Speaker 1: This is Bloomberg Day Break Asia for this Monday, May
Speaker 1: eighth in Hong Kong, Sunday May seventh in New York,
Speaker 1: and coming up today.
Speaker 2: Treasury Secretary Yellen warns there are no good options for
Speaker 2: solving a debt limit stalemate in Washington.
Speaker 1: With US adding more jobs than expected in April, traders
Speaker 1: are now looking for upcoming inflation data for clues on
Speaker 1: the Fed's rate hype path.
Speaker 2: And Warren Buffett predicts the good times may be over
Speaker 2: with earnings falling this year.
Speaker 3: Rare South Korea Japan Summit works on rebuilding relationship and
Speaker 3: semiconductor agreement. South Korea US Summit this week on cybersecurity.
Speaker 3: US prepares for biggest potential migrant increase since World War Two.
Speaker 3: I'm at Baxter with Global News.
Speaker 4: That's all straight ahead on Bloomberg day Break Asia, the
Speaker 4: business news you need to start your day in just
Speaker 4: one fifteen minute podcast available on Apple, Spotify, the Bloomberg
Speaker 4: Business App, and everywhere you get your podcasts.
Speaker 5: Good morning, I'm Brian Curtiz.
Speaker 2: And I'm Doug Chrisner. Here are the stories we're following today.
Speaker 1: Treasury Secretary Jennet Yellen saying that there are simply no
Speaker 1: good options for solving the debt limit stalemate in Washington.
Speaker 1: This comes as GOP leaders are demanding promises of future
Speaker 1: spending cuts before they approve a higher debt ceiling. Now,
Speaker 1: President Biden has insisted on a clean increase, with budget
Speaker 1: talks kept fully separate. The Treasury Department has warned that
Speaker 1: it could run out of money to meet its obligations
Speaker 1: as soon as June first. Yellen told ABC's This Week
Speaker 1: that it's Congress's job to fix this problem.
Speaker 6: If Congress doesn't act, more likely to see financial market consequences.
Speaker 6: In twenty eleven, there is a steep decline in the
Speaker 6: stock market and are borrowing costs back in twenty eleven,
Speaker 6: the US was downgraded by the credit rating agencies. There
Speaker 6: would be permanently higher borrowing costs for Americans for buying
Speaker 6: a home, buying a car, and a failure that would
Speaker 6: cause a steep economic downturn.
Speaker 1: That's Jenny Yellen heard right here on Bloomberg. She also
Speaker 1: cautioned that resorting to use of the fourteenth Amendment would
Speaker 1: provoke a constitutional crisis. President Biden has scheduled to meet
Speaker 1: with House Speaker Kevin McCarthy and some other congressional leaders
Speaker 1: on Tuesday to discuss the debt ceialing issue.
Speaker 2: Well, on Friday here in the US, we heard from
Speaker 2: the head of the Saint Louis FED, Jim Bullard. He
Speaker 2: was saying policymakers will probably have to push rates higher
Speaker 2: to cool inflation. Even so, he thinks the FED can
Speaker 2: still achieve a soft landing.
Speaker 7: Yes, the conry couldn't go into recession, but that's not
Speaker 7: the base case. I think the base case is slow growth,
Speaker 7: probably somewhat softer labor market, and declining inflation.
Speaker 2: Billard went on to say he wants to use a
Speaker 2: data dependent approach before decide on what moved to support
Speaker 2: of the Fed's June meeting. To be fair, he is
Speaker 2: a non voter on that rate setting committee this year. Separately,
Speaker 2: Bullard said the April job stated was stronger than forecast,
Speaker 2: but he didn't know. Job openings are still much higher
Speaker 2: than they were before the pandemic. Now this Wednesday, we'll
Speaker 2: get US retail inflation data and clues on whether the
Speaker 2: Fed has the flexibility to pause in its rate hiking cycle.
Speaker 1: Well, the White House is downplaying the need to curb
Speaker 1: short selling of banks. That's even as President Biden has
Speaker 1: not ruled out any options to ensure the stability of
Speaker 1: the banking system. Shares of regional banks have been under
Speaker 1: pressure following failures at First Republic SVB and Signature Bank,
Speaker 1: as well as Silvergate. We heard from Heather Bouchet, a
Speaker 1: member of Biden's Council of Economic Advisors, the.
Speaker 8: Information that we have at this point is the situation
Speaker 8: remains under control. Certainly, the FDIC and Treasury are watching
Speaker 8: these things very closely.
Speaker 1: We've been able to.
Speaker 8: See stability back into that system, and we've seen deposit
Speaker 8: flows again stabilized, So I think they are indications that
Speaker 8: we are in a better place certainly, and we continue
Speaker 8: to watch the situation as it unfolds.
Speaker 1: The KBW Regional Banking Index has dropped about thirty percent
Speaker 1: this year. However, as we heard from Doug a few
Speaker 1: moments ago, rebound across regional banking stocks on Friday into
Speaker 1: that selling pressures had gone a little too far, Pack
Speaker 1: West leading the way, soaring more than eighty percent. Following
Speaker 1: the route that saw it shares tumbling to a record low.
Speaker 2: We go next to the Oracle of Omaha, Warren Buffett,
Speaker 2: who is warning of an economic slowdown, and he's also
Speaker 2: calling for some bank executives to be punished. More from
Speaker 2: Bloomberg's th Nase Pellegrini.
Speaker 9: Berkshire Hathaway is reporting a jump in quarterly operating income,
Speaker 9: but the billionaire chairman and CEO also warned earnings could
Speaker 9: decline across Berkshire's units going forward, and at the annual
Speaker 9: shareholder meeting in Omaha, Buffett also said execs failed banks
Speaker 9: should be held accountable from mistakes hiding in plain sight,
Speaker 9: including lex mortgage lending. He says at First Republic. Buffet
Speaker 9: also says Berkshire isn't planning and buying the rest of
Speaker 9: Occidental Petroleum it doesn't already own, and he reaffirmed his
Speaker 9: choice of greg Abel as heir apparent at the conglomerate
Speaker 9: Denise Pelgriny Bloomberg day Break Asia.
Speaker 1: Australian Treasurer Jim Chalmers said that China is the economic
Speaker 1: rebound cannot offset the impact of the Australian budget from
Speaker 1: the global economic downturn. That's despite China being Australia's largest
Speaker 1: trading partner. Here is Chalmer speaking in an interview with Bloomberg.
Speaker 10: The Global economy more broadly has been a bit a
Speaker 10: bit softer than what people were anticipating. China maybe a
Speaker 10: little bit stronger, but you know, overall, we want to
Speaker 10: make sure that we're making the most of these trading relationships.
Speaker 10: That's been a big priority for US. China is important
Speaker 10: to our economy and to our budget. Not the whole story,
Speaker 10: but important part of it.
Speaker 1: Chalmers is also expected to announce Australia. Ellia's economy has
Speaker 1: returned to surplus for the first time in fifteen years.
Speaker 1: Bloomberg economists predict that tomorrow's fiscal blueprint will show a
Speaker 1: three point six billion dollars shortfall, or about a quarter
Speaker 1: of a percent of GDP. Australia is expected to benefit
Speaker 1: from surging revenues from commodities, exports and a persistently strong
Speaker 1: labor market. We'll get the full Australian budget on Tuesday,
Speaker 1: seven pm, Sydney time. All Right, I'm Brian Curtis, along
Speaker 1: with Doug christ and Rashad Salama will join us in
Speaker 1: a few moments, so Doug more talk of a short
Speaker 1: selling ban on regional banks. That's one interesting bit of
Speaker 1: the news flow, and I think also Warren Buffett saying
Speaker 1: the good times may be over. However, a few moments
Speaker 1: ago I mentioned good news. It's nice when good news
Speaker 1: is good news, but then you know good news is
Speaker 1: actually bad news to some and the reverse, so we
Speaker 1: have to kind of explain ourselves. I would see the
Speaker 1: jobs report as on balance good news, and it's interesting
Speaker 1: because it seems that the market may have to come
Speaker 1: around more to the Fed's position than the reverse, and
Speaker 1: I think that's something that we'll get at all throughout
Speaker 1: the morning.
Speaker 2: I think that's a very interesting point, particularly in light
Speaker 2: of the fact that we still don't have the data
Speaker 2: on the current data on inflation. Will get that this
Speaker 2: week CPI Wednesday, PPI on Thursday. If those numbers come
Speaker 2: in on the soft side, maybe maybe the Fed has
Speaker 2: a little bit of room to pause. But I hear
Speaker 2: what you're saying, Brian. When it comes to those jobs
Speaker 2: numbers coming in above forecast, Okay, perhaps we can avoid recession,
Speaker 2: but the implication here is that inflationary pressures will remain.
Speaker 1: Well, that's my point, and that's what Jay Powell has
Speaker 1: been saying. He's saying we're not likely to cut, and
Speaker 1: the market says we're going to cut this year and
Speaker 1: he's saying no because he doesn't see recession and also
Speaker 1: because he doesn't see inflation coming down quickly. So it
Speaker 1: seems like at least at the moment. And you know,
Speaker 1: this is funny because the market, the market is like
Speaker 1: millions of people. But at least at the moment, the
Speaker 1: Fed policy makers have a better grasp of this than
Speaker 1: what the market is suggesting, because the market only is
Speaker 1: saying one of two things is going to happen. Either
Speaker 1: inflation is going to come down, it doesn't look like
Speaker 1: that's going to happen, or that there's a serious downturn
Speaker 1: in the economy which will force the FED to bring
Speaker 1: interest rates down, and the Fed's saying not, we don't
Speaker 1: see it.
Speaker 2: Well, I think that's what the bond market is hoping for.
Speaker 2: We know that employment is a lagging indicators, so maybe
Speaker 2: an abrupt decline in the number of nonfarm jobs created
Speaker 2: and perhaps some contraction of the labor market, and that
Speaker 2: then maybe would justify the two twenty five bases point
Speaker 2: rate cuts that the market is pricing in before the
Speaker 2: end of the year.
Speaker 1: Yeah, we did get a little bit of a rationalization
Speaker 1: on the work from what it was before. So is
Speaker 1: it two now then it was three before, I think,
Speaker 1: so that's right. Yeah, it's a real moving target.
Speaker 5: All right. Now it's time for Global News.
Speaker 1: In a rare summit, South Korea and Japan has struck
Speaker 1: a court of unity in a rare summit over the weekend.
Speaker 1: A backs to with Global News in the nine to
Speaker 1: sixty newsroom in San Francisco.
Speaker 3: Ed, yeah, right, Brian. It is rare. President yunsuk yu
Speaker 3: Ol Prime Minister Fumio Kishita agreeing to cooperate fully with
Speaker 3: each other and the US on security in the region
Speaker 3: from North Korea also agree to implement a deal meant
Speaker 3: to heat an historic rift between our heel, I should say,
Speaker 3: an historic rift between the two going back to Japan's
Speaker 3: colonial rule from ten to ten or nineteen ten to
Speaker 3: nineteen forty five, and to work on an agreement on semiconductors.
Speaker 3: Although they did not release any details. Kishita says he
Speaker 3: sees talks going forward in dynamic manner, and Ewn says
Speaker 3: he looks forward to shuttle diplomacy. Meanwhile, South Korea and
Speaker 3: the US will meet this week to strengthen their cooperation
Speaker 3: in responding to cybersecurity threats. Janhapp says part of the
Speaker 3: Cyber Cooperation Working Group schedule for today and tomorrow. In
Speaker 3: two days, US President Joe Biden will sit down with
Speaker 3: Congression leaders to talk about how to stave off crisis
Speaker 3: that could be caused by the government running out of
Speaker 3: cash be the first time in history. Treasury Secretary Janet
Speaker 3: Yellen today on ABC has heard on Bloomberg blaming Congress.
Speaker 6: It simply is unacceptable for Congress to threaten economic calamity
Speaker 6: for American assholds.
Speaker 3: And the Senate Majority leader Chuck Schumer says social security crisis.
Speaker 11: In fact, there could be a Social Security check shutdown
Speaker 11: unless they can get their act together and we can
Speaker 11: have a clean debt ceiling.
Speaker 3: But Republican Senator James Lankford on ABC has heard here
Speaker 3: on Bloomberg, says the GOP has said we'll.
Speaker 5: Be tied to the deadlmit because we've got to have
Speaker 5: this conversation again.
Speaker 3: Yellen says the deadline is the first few days of June.
Speaker 3: All maneuvering is exhausted at that point. She says. The
Speaker 3: head of the Department of Homeland Security, Alejandro Maorkas, is
Speaker 3: warning that this week we'll see a potential influx of
Speaker 3: migrants bigger than anything the US has seen since World
Speaker 3: War Two. My arcis on CBS as Homeland is working
Speaker 3: on plants, but its hands basically are tied.
Speaker 12: We need immigration reform. Everything that the Department of Homeland
Speaker 12: Security is doing, everything that our partners across the federal
Speaker 12: government are doing, is within a broken immigration system.
Speaker 3: Fifteen hundred troops have been sent to the border to
Speaker 3: help with processing, but not law enforcement. Alan Texas mourning
Speaker 3: the loss of another US mass shooting. Eight people killed,
Speaker 3: at least nine injured. Police Chief Brian Harvey says response
Speaker 3: was very quick, but it could have been much worse.
Speaker 13: One of our officers was on an unrelated call at
Speaker 13: the Outlet mall. He heard gun shots, went to the gunshots,
Speaker 13: engaged the suspect and neutralized the suspect.
Speaker 3: Police identify the man as being thirty three years old,
Speaker 3: armed with a semi automatic weapon. They say he'd had
Speaker 3: gun training to be a security guard. Global News powered
Speaker 3: by more than twenty seven hundred journalists and analysts in
Speaker 3: over one hundred and twenty countries. In San Francisco, I'm
Speaker 3: at Baxter and this is Bloomberg.
Speaker 1: IM Brian Curtis along with rushad' Salama. We are here
Speaker 1: in Hong Kong.
Speaker 5: George B.
Speaker 1: Boris joins us now head of Research K two Asset Management.
Speaker 5: George is in Melbourne.
Speaker 1: So George, great to have you with us on a
Speaker 1: Monday morning here in the Asia Pacific. Warren Buffett predicting
Speaker 1: that the good times may be over. He's the Sage
Speaker 1: of Omaha. What does the Sage of Melbourne tell us
Speaker 1: on this Monday morning?
Speaker 5: Opportunities?
Speaker 14: Good morning, Yes, always opportunities.
Speaker 15: That's why we have as allocation and we're always looking
Speaker 15: for low correlations across the act classes, which is another
Speaker 15: way of saying, always opportunities at different stages of the cycle.
Speaker 15: The thing to reinforce is higher level of course, building
Speaker 15: on from the great man Warren Buffett and many other
Speaker 15: good ones. And I'm just a mere humble acid allocator
Speaker 15: and front manager. Is is you looking through the scenario
Speaker 15: of a shallow technical economic recession in North America with
Speaker 15: the tight labor market and FED policy? What it should
Speaker 15: be hawkish to deal with something that's quite stubborn and concerning.
Speaker 14: With the core inflation.
Speaker 15: But there's the reality is there's an unevenness in all
Speaker 15: Western economies across the different sectors for equities, but also
Speaker 15: across the economy, And you're saying it amplified obviously with
Speaker 15: regional banks, small caps in North America versus the core
Speaker 15: superbanks and then the big tech driving the aggregate earnings
Speaker 15: through and beating expectations. But we come around in circle
Speaker 15: again and have to deal with inflation. What are the
Speaker 15: consequences of the policy that demand destruction? Things are breaking
Speaker 15: at the margin, but it really isn't a traditional recession
Speaker 15: that's going to be right across in aggregate.
Speaker 14: Stan's hurting North America.
Speaker 1: So does I mean you can Does that mean you
Speaker 1: can just kind of ignore it and just play as
Speaker 1: you would normally play because the recession isn't going to
Speaker 1: be that deep.
Speaker 15: In part, you can never ignore it. We are data dependent,
Speaker 15: like the Federal observes. We're always looking to data week
Speaker 15: by week. But what what is happening and what we're
Speaker 15: expecting going forward is unlike the past fifteen years. And
Speaker 15: some of the many consequences of that is that we're
Speaker 15: looking for again low correlations before the asset classes and
Speaker 15: fixed income behaving as it should be when you have
Speaker 15: that in your portfolio versus equities. And then when you're
Speaker 15: in equities, obviously there's a big tilt to defensives and
Speaker 15: the big texts and some of the big banks relative
Speaker 15: to the smaller ones. Industrials obviously looking at an opportunity
Speaker 15: in North America and parts of Europe. But the point
Speaker 15: being is we're getting more traditional cycles and the risk
Speaker 15: free rate being elevated for longer is something that was
Speaker 15: experience over fifteen years ago, and that's where we're getting
Speaker 15: into that sort of operating platform Georgia.
Speaker 11: You know, then as an asset allocator, you look at
Speaker 11: what's going on and did you stay away from US
Speaker 11: assets for the tone being.
Speaker 15: No, we like US assets because there's a little bit
Speaker 15: more predictability to the source of those revenues from again
Speaker 15: largerous corporates, the majors.
Speaker 14: And you're saying it, you got very with the quarterly numbers.
Speaker 15: Earnings are much louder whether we're a year ago, but
Speaker 15: the much better versus expectations, and you're getting a good
Speaker 15: high concentration being delivered again by big tag, big big
Speaker 15: American industrials and some of the larger banks, and that's
Speaker 15: replicated around the world in Australia. So in essence, the
Speaker 15: predictability is a little bit better for the large cap
Speaker 15: and the broadcap, but not so much for the med
Speaker 15: and small cap, which is a typical story around the
Speaker 15: developed markets.
Speaker 5: Well difficult times.
Speaker 1: So we've had a few guests on the program of
Speaker 1: late saying, go with the you know, with the best performer.
Speaker 5: In these industries.
Speaker 1: So you're looking at JP Morgan and the banks, maybe
Speaker 1: looking at someone like United Healthcare in managed care in
Speaker 1: the healthcare area. You know, obviously every industry has its superstars,
Speaker 1: the best balance sheets, the best performers excellon in.
Speaker 5: The energy patch.
Speaker 1: Is that a way to play it or can you
Speaker 1: be or do you need to be a lot more subtle?
Speaker 14: Yeah, that's how we're playing it.
Speaker 15: So predictability with energy, the transition, energy exporters, materials, metals, rare, earth, healthcare,
Speaker 15: large cap, big super tech, they're the things that we
Speaker 15: are long in. We don't talk about our shorts across
Speaker 15: the world. But that's opportunistic and it comes from many
Speaker 15: different reasons. But that's the reality is that in aggregate,
Speaker 15: the earnings are very reasonable given the tightening there. But
Speaker 15: once again it's an oversimplification risk free rate higher for
Speaker 15: longer pressing and rate carts.
Speaker 14: Is reasonable by the mud market, but unrealistic. They just
Speaker 14: price them out again then pross them back in again.
Speaker 15: But you get the sense that this is unlike policy
Speaker 15: of the past fifteen years.
Speaker 14: We need to erase that a little bit and go forward.
Speaker 15: They're really doing something because of that stubborn services core inflation,
Speaker 15: which is concerning on a year on your basis, because
Speaker 15: it's not dissolved yet the other parts that are resolved.
Speaker 11: George, I mean, they're just essentially normalizing, aren't they having
Speaker 11: themselves more wiggle room and bullets to put in the
Speaker 11: chamber should there be another big bundturn.
Speaker 14: Spot on.
Speaker 15: And that's good policy, and that's why the hawkish starts
Speaker 15: would be there from a retric But again we.
Speaker 14: Are wake by wake from the Fed.
Speaker 15: We're week by way every other central bank in the
Speaker 15: world looking at the data. More demand destruction has to happen,
Speaker 15: More breakage will be a consequence of it. The market
Speaker 15: will have a conniption and bolotilla is spiked for a
Speaker 15: few days here and there, and unfortunately the unemployment rate
Speaker 15: as a consequence needs to be one to two percentage
Speaker 15: points higher, which is still a reasonable long run situation
Speaker 15: to be in to get the outcome that they're looking for,
Speaker 15: and that is stable price stability in economies. Because of
Speaker 15: the consequence, it's much worse for investors and everyone in
Speaker 15: the economy.
Speaker 5: So the real rates at least positive.
Speaker 1: Now, that's a good start, and you know, still room
Speaker 1: to go, room to move. I know that you said
Speaker 1: K two doesn't reveal it short, so you don't have
Speaker 1: to be specific. Are there some areas that you think
Speaker 1: might might warrant some attention there that are still you know,
Speaker 1: sort of vulnerable to the downside that could be exploited
Speaker 1: by a short position.
Speaker 14: Yeah, shorts tend to happen.
Speaker 15: The way to answer that one, and I'm not a politician,
Speaker 15: but shorts tend to be overvaluation, like expensive or sectors
Speaker 15: that you're trying to avoid and and generally no outright
Speaker 15: sector we want to avoid. I mean, there's highly cyclical
Speaker 15: sectors that we weary of. But in essence, there's some
Speaker 15: financials have been short and active. Again, not to go
Speaker 15: down in that pathway, but the way if I can
Speaker 15: tilt at my way and be the answer is that
Speaker 15: the divergence of mid small banks versus large banks and
Speaker 15: the developed economy is a big signal of the concern
Speaker 15: out there from people. And it's also amplified by the
Speaker 15: term deposits being offered in the West and well by
Speaker 15: MidCap small cat banks versus the majors and.
Speaker 14: The and that's still called a britual relationship. So that
Speaker 14: gap is quite wide. Yes, it is. It is a
Speaker 14: crack in it. It's a crack in the system, and
Speaker 14: just be wary of it.
Speaker 15: And that's where shorts are actively playing and testing that proposition.
Speaker 1: This is Bloomberg Daybreak Asia, your morning brief on this
Speaker 1: story is making news from Hong Kong to Singapore and
Speaker 1: Wall Street.
Speaker 2: Look for us on your podcast feed every day on Apple, Spotify,
Speaker 2: and anywhere else you get your podcasts.
Speaker 1: You can also listen live each day on Bloomberg eleven
Speaker 1: three to zero in New York, Bloomberg ninety nine to
Speaker 1: one in Washington, Bloomberg one oh sixty one in Boston,
Speaker 1: and Bloomberg nine sixty in San Francisco.
Speaker 2: Our flagship New York station is also available on your
Speaker 2: Amazon Alexa devices. Just say Alexa play Bloomberg eleven thirty.
Speaker 1: Plus listen coast to Coast on the Bloomberg Business app,
Speaker 1: Sirius XM Channel one nineteen, the iHeartRadio app, and on
Speaker 1: Bloomberg dot Com.
Speaker 2: I'm Brian Curtis and I'm Doug Prisoner. Join us again
Speaker 2: tomorrow for all the news you need to start your
Speaker 2: day right here on Bloomberg day Break Asia