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Speaker 1: This is Bloomberg day Break Asia for this Tuesday May

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Speaker 1: twenty third in Hong Kong, Monday May twenty second in

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Speaker 1: New York and coming up today.

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Speaker 2: Secretary Yellen says it's now highly likely the US Treasury

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Speaker 2: will run out of cash by early June.

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Speaker 1: More feenneficials way in on whether to hike or to

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Speaker 1: pause interest rates.

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Speaker 2: And soft Bank is said to be exploring plans to

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Speaker 2: become a lender in the world of private credit.

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Speaker 3: Biden McCarthy meet on potential debt ceiling plan, China questions

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Speaker 3: the sincerity of US arvertures for talks. China battles new

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Speaker 3: COVID wave, Tim Scott's hat in the ring. I'm at

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Speaker 3: 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 1: Good morning, I'm Doug Prisner and I'm Brian Curtiz. Here

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Speaker 1: are the stories we're following today. Treasury Secretary Janney Yellen

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Speaker 1: said it's highly likely now that her department will run

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Speaker 1: out of cash in early June. And she repeated the

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Speaker 1: prior warning that the moment could come as soon as

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Speaker 1: June first. This is according to a letter Yellen wrote

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Speaker 1: to lawmakers we heard from Bloomberg's Kayley lines.

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Speaker 5: Of course, what the Treasury Secretary is asking for us

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Speaker 5: for it to not get to that point, again reiterating

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Speaker 5: her call to Congress to protect the full faith and

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Speaker 5: credit of the United States by acting as soon as possible.

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Speaker 1: Yellen warned again in the letter that a default would

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Speaker 1: cause severe damage to financial markets and to the US economy.

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Speaker 1: It comes as President Biden and Speaker Kevin McCarthy struggle

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Speaker 1: to hammer out a budget deal. Republicans have vowed not

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Speaker 1: to raise the country's statutory borrowing limit unless Biden agrees

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Speaker 1: to budget cuts. There was no shortage of Fed speak today,

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Speaker 1: a couple of officials saying that more rate hikes are

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Speaker 1: necessary to lower inflation. This comes just a few days

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Speaker 1: after we heard from Fed share J. Powell suggesting he

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Speaker 1: may be willing to pause at the June meeting. Today,

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Speaker 1: the head of the Minneapolis Fed, Neil Kashkari, was saying

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Speaker 1: if the Fed does pause, it should signal tightening isn't over.

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Speaker 1: We also heard today from the head of the San

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Speaker 1: Francisco FED to Mary Daly, who said tighter credit conditions,

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Speaker 1: stemming largely from the problems in regional banks in the

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Speaker 1: month of March, may be worth a couple of more

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Speaker 1: rate hikes. Not to be left out, the head of

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Speaker 1: the Saint Louis FED, Jim Bullard, saying that he backs

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Speaker 1: two more increases in twenty twenty three.

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Speaker 6: Now exactly where those would be this year, I don't know,

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Speaker 6: but I've often advocated sooner rather than later. You want

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Speaker 6: to get the downward pressure on inflation while you can,

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Speaker 6: and also, you know, you want to find inflation while

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Speaker 6: the labor market's really strong.

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Speaker 2: That is Jim Bullard, the head of the Saint Louis FED.

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Speaker 2: Now we had a couple of more voices. They advocated

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Speaker 2: for a patient approach. Among them the head of the

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Speaker 2: Atlanta Fed, raphae Albostik. He would saying that he still

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Speaker 2: backs a pause in rate hikes. At the June meeting,

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Speaker 2: his Richmond colleague Tom Barkin was saying he prefers to

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Speaker 2: keep his options open. And Brian, as you know that

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Speaker 2: meeting is June thirteenth and the fourteenth.

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Speaker 1: JP Morgan says it will gain an even bigger benefit

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Speaker 1: from rising interest rates because of its purchase of First

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Speaker 1: Republic Bank. Here's CFO Jeremy Barnhum during JP Morgan's investor

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Speaker 1: Day presentation.

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Speaker 7: Turning to the impact of the First Republic transaction. We

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Speaker 7: are expecting a full year NII contribution of approximately three

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Speaker 7: billion dollars, and as a result, we are updating the

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Speaker 7: twenty twenty three AIX market's outlook to approximately eighty four billion.

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Speaker 7: In addition, you'll recall that our medium term expectation for

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Speaker 7: NIX markets across a range of potential scenarios was around

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Speaker 7: the mid seventies.

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Speaker 1: At the same time, the bank also issued a pessimistic forecast.

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Speaker 1: The lenders said he'd expect second quarter revenue from investment,

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Speaker 1: banking and trading to each slump fifteen percent from a

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Speaker 1: year ago. JP Morgan said several sources of uncertainty remain,

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Speaker 1: including the Fed's plans and how consumers react to higher

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Speaker 1: borrowing costs. It also said that the debt sealing impasse

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Speaker 1: is short term theme weighing on the market.

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Speaker 2: Well after the bell, Zoom Video Communications raised its full

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Speaker 2: year sales forecast. We have more from Bloomberg's Charlie Pellett.

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Speaker 8: It is a positive sign for the software maker's effort

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Speaker 8: to continue growing in a post pandemic world. The San

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Speaker 8: Jose based company said revenue for the fiscal year ending

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Speaker 8: in January twenty twenty five will be four point four

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Speaker 8: seven to four point four nine billion dollars. That is

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Speaker 8: up from an earlier outlook of about four point four

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Speaker 8: to four billion. Zoom, which burst into public consciousness during

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Speaker 8: the height of the pandemic, is fighting to reverse a

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Speaker 8: slow down in growth for its video communications service by

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Speaker 8: expanding its tools for business in New York. Charlie Pellett

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Speaker 8: Bloomberg Daybreak Asia.

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Speaker 1: And as mentioned earl earlier, we did have Zoom shares

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Speaker 1: actually soaring for a few moments, but then right back

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Speaker 1: to about flat for the after hour session. Meantime, SoftBank

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Speaker 1: Group is said to be exploring plans to become a

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Speaker 1: lender in the one and a half trillion dollar world

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Speaker 1: of private credit. More from Bloomberg's Joan Wong we.

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Speaker 9: Hear senior investors at the Japanese firm have spoken to

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Speaker 9: market participants about directly lending to technology firms and the

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Speaker 9: touted possibility of deploying as much as one billion dollars

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Speaker 9: via soft Bank Investment advisors. We're told the discussions are

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Speaker 9: at an early stage. Softwak is targeting low double digit

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Speaker 9: yields for the strategy. That's roughly the same as what

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Speaker 9: most direct lending funds expect to earn. Another new softwarek

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Speaker 9: set is selling a stake and Fortress to the Abu

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Speaker 9: Dhabi Softign Wealth Fund, Mubadada Investment and Fortress Management. Mubadada

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Speaker 9: will own seventy percent of the equity and Fortress, with

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Speaker 9: Fortress Management controlling thirty percent. The deal could potentially value

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Speaker 9: Fortress at more than two billion dollars. In Hong Kong,

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Speaker 9: Join one Bloomberg Day Brick Asia.

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Speaker 1: Joanne, thank you, and you know Doug SoftBank touting private credit.

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Speaker 7: There.

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Speaker 1: It comes on the same day that Alion's said that

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Speaker 1: it's expecting Asia's private credit market to get a huge

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Speaker 1: boost from the global banking route. It's not the focus

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Speaker 1: of interest this morning, really, but it is something that

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Speaker 1: going forward could be quite interesting in providing private credit

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Speaker 1: to companies that need it. I wanted to talk to

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Speaker 1: you a little bit about Jamie Diamond's comments, which we

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Speaker 1: didn't focus too much on, but talking about six or

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Speaker 1: seven percent interest rates. I think many in the market

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Speaker 1: are looking that through the prism of risk management, prepare

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Speaker 1: for higher rates rather than this is what we expect.

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Speaker 1: He's someone with massive fiduciary responsibility. He doesn't want to

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Speaker 1: get caught out. He's basically telling the audience, I'm probably

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Speaker 1: more worried about this stuff than you guys are. He

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Speaker 1: certainly said that about QT more than anyone in the room.

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Speaker 1: He's the warrior in chief.

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Speaker 2: I think that's a fair statement, Brian. And he went

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Speaker 2: on to say that even though the Fed has been

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Speaker 2: raising that overnight rate, there is still too much liquidity

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Speaker 2: in the system. So you ask yourself, why have markets

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Speaker 2: been faring as well as they have in the current

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Speaker 2: environment where we know the risk is that credit conditions

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Speaker 2: will be much tighter. Maybe he's got a point here,

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Speaker 2: and that there's still too much liquidity moving through the

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Speaker 2: veins of financial markets. And I would include not just

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Speaker 2: the equity market, but the treasury market as well.

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Speaker 1: And I suppose it depends on how much credit titens

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Speaker 1: that we'll see perhaps things getting tighter rather than being

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Speaker 1: as loose as they are. The S and P five

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Speaker 1: hundred went about its own way today basically flat as

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Speaker 1: you mentioned earlier, and it's really at the top end

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Speaker 1: of the range it's been in for the past nine

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Speaker 1: months or so. More and more we're having the uncomfortable

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Speaker 1: conversation with the bears, saying your arguments sound very persuasive,

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Speaker 1: but you've been wrong for the past six months. What next.

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Speaker 2: I neglected to point out today that there was a

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Speaker 2: lot of positivity for the Nasdak Golden Dragon China Index.

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Speaker 2: It was up about two percent today. If you saw

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Speaker 2: the ADRs in the Chinese ev maker Neo, they were

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Speaker 2: up more than eight and a half percent today. The

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Speaker 2: company recently debuted its ES six model at about three

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Speaker 2: hundred stores in China. Even with the increase though today

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Speaker 2: in the Nasdak Golden Dragon China Index it's down by

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Speaker 2: three point seven percent year today. That's pretty remarkable.

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Speaker 1: Yeah, it's been a tough period for sure, particularly over

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Speaker 1: the last six weeks or so for China stocks. And

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Speaker 1: interesting to note that with that China pressure on Micron,

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Speaker 1: all of our stories are saying, you know, there was

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Speaker 1: a lot of pressure on semiconductors, but in the end,

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Speaker 1: the socks actually finished up about a third of one percent.

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Speaker 1: I think it was about close to four tenths of

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Speaker 1: one percent, so a couple of big winners in there.

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Speaker 6: I suppose.

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Speaker 1: Now it's time for Global News US President Biden meeting

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Speaker 1: with House Speaker Kevin McCarthy. As we mentioned, trying to

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Speaker 1: get this debt ceiling sorted and some spending reduction a

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Speaker 1: package done on that. Head backs to with Global News

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Speaker 1: in the nine to sixty newsroom in San.

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Speaker 3: Francisco, and yeah, that's right, that's what McCarthy wants to

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Speaker 3: weave the two in. You know, Democrats have been reticent

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Speaker 3: to do that. Brian. While in meetings with his negotiating team,

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Speaker 3: McCarthy did come out to address the media.

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Speaker 1: I firmly believe what we're negotiating right now, majority of

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Speaker 1: the Republicans, we will see that it is a right

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Speaker 1: place to put us in a right path.

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Speaker 3: But he says it'll take some time to get it done.

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Speaker 3: He says it needs to be written and then to

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Speaker 3: give lawmakers forty eight hours to read it.

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Speaker 2: Better to have a deal sooner.

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Speaker 10: I think we can get a deal tonight, we get

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Speaker 10: a deal tomorrow, but you've got to get something done

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Speaker 10: this week to be able to pass it.

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Speaker 3: And with Janet Yellen saying the XT date still seems

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Speaker 3: to be the beginning of June. Bloomberg's Laura Davison says

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Speaker 3: there may be some positive signs coming from the silence.

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Speaker 10: Now.

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Speaker 5: Staff was very quiet leaving these meetings. They didn't comment

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Speaker 5: at all, which usually is a good sign. It means

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Speaker 5: that they're getting close to details.

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Speaker 10: They don't want to divulge.

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Speaker 5: They don't want to show their cards yet because they're

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Speaker 5: still working through some of the sensitive aspects.

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Speaker 3: And Bloomberg's Kaylee Lyon says getting this agreement is just

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Speaker 3: step one.

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Speaker 5: Getting a compromise between the President and the Speaker of

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Speaker 5: the House. But then you have to get to steps

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Speaker 5: two and three and then really four, get it on

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Speaker 5: the president's desk for him to sign. It is a

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Speaker 5: series of things that need to happen to raise the

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Speaker 5: debt ceiling. So there is a question of timing here

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Speaker 5: probably why the Chair of the House Financial Services Committee,

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Speaker 5: Patrick McHenry said, lawmakers need this done in the next twenty.

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Speaker 3: Four hour and when you look at it, the Yellen

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Speaker 3: set X date could be a week from Thursday. China

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Speaker 3: battling a new COVID wave XBB variant fueling a resurgence

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Speaker 3: it began last month. Health researchers expect forty million infections

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Speaker 3: a week by the end of the month, peaking at

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Speaker 3: sixty five million a month later. The paper presented a

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Speaker 3: biotech conference in Guangzhou and the aftermath of the G

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Speaker 3: seven Chinese state backed Global Times is labeled the G

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Speaker 3: seven summit a blatant and a Beijing workshop. This is

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Speaker 3: UK Prime Minister issue Sunac took direct aim today.

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Speaker 11: China poses the biggest challenge of our age to global

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Speaker 11: security and prosperity.

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Speaker 10: They are increasingly authoritarian at home and assertive abroad.

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Speaker 3: As we reported yesterday, G seven communic case stressed de

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Speaker 3: risking and not decoupling. China's questioned the sincerity. Meanwhile, the

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Speaker 3: Biden administration's calls for more talks, US is pushing to

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Speaker 3: resume high level diplomatic talks at the same time it

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Speaker 3: is heaping on tech sanctions and Republican Senator Tim Scott

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Speaker 3: has formally entered the presidential race, arguing he can unify

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Speaker 3: the Republican Party with a positive message and attacking the

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Speaker 3: Biden administration.

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Speaker 11: We're attacking our American values, our schools, our economy and

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Speaker 11: our security, but not.

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Speaker 9: On my watch.

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Speaker 3: Not my watch, he says. Under Biden, the US has

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Speaker 3: become a nation of retreat. Global News powered by more

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Speaker 3: than twenty seven hundred journalists and analysts over one hundred

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Speaker 3: and twenty countries. In San Francisco, I'm Ed Baxter, and

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Speaker 3: this is Bloomberg.

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Speaker 1: I'm Brian Curtis in Hong Kong, alongside Rishad Selama, and

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Speaker 1: we have Ed baxterra on News and Doug Krisner looking

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Speaker 1: at markets. Our guest is Burns McKinney, senior portfolio manager

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Speaker 1: at NFJA Investment Group. So it seems, Burns, the two

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Speaker 1: big themes hanging over the market at the moment, FED

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Speaker 1: rate hikes, whether or not we're out of pause or

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Speaker 1: there's there's more coming. We have seen a pop in

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Speaker 1: yields here over the past week to ten days. And

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Speaker 1: then the debt ceiling talks. Well, what's got your attention,

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Speaker 1: you know, first and foremost at the moment, well.

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Speaker 10: In the near term, the debt ceiling negotiations are definitely

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Speaker 10: the first thing to focus on, you know, with respect

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Speaker 10: to the Fed's rate path, A lot more of the

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Speaker 10: focus is what might happen you know by the end

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Speaker 10: of this year. First, the debt ceiling negotiations are very

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Speaker 10: you know upfront, you know, something that we're going to

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Speaker 10: be focused on over the next couple of weeks. And yeah,

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Speaker 10: we continue to believe that the debt ceiling will be

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Speaker 10: resolved without missing any payments. But at the same time,

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Speaker 10: we expect negotiations to probably run until the last minute,

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Speaker 10: like they did in twenty eleven. And I think that's

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Speaker 10: one reason why the stock market seems to think that

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Speaker 10: as well, because you've seen equity returns have been pretty

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Speaker 10: nonchalant about it. You go back to twenty eleven, stocks

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Speaker 10: fell by like fifteen percent in the month leading up

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Speaker 10: to it, versus it's been flat to up this time.

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Speaker 10: And you know, one reason we're focused on is because

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Speaker 10: you know, credit default swap markets are currently giving about

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Speaker 10: a probability of you know, some sort of default at

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Speaker 10: around three and a half percent, and you know, that's

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Speaker 10: half of what it was back in twenty eleven. But

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Speaker 10: you know, we also stress that that's not nothing, and

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Speaker 10: you know, it is fairly elevated when you consider, you know,

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Speaker 10: how castrophic the consequences of a default would be. I mean,

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Speaker 10: it would be an almost sure fire deep recession if

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Speaker 10: you did have any sort of halth of payments, and

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Speaker 10: so you know, whereas compromise is still the base case,

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Speaker 10: you know, a small probability of a cast trophic event

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Speaker 10: into something that's not to be scoffed at. And I

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Speaker 10: think that's one reason why we do expect things to

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Speaker 10: be pretty volatile in the in the next few in

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Speaker 10: the next few days, in the next couple of weeks,

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Speaker 10: which you know when that's the case. As far as

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Speaker 10: where do you look for shelter in that type of market,

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Speaker 10: you know, look for companies that have recurring earnings.

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Speaker 11: Yeah, but it comes to your strategy in a second.

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Speaker 11: I just want to say, ask you about the Federal

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Speaker 11: Reserve and Okay, this is a fiscal problem. How does

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Speaker 11: the monetary how do the monetary heads look at all

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Speaker 11: this what prison are they looking at this whole debt

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Speaker 11: seting conversation? And what is really on the cons for

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Speaker 11: the next month. It does look like it's fifty to

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Speaker 11: fifty between perhaps standing pat pausing if you will, and

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Speaker 11: going to any five.

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Speaker 10: I would probably argue that the base case should be

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Speaker 10: that the Fed does pause, and you consider two major

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Speaker 10: factors you've got, you know, you still have the regional

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Speaker 10: banking you know, issues for them to focus on. And

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Speaker 10: then when you add in the the uncertainty that's created

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Speaker 10: by a possible defaulve that makes it pretty unlikely the

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Speaker 10: Fed does hike rates again in June. That's a you know,

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Speaker 10: it probably should matter more for the markets is what

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Speaker 10: they do between now and the end of the year

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Speaker 10: and whether they actually cut by December or leave rates

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Speaker 10: at the current you know, five percent range.

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Speaker 1: You mentioned the market was looking at this in a

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Speaker 1: nonchalant matter, particularly the debt ceiling discussions. How am I

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Speaker 1: supposed to gauge this market? Because obviously banking has gone

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Speaker 1: through a very tough time, down about a third of

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Speaker 1: a percent or half a percent for the regional banks,

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Speaker 1: And on the other side of the coin you've got

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Speaker 1: tech that's massively outperforming. And then in the middle, it's

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Speaker 1: kind of like, I don't know what's going on. How

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Speaker 1: do you actually read this market?

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Speaker 10: Yeah, I would say that, you know, you know, you

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Speaker 10: look at a lot of the gauges that show investors

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Speaker 10: are somewhat concerned, but at the same time, you know,

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Speaker 10: stock prices don't necessarily reflect that I mean right now

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Speaker 10: that if you look at the US markets, the S

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Speaker 10: and P is trading, you know about eighteen times earnings.

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Speaker 10: That's above its long term range. You know, it's certainly

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Speaker 10: not cheap, especially when you factor in that you know,

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Speaker 10: between now and the end of the year, if investors

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Speaker 10: are expecting the rate the FED to cut rates, well, okay, well,

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Speaker 10: how do you have a surprise to that scenario. The

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Speaker 10: only way you surprise would be is if they actually

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Speaker 10: keep rates higher, which would suggest that bond yields would

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Speaker 10: probably have to go up between now and the end

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Speaker 10: of the year, which you know, at least might act

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Speaker 10: as a headwind towards equity prices, and it would both

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Speaker 10: certainly act as a headwind towards longer duration instruments like

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Speaker 10: some of the growth stocks.

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Speaker 11: Well, absolutely, And how did you then look at what's

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Speaker 11: going on in the rest of the world here as well,

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Speaker 11: Burns and you know, you've got to have a look

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Speaker 11: at Japan. Quite an extraordinary performance by equity markets there

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Speaker 11: and the wall of money has been going into the

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Speaker 11: country too.

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Speaker 10: You know, Japan has definitely been a leader this year.

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Speaker 10: It's it's staged a great comeback. It just seems that

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Speaker 10: this is really just the fruition of, you know, a

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Speaker 10: lot of what you know shinzo Abe you know, started

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Speaker 10: in the recent years with you know, trying to make

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Speaker 10: the country more investor friendly, trying to you know, get

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Speaker 10: companies to focus less on growth for the sake of

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Speaker 10: growth and more investor friendly reforms. And we've seen that.

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Speaker 10: You've seen that you've seen more dividend payments made in

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Speaker 10: Japan in recent years, dividend yields going up, and so

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Speaker 10: you know, there's a lot to like there. That said,

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Speaker 10: you know, I think investors at least need to think

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Speaker 10: about there are some long term headwinds in Japan, namely

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Speaker 10: that it's one of the most demographically challenged countries in

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Speaker 10: the world.

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Speaker 1: And we talked about soft Bank and its plans for

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Speaker 1: private credit now, and it's something that Doug and I

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Speaker 1: chatted about just a moment ago, that there seems to

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Speaker 1: be a market here for people to take advantage of this.

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Speaker 1: And I know it's a very narrow area, but is

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Speaker 1: that something that interests you. The same day that soft

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Speaker 1: Bank talks about turning to private credit, we hear Alian's

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Speaker 1: talking about how good that could be in Asia.

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Speaker 10: Yeah, it's something that definitely would you know, be a

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Speaker 10: nice liquidity plug there, and it's something that probably acts

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Speaker 10: as you know, it provides a little bit of the

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Speaker 10: boost to the markets. But yeah, I think it's something

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Speaker 10: that you know for which you know, although we're we're

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Speaker 10: cognitant of it and we're watching it. I think, you know,

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Speaker 10: valuations are absolutely paramount first and foremost. I think that

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Speaker 10: you know, investors should really focus on going where you

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Speaker 10: do get a margin for air and your valuations you

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Speaker 10: get you know, you get that somewhat in Japan, but

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Speaker 10: you have relative to markets in the US. That's something

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Speaker 10: you really especially get in the developing world outside the

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Speaker 10: US as well as developed markets where you have valuation

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Speaker 10: on your side, and you have at least the potential

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Speaker 10: benefit of for investors that do invest overseas, you if

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Speaker 10: the dollar were to weaken from it's already pretty strong levels,

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Speaker 10: a nice little tailwind from that as well.

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Speaker 1: We popped a quick question to you earlier and you

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Speaker 1: were about ready to further define your investment strategy. I

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Speaker 1: give you a thirty seconds to sort of elevator pitch.

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Speaker 1: How do I structure my portfolio?

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Speaker 4: Here?

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Speaker 1: Thank you?

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Speaker 10: Yeah, i'd say that, you know, given the volatility we

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Speaker 10: see going you know, in the next couple of weeks,

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Speaker 10: you know, look for companies that have, you know, visible earnings.

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Speaker 10: I think that the technology space is really one area

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Speaker 10: that tends to show earnings resilience even independent of the

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Speaker 10: macroeconomic situation, and dividend payers and dividend growers are probably

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Speaker 10: one of the best places. They tend not to be

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Speaker 10: as vollable as the broader market, so that's certainly a

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Speaker 10: good way place for shelter in this type of situation.

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Speaker 1: Burns, thank you. Burns McKinney, Senior portfolio manager at NFJ

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Speaker 1: Investment Group. This is Bloomberg Daybreak Asia, your morning brief

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