do
Speaker 9: you know when rate cycles peak, and as you move
Speaker 9: towards a situation where a FED with lower rates. The
Speaker 9: big question going forward is when this correlation phrase, which
Speaker 9: of the two asset classes is going to be worse off?
Speaker 9: Normally it's been stocks because the Fed has ended up
Speaker 9: engendering a recession this time around, if we do get
Speaker 9: the soft landing that the Fed and so many others
Speaker 9: are hopeful we will get, it might end up being
Speaker 9: bonds that don't do quite so well.
Speaker 2: Yeah, for the moment, I think we can agree that
Speaker 2: financial conditions have loosened a bit given the price action
Speaker 2: that you just described. On Wednesday, we're going to get
Speaker 2: a more detailed plan at how the Treasury intends to
Speaker 2: distribute this borrowing across the curve. I mean, whether more
Speaker 2: is going to be done at the short end or
Speaker 2: more at the long end. Do you have a sense
Speaker 2: of what we may see on Wednesday.
Speaker 9: Well, I mean we'll see. The markets expectation is very
Speaker 9: much that the Fed, sorry that the Treasury will kind
Speaker 9: of follow through with what it indicated earlier, and it
Speaker 9: was expecting to increase the sizes of its auctions for
Speaker 9: a longer term debt, not dip too much into the
Speaker 9: well of short term debt of bills. So there is
Speaker 9: an expectation that they will increase those, but that this
Speaker 9: will kind of be like the last hurrah, that they
Speaker 9: won't want to increase those again going forward, especially because
Speaker 9: they're looking like they're given the impression that the big
Speaker 9: funding jobs are to some extent behind them. We're getting
Speaker 9: back to a more normal setup where in the second quarter,
Speaker 9: for example, there'll be a relatively small borrowing requirement because
Speaker 9: that's where tax receipts come in, and we'll see how
Speaker 9: that goes. After all, we came into this announcement expecting
Speaker 9: they would increase the estimated borrowing that they would be
Speaker 9: doing this quarter, and we got a lower estimate. So
Speaker 9: maybe that same sort of thing will happen with the
Speaker 9: auction sizes, But the market is very much set up
Speaker 9: for an increase in the auction sizes.
Speaker 1: As we know, cash is fungible, even from China. Chinese
Speaker 1: money is finding its way into US assets for sure,
Speaker 1: and we did have this evergrand liquidation call yesterday from
Speaker 1: High Court judge here, and we understand that state lenders
Speaker 1: have been ramping up dollar sales to kind of offset
Speaker 1: the negative impact from that. And so today we have
Speaker 1: the ten year government, the Chinese government bond yelled down
Speaker 1: and it's at the lowest level since two thousand and two.
Speaker 1: Does all of this suggest that investors are just really
Speaker 1: screaming for more action from the BBOC, Well.
Speaker 9: It's partly that. It's partly also the acknowledgment that the
Speaker 9: Chinese economy remains deeply troubled, and part of the part
Speaker 9: of the reason for that is that with the fact
Speaker 9: that they've got to manage currency, with the fact that
Speaker 9: they've got this particular sort of government that they have
Speaker 9: over there, there's a reluctance to do the sort of
Speaker 9: your large actions that the FED has done for the
Speaker 9: US economy. You would think when you've got a real
Speaker 9: estate sector that there's in deep, deep trouble. Your Evergrand
Speaker 9: is just the poster child for that, that you would
Speaker 9: be looking at some sort of major bailout programs, big
Speaker 9: rate cuts, maybe even quantitative easy that's what happened back
Speaker 9: in two thousand and eight. But that's not the sort
Speaker 9: of thing that China can do, and it's been trying
Speaker 9: to turn a stock market around. But the problem is
Speaker 9: that something like Evergrand just you're ways on intimate and
Speaker 9: raises a concern that ordinary Chinese who have normally looked
Speaker 9: at real estate as being a great way to save money.
Speaker 9: That's where you put your nest egg is by investing
Speaker 9: in real estate. That that's no longer way you want
Speaker 9: to put your money, and in fact, that's if you
Speaker 9: do have money in there, you might want to pull
Speaker 9: that out again. So you can see that that sentiment
Speaker 9: indicator for China is pretty gloomy.
Speaker 2: Yeah, not to mention the fact that when you look
Speaker 2: at the way in which foreign investors have been behaving
Speaker 2: in terms of the Chinese markets, this obviously may dent
Speaker 2: confidence even further at a time when China has been
Speaker 2: clamoring for more foreign direct investment. Garfield will leave it there.
Speaker 2: Thank you so much for being with us Bloomberg Scarfield Reynolds,
Speaker 2: helping us understand what we've been talking about in terms
Speaker 2: of the US Treasury today.
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