1 00:00:02,200 --> 00:00:04,720 Speaker 1: This is Bloomberg day Break Weekend, our global look at 2 00:00:04,760 --> 00:00:06,880 Speaker 1: the top stories in the coming week from our day 3 00:00:06,880 --> 00:00:09,079 Speaker 1: Break anchors all around the world, and straight ahead on 4 00:00:09,119 --> 00:00:12,840 Speaker 1: the program, here comes US Bank Earnings. I'm Tom Busby 5 00:00:12,960 --> 00:00:13,480 Speaker 1: in New York. 6 00:00:13,560 --> 00:00:16,640 Speaker 2: I'm Kallie Lines in Washington, where we're looking toward Lithuania 7 00:00:16,840 --> 00:00:19,080 Speaker 2: as President Biden heads to the meat of Summing. 8 00:00:19,120 --> 00:00:21,840 Speaker 3: I'm Brian Curtis in Hong Kong. We weigh up monetary 9 00:00:21,960 --> 00:00:26,360 Speaker 3: versus fiscal stimulus in China and weather Beijing is actually 10 00:00:26,400 --> 00:00:28,240 Speaker 3: prepared to loosen the purse strings. 11 00:00:28,320 --> 00:00:30,760 Speaker 4: I'm Klin Hedge in London, where we're looking to the 12 00:00:30,880 --> 00:00:33,920 Speaker 4: Chancellor's mansion house speech and weather he delivers on a 13 00:00:34,080 --> 00:00:35,000 Speaker 4: UK growth songs. 14 00:00:35,479 --> 00:00:39,440 Speaker 5: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 15 00:00:39,479 --> 00:00:42,000 Speaker 5: E Love the three own New York, Bloomberg ninety nine 16 00:00:42,000 --> 00:00:45,400 Speaker 5: to one, Washington, DC, Bloomberg one O six one, Boston, 17 00:00:45,440 --> 00:00:50,240 Speaker 5: Bloomberg nine sixty, San Francisco, DAB Digital Radio, London, Sirius 18 00:00:50,400 --> 00:00:53,640 Speaker 5: XM one nineteen and around the world on Bloomberg Radio 19 00:00:53,720 --> 00:00:56,040 Speaker 5: dot com and via the Bloomberg Business App. 20 00:01:00,240 --> 00:01:02,160 Speaker 1: Good day to you. I'm Tom Buzzby and We begin 21 00:01:02,200 --> 00:01:05,320 Speaker 1: today's program with second quarter earning season beginning this week, 22 00:01:05,360 --> 00:01:08,520 Speaker 1: and that means big bank earnings. To kick things off, 23 00:01:08,640 --> 00:01:10,480 Speaker 1: and for what to expect and why, we turned to 24 00:01:10,560 --> 00:01:14,360 Speaker 1: Alison Williams, senior analyst with Bloomberg Intelligence. Well, the major 25 00:01:14,400 --> 00:01:16,920 Speaker 1: Wall Street banks turned in pretty solid results for the 26 00:01:16,920 --> 00:01:19,600 Speaker 1: first quarter of this year. Things may be a little 27 00:01:19,680 --> 00:01:23,760 Speaker 1: softer this quarter, and there are several reasons why. One, 28 00:01:24,319 --> 00:01:28,360 Speaker 1: higher interest rates just this past week approaching seven percent 29 00:01:28,720 --> 00:01:32,319 Speaker 1: for long term mortgage loans, putting the squeeze on loan originations, 30 00:01:32,360 --> 00:01:36,080 Speaker 1: weighing on commercial real estate, that's one. What are your 31 00:01:36,120 --> 00:01:38,279 Speaker 1: thoughts on how that may impact things. 32 00:01:38,560 --> 00:01:43,440 Speaker 6: Higher rates have provided a big boost to banks, much 33 00:01:43,480 --> 00:01:47,160 Speaker 6: of which we saw in twenty twenty two, But now 34 00:01:47,160 --> 00:01:51,240 Speaker 6: we're starting to see the downside of higher rates, which 35 00:01:51,280 --> 00:01:55,000 Speaker 6: is that the bank's cost of funding is going up. 36 00:01:55,120 --> 00:02:00,160 Speaker 6: And there's two key reasons, one of which is deposit it. 37 00:02:00,640 --> 00:02:05,200 Speaker 6: The price of those deposits is rising. And then secondly, 38 00:02:05,320 --> 00:02:11,760 Speaker 6: deposits are flowing out of sources such as free checking 39 00:02:12,960 --> 00:02:16,600 Speaker 6: or low rate savings accounts and flowing into things like 40 00:02:16,680 --> 00:02:20,840 Speaker 6: money funds. So there's a there's a shift happening, you know, 41 00:02:21,440 --> 00:02:25,239 Speaker 6: within the mix going to money funds, going to CDs, 42 00:02:25,880 --> 00:02:32,000 Speaker 6: and then across all deposits, that cost of deposits is 43 00:02:32,040 --> 00:02:32,520 Speaker 6: going up. 44 00:02:32,720 --> 00:02:37,240 Speaker 1: Now also continued caution after this spring's banking crisis and 45 00:02:37,440 --> 00:02:40,640 Speaker 1: failures of a signature bank. We had Silicon Valley Bank, 46 00:02:40,680 --> 00:02:43,360 Speaker 1: first Republic Bank now part of JP Morgan Chase, now 47 00:02:43,960 --> 00:02:47,639 Speaker 1: some say still unresolved this crisis. How has that impacted 48 00:02:47,760 --> 00:02:48,680 Speaker 1: the major lenders? 49 00:02:49,120 --> 00:02:51,760 Speaker 6: So part of it really I think has been a 50 00:02:51,800 --> 00:02:55,440 Speaker 6: wake up call to consumers that maybe haven't looked for 51 00:02:56,880 --> 00:03:00,360 Speaker 6: haven't looked at their deposits in a while, and so 52 00:03:00,680 --> 00:03:04,600 Speaker 6: part of it is that sort of accelerating that that 53 00:03:04,680 --> 00:03:08,760 Speaker 6: shift into higher yielding deposits, which is good for consumers, 54 00:03:08,880 --> 00:03:11,360 Speaker 6: but not as good for the banks that have to 55 00:03:11,440 --> 00:03:15,120 Speaker 6: pay those rates. If we look at the broad landscape, 56 00:03:15,160 --> 00:03:17,840 Speaker 6: we had heard from most of the banks in April 57 00:03:17,880 --> 00:03:20,680 Speaker 6: that things had sort of stabilized, and so I think 58 00:03:20,800 --> 00:03:27,880 Speaker 6: that stability continues. So the concern was really very significant 59 00:03:27,919 --> 00:03:30,959 Speaker 6: to positve flight at a few banks, so things were 60 00:03:31,760 --> 00:03:35,040 Speaker 6: extreme in those cases, but the but the broad trend 61 00:03:35,080 --> 00:03:39,680 Speaker 6: for the for the banking industry continues. The second part 62 00:03:39,680 --> 00:03:44,720 Speaker 6: of that is bank investment portfolios. You know, This was 63 00:03:44,760 --> 00:03:47,880 Speaker 6: another issue that led to some of the problems at 64 00:03:47,880 --> 00:03:53,320 Speaker 6: the banks during the pandemic. As those balance deposit balances swelled, 65 00:03:53,960 --> 00:03:57,240 Speaker 6: they were invested in securities. As rates have risen, those 66 00:03:57,280 --> 00:04:03,280 Speaker 6: securities are worth less than they were and so as 67 00:04:03,360 --> 00:04:07,280 Speaker 6: rates move up, will continue to see some pressure on 68 00:04:07,320 --> 00:04:08,320 Speaker 6: those portfolios. 69 00:04:08,680 --> 00:04:11,240 Speaker 1: A dearth of deals this past quarter of the IPO 70 00:04:11,320 --> 00:04:14,920 Speaker 1: market nearly non existent, mergers few and far between. I mean, 71 00:04:15,360 --> 00:04:17,240 Speaker 1: is this a real concern for lenders as well? 72 00:04:17,520 --> 00:04:23,200 Speaker 6: So for the banks broadly, it's really the big six 73 00:04:23,400 --> 00:04:27,720 Speaker 6: universal banks if you will, that are most impacted by 74 00:04:27,760 --> 00:04:31,120 Speaker 6: trends in the global investment banking landscape, so that's fees 75 00:04:31,200 --> 00:04:34,919 Speaker 6: as well as trading, and of the big six, it 76 00:04:35,000 --> 00:04:38,560 Speaker 6: tends to be a smaller part of the business for Wellsbargo, 77 00:04:38,600 --> 00:04:41,200 Speaker 6: though they did have some very good results last quarter, 78 00:04:41,839 --> 00:04:44,680 Speaker 6: so on the investment banking fee front. As you know, 79 00:04:45,360 --> 00:04:49,640 Speaker 6: we had a really solid year in twenty twenty one, 80 00:04:49,760 --> 00:04:53,880 Speaker 6: record levels in businesses like M and A and IPOs. 81 00:04:54,760 --> 00:04:57,720 Speaker 6: Last year things softened and I think the banks were 82 00:04:57,760 --> 00:05:01,680 Speaker 6: still hopeful that things would pick up coming into this year. 83 00:05:01,720 --> 00:05:08,120 Speaker 6: There were some very optimistic expectations built into estimates, but 84 00:05:08,279 --> 00:05:13,400 Speaker 6: as things have progressed. It's looking like those fees are 85 00:05:13,400 --> 00:05:16,839 Speaker 6: going to be studying at much lower levels now. We 86 00:05:16,920 --> 00:05:21,240 Speaker 6: did see some signs of life in the IPO market 87 00:05:21,279 --> 00:05:24,599 Speaker 6: in the quarter. High yield is also an area where 88 00:05:24,680 --> 00:05:28,279 Speaker 6: we've seen some very good issuance in the quarter. But 89 00:05:28,520 --> 00:05:31,240 Speaker 6: M and A, which really sort of held things up 90 00:05:31,440 --> 00:05:34,279 Speaker 6: last year, has really now turned into a headwind. So 91 00:05:35,000 --> 00:05:37,679 Speaker 6: on the feed front, we do expect things to be weaker. 92 00:05:38,080 --> 00:05:41,960 Speaker 6: The question is how are the banks making adjustments to 93 00:05:42,120 --> 00:05:45,680 Speaker 6: their headcount because all of last year the banks really 94 00:05:45,720 --> 00:05:48,920 Speaker 6: did hold out hope and keep that headcount steady. They 95 00:05:48,920 --> 00:05:53,800 Speaker 6: had to really scramble to add bankers when things were 96 00:05:53,839 --> 00:05:56,560 Speaker 6: going really well, and they were hesitant to sort of 97 00:05:56,600 --> 00:05:59,000 Speaker 6: let those people go. But I think now we are 98 00:05:59,040 --> 00:06:02,760 Speaker 6: seeing some adjustment by the banks in terms of the 99 00:06:02,839 --> 00:06:06,320 Speaker 6: expectations going forward that things could be soft. 100 00:06:06,600 --> 00:06:09,599 Speaker 1: Well, let's talk about how the banks, big ones, small ones, 101 00:06:09,640 --> 00:06:13,760 Speaker 1: twenty three in all navigated the Federal Reserve's latest stress test. 102 00:06:14,040 --> 00:06:15,719 Speaker 1: What was different this time? 103 00:06:15,880 --> 00:06:20,919 Speaker 6: So for the big banks, really it was generally pretty positive. 104 00:06:21,080 --> 00:06:24,200 Speaker 6: All five of the six banks are going to see 105 00:06:24,200 --> 00:06:26,960 Speaker 6: their capital requirements come down as a result of the 106 00:06:26,960 --> 00:06:30,840 Speaker 6: stress test. So City group is that the outlier, their 107 00:06:31,040 --> 00:06:35,559 Speaker 6: stressed capital in the tests actually looked a little worse, 108 00:06:35,640 --> 00:06:39,000 Speaker 6: and so their requirement is going to be going up. 109 00:06:39,160 --> 00:06:43,719 Speaker 6: I think one thing that is highlighted by the results 110 00:06:43,720 --> 00:06:46,960 Speaker 6: both this year and last year is just the volatility 111 00:06:46,960 --> 00:06:50,000 Speaker 6: that we're getting in terms of capital requirements for these 112 00:06:50,040 --> 00:06:54,120 Speaker 6: big banks. So last year, JP Morgan, Bank of American 113 00:06:54,200 --> 00:06:58,400 Speaker 6: City Group all saw very big increases in their capital requirements. 114 00:06:58,440 --> 00:07:03,120 Speaker 6: They had to very rapidly shrink their balance sheets to 115 00:07:03,160 --> 00:07:04,960 Speaker 6: make sure that they were going to comply with the 116 00:07:05,000 --> 00:07:09,200 Speaker 6: newer requirements. This year, for the most part, it's the opposite. Again, 117 00:07:09,680 --> 00:07:12,400 Speaker 6: the City was a little bit of different story, but 118 00:07:12,520 --> 00:07:16,400 Speaker 6: also there's these big changes that we're seeing. But then 119 00:07:16,440 --> 00:07:19,960 Speaker 6: also for the banks, are trying to understand some of 120 00:07:20,000 --> 00:07:22,080 Speaker 6: the numbers that we get from the FED are so 121 00:07:22,200 --> 00:07:24,880 Speaker 6: different than the tests that they run themselves, and so 122 00:07:25,120 --> 00:07:30,360 Speaker 6: in particular Bank of America, which had a very significantly 123 00:07:31,080 --> 00:07:35,240 Speaker 6: better result, it's not going to fully translate into a 124 00:07:35,240 --> 00:07:38,960 Speaker 6: lower ratio because there is a minimum there. So a 125 00:07:38,960 --> 00:07:41,679 Speaker 6: lot of that had to do with changes in their 126 00:07:41,840 --> 00:07:46,360 Speaker 6: other comprehensive income and they are talking to the FED 127 00:07:46,400 --> 00:07:49,120 Speaker 6: to try to understand why their number is so much 128 00:07:49,160 --> 00:07:50,119 Speaker 6: different than the FED. 129 00:07:50,320 --> 00:07:54,119 Speaker 1: And at the fed's meeting just now the following week 130 00:07:54,360 --> 00:07:57,720 Speaker 1: after Earning Start, we're expected to see some new proposals 131 00:07:57,880 --> 00:07:59,520 Speaker 1: on bank capital requirements. 132 00:07:59,560 --> 00:08:00,000 Speaker 7: Is that right? 133 00:08:00,200 --> 00:08:04,000 Speaker 6: That is that is correct? We're waiting for the big 134 00:08:04,040 --> 00:08:07,600 Speaker 6: banks are waiting to see what we're calling the Basil 135 00:08:07,640 --> 00:08:13,040 Speaker 6: three endgame. So the finalization of some rules which Powell 136 00:08:13,160 --> 00:08:17,000 Speaker 6: to confirm, could lead to the banks having to hold 137 00:08:17,160 --> 00:08:21,040 Speaker 6: more capital. And so that's another reason why that the 138 00:08:21,080 --> 00:08:24,640 Speaker 6: stress tests were sort of, you know, one piece of 139 00:08:24,680 --> 00:08:28,040 Speaker 6: information that we have for the for the near term. 140 00:08:28,640 --> 00:08:34,840 Speaker 6: But the banks are conservative, we think on buybacks, despite 141 00:08:35,240 --> 00:08:38,079 Speaker 6: the good results from the test for most banks, because 142 00:08:39,040 --> 00:08:42,000 Speaker 6: they don't know what's coming from these endgame rules. I 143 00:08:42,040 --> 00:08:45,320 Speaker 6: would say that these rules will obviously be phased in 144 00:08:45,440 --> 00:08:50,520 Speaker 6: over time. The banks have a significant amount of capital 145 00:08:50,520 --> 00:08:53,640 Speaker 6: that they're generating every quarter and every year to meet 146 00:08:53,679 --> 00:08:57,360 Speaker 6: these higher requirements. But it is a question that the 147 00:08:57,400 --> 00:08:58,920 Speaker 6: banks are looking to be resolved. 148 00:08:59,160 --> 00:08:59,360 Speaker 3: Wow. 149 00:08:59,400 --> 00:09:02,080 Speaker 1: Well, let's talk then about these some of the individual 150 00:09:02,160 --> 00:09:05,600 Speaker 1: banks that are reporting later this week, JP, Morgan, Chase, Wells, 151 00:09:05,640 --> 00:09:09,400 Speaker 1: Fargo City Group, those three giants. Alison, what are you 152 00:09:09,400 --> 00:09:12,520 Speaker 1: expecting to see and will they be different? Those three 153 00:09:12,840 --> 00:09:15,160 Speaker 1: are we going to see sort of a similar pattern. 154 00:09:16,320 --> 00:09:19,280 Speaker 6: So I think we'll see sort of a similar pattern 155 00:09:20,080 --> 00:09:24,280 Speaker 6: as we saw last quarter. That interest income growth still 156 00:09:24,480 --> 00:09:28,960 Speaker 6: is very strong. So the issue is really not that 157 00:09:29,120 --> 00:09:32,640 Speaker 6: it's weak, it's just that the strength is slowing, if 158 00:09:32,679 --> 00:09:36,720 Speaker 6: you will. And so Bank of America, JP, Morgan, and 159 00:09:36,800 --> 00:09:39,840 Speaker 6: Wells Fargo, we think are all still going to be 160 00:09:39,920 --> 00:09:42,720 Speaker 6: able to are going to be the bigger beneficiaries there 161 00:09:43,120 --> 00:09:47,080 Speaker 6: in terms of seeing revenue growth and operating leverage for 162 00:09:47,120 --> 00:09:50,360 Speaker 6: a city group. On the cost side of things that 163 00:09:50,520 --> 00:09:54,880 Speaker 6: you know, they're they're still working through some regulatory issues 164 00:09:54,920 --> 00:09:59,680 Speaker 6: what they call the transformational costs, and so that will 165 00:09:59,760 --> 00:10:03,240 Speaker 6: eat into their ability to post operating leverage. And then 166 00:10:03,880 --> 00:10:07,000 Speaker 6: Goldman Sachs and Morgan Stanley because these banks are much 167 00:10:07,000 --> 00:10:11,680 Speaker 6: more capital markets focused, we're seeing trading normalizing. We discuss 168 00:10:11,720 --> 00:10:16,760 Speaker 6: the weaker fees, and so these banks may also have 169 00:10:16,880 --> 00:10:22,160 Speaker 6: severance costs as they adjust their workforce, and so less 170 00:10:22,880 --> 00:10:24,319 Speaker 6: positive for those banks. 171 00:10:24,679 --> 00:10:26,720 Speaker 1: Oh, Allison, a lot to look forward to. Thank you 172 00:10:26,760 --> 00:10:29,520 Speaker 1: so much for joining us. Coming up on Bloomberg Day 173 00:10:29,520 --> 00:10:33,920 Speaker 1: Break weekend, President Biden and US relations with NATO. I'm 174 00:10:33,960 --> 00:10:48,520 Speaker 1: Tom Busby, and this is Bloomberg. This is Bloomberg Day 175 00:10:48,559 --> 00:10:51,040 Speaker 1: Break weekend, our global look ahead at the top stories 176 00:10:51,040 --> 00:10:53,760 Speaker 1: for investors in the coming week. I'm Tom Busby in 177 00:10:53,840 --> 00:10:56,440 Speaker 1: New York. Up later in our program and look at 178 00:10:56,480 --> 00:10:59,480 Speaker 1: China's struggling economy and what to watch for this coming 179 00:10:59,480 --> 00:11:02,480 Speaker 1: week on that front. But first, President Biden has been 180 00:11:02,520 --> 00:11:06,680 Speaker 1: working on rebuilding closer relations with some NATO countries after 181 00:11:06,800 --> 00:11:11,280 Speaker 1: the Trump administration's emphasis elsewhere. Now for more on why 182 00:11:11,400 --> 00:11:13,920 Speaker 1: we'll be watching this in the coming days, let's head 183 00:11:13,920 --> 00:11:16,400 Speaker 1: to our Bloomberg ninety nine one news from in Washington 184 00:11:16,720 --> 00:11:19,880 Speaker 1: and Bloomberg Sound On host Kaylee Liones. 185 00:11:20,240 --> 00:11:22,640 Speaker 2: Yeah, Tom all eyes will be not on Washington this 186 00:11:22,679 --> 00:11:26,240 Speaker 2: coming week, but Lithuania, where the NATO Alliance is set 187 00:11:26,280 --> 00:11:28,800 Speaker 2: to meet with a focus on Russia's war in Ukraine. 188 00:11:29,040 --> 00:11:31,679 Speaker 2: US President Joe Biden will meet with his counterparts about 189 00:11:31,720 --> 00:11:35,160 Speaker 2: future security assistance and economic deterrence and the future of 190 00:11:35,200 --> 00:11:38,400 Speaker 2: the alliance, as well as Finland officially enters the group 191 00:11:38,480 --> 00:11:42,840 Speaker 2: and Sweden faces stubborn opposition from Turkey on acceptance. President 192 00:11:42,920 --> 00:11:45,880 Speaker 2: Joe Biden actually in advance of the summit welcomed Sweden's 193 00:11:45,920 --> 00:11:48,440 Speaker 2: Prime minister to the White House this past week and 194 00:11:48,520 --> 00:11:50,920 Speaker 2: praised the prospect of his country joining NATO. 195 00:11:51,200 --> 00:11:55,640 Speaker 8: The United States fully, fully, fully support Sweden membership in NATO, 196 00:11:56,360 --> 00:11:59,680 Speaker 8: and the bottom line is simple, Sweden that is going 197 00:11:59,760 --> 00:12:03,400 Speaker 8: to make per alliance stronger and has the same value 198 00:12:03,440 --> 00:12:07,440 Speaker 8: set that we have in NATO and really looking actiously 199 00:12:07,559 --> 00:12:08,559 Speaker 8: looking forward. 200 00:12:08,800 --> 00:12:12,079 Speaker 2: For your membership now. Sweden's Foreign minister also spoke to 201 00:12:12,120 --> 00:12:14,960 Speaker 2: Bloomberg TV after meeting with his counterparts from Turkey and 202 00:12:15,000 --> 00:12:19,040 Speaker 2: Finland at NATO headquarters this past Thursday about his hopes 203 00:12:19,280 --> 00:12:21,079 Speaker 2: for completing a session we. 204 00:12:21,080 --> 00:12:24,320 Speaker 9: Are now closing in towards the summit in Vilnius next week. 205 00:12:24,400 --> 00:12:27,960 Speaker 9: It is Minam the Swedish government's hope that we will 206 00:12:27,960 --> 00:12:32,080 Speaker 9: now see a clear response from the Turkish side so 207 00:12:32,080 --> 00:12:35,439 Speaker 9: that the ratification process can start in the Turkish parliament 208 00:12:35,440 --> 00:12:37,000 Speaker 9: and Sweden can become NATO member. 209 00:12:37,040 --> 00:12:38,840 Speaker 2: All right, so let's talk more about what is to 210 00:12:38,880 --> 00:12:41,400 Speaker 2: come from this NATO summit. Joining me here in Washington 211 00:12:41,520 --> 00:12:43,839 Speaker 2: is Justin Sinc who covers the White House for US 212 00:12:44,120 --> 00:12:47,920 Speaker 2: here at Bloomberg, So Justin at least for President Biden, 213 00:12:48,400 --> 00:12:51,920 Speaker 2: what is his primary objective at NATO this coming week? 214 00:12:52,000 --> 00:12:52,760 Speaker 2: Is it Sweden? 215 00:12:53,600 --> 00:12:55,880 Speaker 10: I think Sweden's a huge part of it, because for 216 00:12:55,960 --> 00:13:01,000 Speaker 10: President Biden, the ascension of Sweden and finn into NATO 217 00:13:01,559 --> 00:13:08,360 Speaker 10: is representative of a new sort of block against Russia. 218 00:13:09,000 --> 00:13:12,319 Speaker 10: For a long time, those Nordic states had stayed neutral, 219 00:13:12,559 --> 00:13:15,080 Speaker 10: not wanted to depict sides. I actually really celebrated the 220 00:13:15,120 --> 00:13:18,080 Speaker 10: fact that between Russia and the United States or Russia 221 00:13:18,120 --> 00:13:22,240 Speaker 10: in the West, they were a neutral party. The Russia's 222 00:13:22,240 --> 00:13:26,840 Speaker 10: invasion of Ukraine has sort of jambled politics in those 223 00:13:26,840 --> 00:13:30,120 Speaker 10: countries that are now looking at what happened in Ukraine 224 00:13:30,120 --> 00:13:32,760 Speaker 10: and worried about their own defense, and so getting them 225 00:13:32,760 --> 00:13:36,679 Speaker 10: into the NATO alliance is a big symbolic move for 226 00:13:36,800 --> 00:13:40,880 Speaker 10: President Biden, who has really sort of stressed that NATO 227 00:13:40,880 --> 00:13:44,480 Speaker 10: has gotten larger and stronger since the invasion, contrary to 228 00:13:44,679 --> 00:13:49,120 Speaker 10: what he believes Russian President of Vladimir Putin thought going in, 229 00:13:49,160 --> 00:13:51,440 Speaker 10: which is that NATO would splinter under an attack and 230 00:13:51,480 --> 00:13:53,760 Speaker 10: that there wouldn't be sustained support for Ukraine. 231 00:13:53,960 --> 00:13:56,840 Speaker 2: So of what President Biden wants is to get Sweden 232 00:13:56,840 --> 00:13:58,800 Speaker 2: into this alliance, it's a question of what he's willing 233 00:13:58,880 --> 00:14:01,000 Speaker 2: to give up to make that happened right. The issue 234 00:14:01,040 --> 00:14:04,440 Speaker 2: of f sixteens and Turkey. Do we have a full 235 00:14:04,520 --> 00:14:07,480 Speaker 2: understanding of where exactly the administration comes down on this. 236 00:14:08,160 --> 00:14:10,640 Speaker 10: It's a little tricky. I do think that there's broadly 237 00:14:10,720 --> 00:14:15,000 Speaker 10: support within the Administration for giving Turkey F sixteens, despite 238 00:14:15,040 --> 00:14:18,400 Speaker 10: some of the problems that they've had with Turkey adopting 239 00:14:19,000 --> 00:14:24,480 Speaker 10: Russian technology into their military platforms that have caused sort 240 00:14:24,520 --> 00:14:28,080 Speaker 10: of problems with the NATO alliance through the years. That 241 00:14:28,240 --> 00:14:32,200 Speaker 10: you know, even with those concerns, there is support from 242 00:14:32,240 --> 00:14:35,400 Speaker 10: the White House for these F sixteens. But there are 243 00:14:35,440 --> 00:14:39,800 Speaker 10: Democrats on Capitol Hill, including Senator Menendez of who chairs 244 00:14:39,840 --> 00:14:43,120 Speaker 10: the Foreign Relations Committee, who is opposed to the sale. 245 00:14:43,240 --> 00:14:47,120 Speaker 10: And it will take some real legislative strong arming from 246 00:14:47,120 --> 00:14:50,600 Speaker 10: the White House to get a possible deal through, particularly 247 00:14:50,800 --> 00:14:54,000 Speaker 10: if everybody is upset with Turkey because they're holding up 248 00:14:54,040 --> 00:14:57,600 Speaker 10: Sweden's membership, and so Turkey doesn't want to move first 249 00:14:57,960 --> 00:15:00,600 Speaker 10: and potentially lose out on these F sixteen because they 250 00:15:00,640 --> 00:15:03,160 Speaker 10: have already sort of publicly said that they'd accept Sweden. 251 00:15:03,680 --> 00:15:07,479 Speaker 10: But in the US, you know, both Democrats and Republicans 252 00:15:07,640 --> 00:15:11,760 Speaker 10: are skeptical about authorizing this defense deal unless they have 253 00:15:11,880 --> 00:15:12,800 Speaker 10: that sort of in hand. 254 00:15:13,520 --> 00:15:16,000 Speaker 2: So Obviously it's a tricky situation and frankly we might 255 00:15:16,040 --> 00:15:18,760 Speaker 2: not even be talking about Sweden trying to join NATO 256 00:15:18,840 --> 00:15:20,800 Speaker 2: or the US, you know, trying to put forward that 257 00:15:20,840 --> 00:15:22,960 Speaker 2: effort if not for the war in Ukraine, as you 258 00:15:23,000 --> 00:15:26,280 Speaker 2: were alluding to. So Ukraine has to feature highly on 259 00:15:26,320 --> 00:15:29,120 Speaker 2: the agenda as well expansion of NATO aside, what else 260 00:15:29,160 --> 00:15:33,320 Speaker 2: are we expecting to come from this summit Regarding Ukraine specifically. 261 00:15:32,960 --> 00:15:35,600 Speaker 10: I think there's two things that we'll really be looking for. 262 00:15:36,120 --> 00:15:39,520 Speaker 10: One is what the new stepped up defense packages that 263 00:15:39,600 --> 00:15:42,960 Speaker 10: the US and other allies are shipping to Ukraine. Shortly 264 00:15:43,000 --> 00:15:45,400 Speaker 10: before the SUMMITO was announced that the US would start 265 00:15:45,440 --> 00:15:50,880 Speaker 10: providing cluster bombs, which have been controversial because of how 266 00:15:50,920 --> 00:15:53,520 Speaker 10: they are not as sort of precision guided as other 267 00:15:54,320 --> 00:15:56,640 Speaker 10: weapon systems and that can lead to collateral damage. But 268 00:15:56,680 --> 00:15:59,360 Speaker 10: it's something that Ukraine has said could be really helpful 269 00:15:59,400 --> 00:16:02,520 Speaker 10: to them, especially in areas where Russia has sort of 270 00:16:02,600 --> 00:16:05,840 Speaker 10: dug in on the battlefield. So that was a big concession. 271 00:16:05,880 --> 00:16:10,600 Speaker 10: Ukraine is always pushing for more supplies, new types of supplies, 272 00:16:10,640 --> 00:16:15,080 Speaker 10: bigger supplies, and so that will be an area to 273 00:16:15,080 --> 00:16:18,000 Speaker 10: look and it'll especially be interesting within the prism of 274 00:16:18,040 --> 00:16:21,920 Speaker 10: the sort of two percent of GDP goal that NATO 275 00:16:21,960 --> 00:16:25,480 Speaker 10: countries have long set but long for the most part 276 00:16:25,600 --> 00:16:30,520 Speaker 10: failed to sort of reach up to, and so less 277 00:16:30,640 --> 00:16:33,600 Speaker 10: tangible but almost as significant thing will be if there's 278 00:16:33,680 --> 00:16:37,040 Speaker 10: new language about that two percent goal, and whether it 279 00:16:37,120 --> 00:16:40,960 Speaker 10: becomes rather than an aspiration or a ceiling of a 280 00:16:41,080 --> 00:16:43,440 Speaker 10: floor for defense mending for NATO countries. 281 00:16:43,760 --> 00:16:46,400 Speaker 2: Is there a real conversation to be had or currently 282 00:16:46,440 --> 00:16:50,840 Speaker 2: being had about Ukraine becoming a part of NATO, because obviously, 283 00:16:50,880 --> 00:16:53,680 Speaker 2: given the articles of the Alliance, an attack against one 284 00:16:53,760 --> 00:16:55,640 Speaker 2: is an attack against all, and this is a country 285 00:16:55,640 --> 00:16:58,880 Speaker 2: that is at war, which makes that a highly complicated proposition. 286 00:16:59,440 --> 00:17:02,280 Speaker 10: Yeah, it's it's a huge question, especially because Ukraine is 287 00:17:02,400 --> 00:17:05,480 Speaker 10: very eager to enter the Alliance because it would offer 288 00:17:05,520 --> 00:17:11,159 Speaker 10: them new protections and sort of trigger a more aggressive 289 00:17:11,920 --> 00:17:16,000 Speaker 10: potential response from the West. But at the same time, 290 00:17:16,320 --> 00:17:19,280 Speaker 10: you know, the United States and many of its allies 291 00:17:19,320 --> 00:17:23,480 Speaker 10: are very wary of escalating the current the current conflict 292 00:17:23,480 --> 00:17:26,520 Speaker 10: beyond what is already obviously a sort of tragic and 293 00:17:26,560 --> 00:17:31,320 Speaker 10: sweeping situation. So I think what we'll see is language 294 00:17:31,359 --> 00:17:35,679 Speaker 10: that you know, post war may make it much easier 295 00:17:35,720 --> 00:17:38,560 Speaker 10: for Ukraine to enter the Alliance. This is even before 296 00:17:38,640 --> 00:17:43,000 Speaker 10: the invasion, been an aspiration of Theirs and a long 297 00:17:43,080 --> 00:17:46,879 Speaker 10: and winding path to get there. So there's no doubt 298 00:17:46,880 --> 00:17:50,879 Speaker 10: that President Selenski and some of the countries that are 299 00:17:50,880 --> 00:17:52,600 Speaker 10: really close to Ukraine, like Poland, are going to be 300 00:17:52,640 --> 00:17:56,919 Speaker 10: pushing hard on this front. But it's unclear how exactly 301 00:17:56,960 --> 00:17:57,840 Speaker 10: it's all going to shake out. 302 00:17:57,920 --> 00:18:00,720 Speaker 2: Yeah, and it's very unclear when post war or even 303 00:18:00,880 --> 00:18:03,960 Speaker 2: will be. We have no real endgame that's in sight 304 00:18:04,040 --> 00:18:06,639 Speaker 2: at this point, and as the war is ongoing, just 305 00:18:06,680 --> 00:18:09,040 Speaker 2: talking about the composition of the Alliance and who really 306 00:18:09,080 --> 00:18:11,399 Speaker 2: is at the helm, Jen Stoltenberg's going to be sticking 307 00:18:11,400 --> 00:18:13,080 Speaker 2: around for a while longer. 308 00:18:13,119 --> 00:18:17,399 Speaker 10: There's a real you once you get in a Yeah, 309 00:18:18,440 --> 00:18:22,640 Speaker 10: he is sticking around because the Alliance could not come 310 00:18:22,680 --> 00:18:26,680 Speaker 10: to a consensus around a replacement candidate. The UK had 311 00:18:26,720 --> 00:18:30,040 Speaker 10: put forward a candidate, there were other candidates within Europe, 312 00:18:30,080 --> 00:18:34,199 Speaker 10: and there had not really been somebody that everybody co 313 00:18:34,359 --> 00:18:36,840 Speaker 10: ust around, And part of the reason is that we 314 00:18:36,920 --> 00:18:39,879 Speaker 10: didn't see the US sort of pick aside. There have 315 00:18:39,920 --> 00:18:44,080 Speaker 10: been reports, though the White House is flatly declined to 316 00:18:44,119 --> 00:18:47,480 Speaker 10: comment on them, that we were upset over the UK 317 00:18:47,840 --> 00:18:54,760 Speaker 10: sort of pressuring US and other countries into going forward 318 00:18:54,760 --> 00:18:59,119 Speaker 10: with the F sixteen program for Ukraine, which there was 319 00:18:59,359 --> 00:19:02,399 Speaker 10: a genuine concern that it could escalate the conflict, and 320 00:19:02,440 --> 00:19:06,720 Speaker 10: so as a as a result, it may have resulted 321 00:19:06,760 --> 00:19:11,680 Speaker 10: in it may have resulted in the US not backing 322 00:19:12,200 --> 00:19:16,200 Speaker 10: the UK bid to lead NATO. But a big conversation 323 00:19:16,240 --> 00:19:18,720 Speaker 10: among leaders is going to be who can bring the 324 00:19:18,720 --> 00:19:22,199 Speaker 10: alliance forward. Stolenberg's not going to be there forever and 325 00:19:22,240 --> 00:19:23,960 Speaker 10: they need to find a consensus. 326 00:19:23,960 --> 00:19:25,879 Speaker 2: Canada, all right, So it's a busy week ahead for 327 00:19:26,040 --> 00:19:28,520 Speaker 2: President Biden and for those who cover him like are 328 00:19:28,600 --> 00:19:30,480 Speaker 2: very own Justin Sink, who covers the White House for 329 00:19:30,560 --> 00:19:33,480 Speaker 2: us here at Bloomberg. Thank you so much. Tom. We'll 330 00:19:33,520 --> 00:19:34,199 Speaker 2: send it back to you. 331 00:19:34,320 --> 00:19:36,600 Speaker 1: Thank you, Kaylee. That was Bloomberg Sound don co host 332 00:19:36,680 --> 00:19:39,480 Speaker 1: Kaylee Lines, reporting from our Bloomberg ninety nine to one 333 00:19:39,520 --> 00:19:43,200 Speaker 1: newsroom in Washington, and you can hear sound on weekdays 334 00:19:43,240 --> 00:19:45,840 Speaker 1: one to three pm on Bloomberg Radio and coming up 335 00:19:45,920 --> 00:19:49,560 Speaker 1: on Bloomberg Day Break weekend, What's next for China's economy. 336 00:19:49,840 --> 00:19:51,800 Speaker 1: I'm Tom Busby and this is. 337 00:19:51,760 --> 00:20:06,320 Speaker 5: Bloomberg broadcasting live from the Bloomberg It a active brokers 338 00:20:06,320 --> 00:20:09,199 Speaker 5: studio in New York. Bloomberg eleven three to zero to 339 00:20:09,359 --> 00:20:12,959 Speaker 5: Washington d C, Bloomberg ninety nine one to Boston, Bloomberg 340 00:20:13,000 --> 00:20:16,280 Speaker 5: one oh six one to San Francisco, Bloomberg nine sixteen 341 00:20:16,359 --> 00:20:19,199 Speaker 5: to the country Syrius XM channel one to nineteen to 342 00:20:19,320 --> 00:20:23,159 Speaker 5: London DAB Digital Radio, and around the globe the Bloomberg 343 00:20:23,200 --> 00:20:27,080 Speaker 5: Business app in Bloomberg Radio dot Com. This is Bloomberg 344 00:20:27,160 --> 00:20:28,200 Speaker 5: Daybreak Weekend. 345 00:20:34,520 --> 00:20:36,560 Speaker 1: I'm Tom Busby in New York with your global look 346 00:20:36,560 --> 00:20:39,760 Speaker 1: ahead at the top stories for investors in the coming week. Next, 347 00:20:39,760 --> 00:20:43,600 Speaker 1: we look at China's faltering recovery. Can policymakers crack the 348 00:20:43,640 --> 00:20:47,960 Speaker 1: code and unleash the animal spirits? Let's get to Brian Curtis, 349 00:20:48,160 --> 00:20:50,119 Speaker 1: co host of Bloomberg Daybreak Asia. 350 00:20:50,520 --> 00:20:54,640 Speaker 3: Tom, investors are dropping their expectations for gains in Chinese 351 00:20:54,720 --> 00:20:57,840 Speaker 3: assets this year. Now, there's a wealth of disappointment in 352 00:20:57,920 --> 00:21:00,760 Speaker 3: the measures being taken to try to re vitalize the 353 00:21:00,840 --> 00:21:05,919 Speaker 3: Chinese economy. Despite calls from more aggressive stimulus, policymakers, at 354 00:21:06,000 --> 00:21:09,280 Speaker 3: least at the moment, appear to be sticking with targeted measures. 355 00:21:09,720 --> 00:21:12,440 Speaker 3: What might change that. We've got a lot to discuss 356 00:21:12,520 --> 00:21:14,879 Speaker 3: I've asked ten Chen, the team leader for FX and 357 00:21:14,960 --> 00:21:18,880 Speaker 3: rates in Asia, to join us here on the program. Tenchen, 358 00:21:19,000 --> 00:21:21,720 Speaker 3: thanks very much for being with us well. The PBOC 359 00:21:22,040 --> 00:21:25,119 Speaker 3: has extended its support for the yuan with some of 360 00:21:25,160 --> 00:21:27,959 Speaker 3: these stronger fixes that we've seen of late. But this 361 00:21:28,040 --> 00:21:31,920 Speaker 3: is really more about arresting the decline in the currency. 362 00:21:31,960 --> 00:21:35,320 Speaker 3: It's not really about stimulus. But let's talk a little 363 00:21:35,320 --> 00:21:39,919 Speaker 3: bit about why the PBOC wants to address that decline. 364 00:21:40,400 --> 00:21:43,360 Speaker 11: Yes, of course that's a good question. So basically PBOC 365 00:21:43,520 --> 00:21:48,440 Speaker 11: is in a very difficult dilemma right now. So PBOC 366 00:21:48,600 --> 00:21:51,000 Speaker 11: knows that if the yuan is weak, when the economic 367 00:21:51,080 --> 00:21:53,880 Speaker 11: fundamentals are weak, a weaker currency is going to help 368 00:21:53,960 --> 00:21:56,320 Speaker 11: the economy is because it's a big support for the 369 00:21:56,359 --> 00:22:00,160 Speaker 11: exports sector. But at the same time, a very weak 370 00:22:00,680 --> 00:22:04,199 Speaker 11: yuan means that we're going to see financial stability because 371 00:22:04,400 --> 00:22:06,720 Speaker 11: a very fast decline in the yuan, that means that 372 00:22:06,880 --> 00:22:09,120 Speaker 11: it's gonna spill over to the stocks market, it's gonna 373 00:22:09,119 --> 00:22:11,760 Speaker 11: spill over to the to the bunk market, and that's 374 00:22:11,800 --> 00:22:15,760 Speaker 11: going to prevent foreign investors from buying Chinese assets. So 375 00:22:15,760 --> 00:22:18,520 Speaker 11: so in the stylema BBOC has to strike a balance 376 00:22:18,600 --> 00:22:22,960 Speaker 11: of you know, keeping the yuana weak, but not so 377 00:22:23,000 --> 00:22:25,720 Speaker 11: weak that's going to trigger any sort of panic. That's 378 00:22:25,720 --> 00:22:29,040 Speaker 11: why you are seeing this. We're in this situation where 379 00:22:29,080 --> 00:22:33,400 Speaker 11: the PBOC is supporting the yuan with stronger than expected fixings, 380 00:22:33,640 --> 00:22:36,760 Speaker 11: but the bias, I mean, that's the actual fixing versus 381 00:22:36,840 --> 00:22:39,879 Speaker 11: the Bloombird estimate. The bias is not very big. It's 382 00:22:39,920 --> 00:22:43,359 Speaker 11: about three hundred pips every single day, and that's far 383 00:22:43,560 --> 00:22:46,200 Speaker 11: away from the levels that we saw last year where 384 00:22:46,240 --> 00:22:49,040 Speaker 11: it went to as high as eight hundred pips. So 385 00:22:49,080 --> 00:22:52,240 Speaker 11: the PBOC is only taking very moderate measures to support 386 00:22:52,240 --> 00:22:55,680 Speaker 11: the yuan, and it has a ton of tools they 387 00:22:55,680 --> 00:22:59,320 Speaker 11: can use to be more aggressive when it sees the 388 00:22:59,400 --> 00:23:02,639 Speaker 11: yuan being two week But right now the PBOs is 389 00:23:02,680 --> 00:23:06,240 Speaker 11: really keeping it spowder dry, just using the fixing with 390 00:23:06,280 --> 00:23:07,760 Speaker 11: a little bit of verbal intervention. 391 00:23:08,119 --> 00:23:10,600 Speaker 3: It's something else you didn't mention, which has been an 392 00:23:10,640 --> 00:23:13,439 Speaker 3: issue at times in the past is capital flight. But 393 00:23:13,520 --> 00:23:15,800 Speaker 3: they have made a number of moves on this front 394 00:23:15,880 --> 00:23:19,000 Speaker 3: to keep capital from flowing out of China, but still 395 00:23:19,160 --> 00:23:20,879 Speaker 3: must be in the back of everyone's minds. 396 00:23:21,560 --> 00:23:25,000 Speaker 11: Yeah, there's still pent up demand to take capital out 397 00:23:25,040 --> 00:23:29,200 Speaker 11: of China. Remember that onshore investors, onshore residents. They can 398 00:23:29,240 --> 00:23:34,720 Speaker 11: only convert fifty k of US dollars into the of 399 00:23:34,880 --> 00:23:38,840 Speaker 11: US dollars. They can only buy fifty k of US dollars, 400 00:23:39,280 --> 00:23:41,600 Speaker 11: So that's not a lot of money. Like if you 401 00:23:41,600 --> 00:23:44,080 Speaker 11: want to buy apartment in Hong Kong that it can 402 00:23:44,119 --> 00:23:47,040 Speaker 11: only buy you like one square feet or something. So 403 00:23:48,200 --> 00:23:51,200 Speaker 11: it does it is the curbs are very high. I mean, 404 00:23:51,240 --> 00:23:53,480 Speaker 11: once the curbs got dropped, we're going to see a 405 00:23:53,560 --> 00:23:57,120 Speaker 11: lot of all flows happening. Right now, we haven't seen 406 00:23:57,800 --> 00:24:01,880 Speaker 11: very recent measures of the PBOC titan macro prudential measures 407 00:24:01,920 --> 00:24:03,840 Speaker 11: on the on the corporate side. But when if it 408 00:24:03,880 --> 00:24:05,960 Speaker 11: wants to it can you really can't do that. 409 00:24:06,560 --> 00:24:09,240 Speaker 3: Now people ask me sometimes you know, how uncomfortable is 410 00:24:09,280 --> 00:24:11,560 Speaker 3: the PBOC with you on weakness, and I think you've 411 00:24:11,560 --> 00:24:14,440 Speaker 3: outlined that, well, there's a balance there. A slightly weaker 412 00:24:14,520 --> 00:24:17,320 Speaker 3: currency is actually good in some ways for China, stimulating 413 00:24:17,680 --> 00:24:20,600 Speaker 3: exports and such. But they do have these other concerns. 414 00:24:21,040 --> 00:24:24,080 Speaker 3: But where does it get uncomfortable for them in terms 415 00:24:24,080 --> 00:24:26,160 Speaker 3: of like at the moment, we're around seven to twenty 416 00:24:26,200 --> 00:24:29,560 Speaker 3: five and change against the greenback for the offshore Chinese 417 00:24:29,560 --> 00:24:32,159 Speaker 3: currency where would it have to be for all of 418 00:24:32,200 --> 00:24:36,320 Speaker 3: a sudden more aggressive measures to come into play. 419 00:24:36,440 --> 00:24:38,960 Speaker 11: I think it's going to be seven point three, because 420 00:24:38,960 --> 00:24:41,920 Speaker 11: that would be very close to the low in twenty 421 00:24:42,040 --> 00:24:46,520 Speaker 11: twenty three, twenty twenty two, last year in November. So 422 00:24:46,600 --> 00:24:49,080 Speaker 11: if we reach that level, that's gonna the UN's gonna 423 00:24:49,080 --> 00:24:53,719 Speaker 11: get a lot of interest from shorting overseas. And another 424 00:24:53,840 --> 00:24:55,480 Speaker 11: thing that we have to watch out for is the 425 00:24:55,600 --> 00:24:58,679 Speaker 11: R and B C Fast Index. That's uan's value against 426 00:24:58,760 --> 00:25:01,760 Speaker 11: not just the dollar, but a bunch of other effects. 427 00:25:02,280 --> 00:25:04,800 Speaker 11: So if that basket keeps falling, that means the yuan 428 00:25:04,960 --> 00:25:08,200 Speaker 11: is falling against a lot of things. So that's really 429 00:25:08,240 --> 00:25:11,159 Speaker 11: gonna hurt trade. So that's another thing the PBOs is 430 00:25:11,200 --> 00:25:13,520 Speaker 11: looking at, and of course hard behavior. 431 00:25:13,320 --> 00:25:15,640 Speaker 3: Now in terms of the other area of what can 432 00:25:15,680 --> 00:25:20,440 Speaker 3: the PBOC do to actually help stimulate the Chinese economy, 433 00:25:20,920 --> 00:25:24,800 Speaker 3: interest rates is one thing, and also the triple RS 434 00:25:25,000 --> 00:25:30,240 Speaker 3: is another. How much do we expect more aggressive behavior 435 00:25:30,240 --> 00:25:31,040 Speaker 3: here coming soon? 436 00:25:32,080 --> 00:25:34,600 Speaker 11: It is pretty hard, and the PBOC has done a 437 00:25:34,640 --> 00:25:38,359 Speaker 11: lot already and it's not doing more because there's nothing 438 00:25:38,359 --> 00:25:40,720 Speaker 11: else it can do. I mean the triple R cut, 439 00:25:40,800 --> 00:25:43,320 Speaker 11: of course it can it can cut rids further. But 440 00:25:43,440 --> 00:25:47,520 Speaker 11: that's just for a sentiment, like for to restore market sentiment. 441 00:25:47,720 --> 00:25:49,040 Speaker 11: But is it going to be useful. It's not going 442 00:25:49,119 --> 00:25:51,080 Speaker 11: to be useful because the problem is that the demand 443 00:25:51,200 --> 00:25:54,400 Speaker 11: is very weak no matter how much raised the PBOs cut. 444 00:25:54,880 --> 00:25:57,720 Speaker 11: If an investor, like if a Chinese individual doesn't want 445 00:25:57,720 --> 00:25:59,440 Speaker 11: to buy a new home or doesn't want to buy 446 00:25:59,440 --> 00:26:01,760 Speaker 11: a new car, she's not going to buy a new car. 447 00:26:02,520 --> 00:26:05,960 Speaker 11: So what needs to be done right now is fiscal policy, 448 00:26:06,040 --> 00:26:09,520 Speaker 11: Like that's not under PBOs, that's under the Ministry of Finance. 449 00:26:10,440 --> 00:26:14,920 Speaker 11: So if that's if we see more physical stimulus, local 450 00:26:14,960 --> 00:26:19,160 Speaker 11: governments start to sell bounds and to build infrastructure, that's 451 00:26:19,200 --> 00:26:21,680 Speaker 11: going to stimulate the economy. But that's going to carry 452 00:26:21,760 --> 00:26:25,359 Speaker 11: risks Like in twenty eight during the financial crisis, the 453 00:26:25,400 --> 00:26:30,040 Speaker 11: massive stimulus package resulted in a lot of local government 454 00:26:30,080 --> 00:26:33,639 Speaker 11: dead and other issues. And obviously the government is aware 455 00:26:33,680 --> 00:26:34,000 Speaker 11: of that. 456 00:26:34,560 --> 00:26:37,199 Speaker 3: Yeah, we heard a lot from Richard Ku from Nomura 457 00:26:37,359 --> 00:26:40,720 Speaker 3: Research Institute about how fiscal stimulus should be done in 458 00:26:40,800 --> 00:26:45,200 Speaker 3: China And basically, even if they wanted to do that, 459 00:26:45,680 --> 00:26:49,320 Speaker 3: what are the constraints for strong fiscal stimulus that the 460 00:26:49,359 --> 00:26:50,399 Speaker 3: government feels. 461 00:26:50,760 --> 00:26:55,800 Speaker 11: Yeah, there is a side effect for fiscal policy if 462 00:26:55,800 --> 00:26:59,640 Speaker 11: you'll let local governments to sell a lot of bonds 463 00:26:59,800 --> 00:27:05,360 Speaker 11: to that to build infrastructure like highways and then subways, 464 00:27:04,720 --> 00:27:07,400 Speaker 11: when in the end they have to repay the debt 465 00:27:07,880 --> 00:27:11,560 Speaker 11: in like ten years time. And China is already having 466 00:27:11,600 --> 00:27:17,080 Speaker 11: a massive local government debt problem, and we have avs 467 00:27:17,160 --> 00:27:21,399 Speaker 11: facing issues, we have credit risks with corporates. So that's 468 00:27:22,240 --> 00:27:25,080 Speaker 11: that is well. It can resolve the problem maybe stimularly 469 00:27:25,080 --> 00:27:28,520 Speaker 11: economy today, but years from now it can be a 470 00:27:28,520 --> 00:27:30,200 Speaker 11: bigger problem for the government. 471 00:27:30,280 --> 00:27:32,920 Speaker 3: In terms of institutional strength in China. I wanted to 472 00:27:32,920 --> 00:27:36,119 Speaker 3: ask you about Pangong Chung, who has been named the 473 00:27:36,160 --> 00:27:39,760 Speaker 3: new party Secretary for the PBOC and we think will 474 00:27:39,800 --> 00:27:43,480 Speaker 3: become the next governor of the PBOC. Now, he was 475 00:27:43,520 --> 00:27:46,400 Speaker 3: not on the list of the Central Committee, the two 476 00:27:46,520 --> 00:27:51,280 Speaker 3: hundred highest ranking party officials. In any way, does that 477 00:27:51,560 --> 00:27:54,840 Speaker 3: weaken the institution of the PBOC. We already know the 478 00:27:54,840 --> 00:27:57,000 Speaker 3: PBOC has been put under the State Council, right, so 479 00:27:57,440 --> 00:27:59,760 Speaker 3: from that standpoint, it would seem to have a little 480 00:27:59,800 --> 00:28:03,639 Speaker 3: bit less independence than it did before. How do you 481 00:28:03,680 --> 00:28:04,040 Speaker 3: see it? 482 00:28:04,600 --> 00:28:08,240 Speaker 11: That's definitely right, that's the interpretation A lot of people 483 00:28:08,280 --> 00:28:11,280 Speaker 11: are getting from this change, not just from Pangonshan. It's 484 00:28:11,280 --> 00:28:14,560 Speaker 11: been going on for a while. So before Pangonshan, in 485 00:28:14,600 --> 00:28:18,040 Speaker 11: the Egon age, they have Gaciuting as the party's secretary, 486 00:28:18,560 --> 00:28:22,680 Speaker 11: and Egon's level as PBOs governor is being seen as 487 00:28:22,840 --> 00:28:26,879 Speaker 11: less important than Gotiuting's role as a part of governor. 488 00:28:27,240 --> 00:28:29,760 Speaker 11: And it still remains a mystery. We don't know whether 489 00:28:29,800 --> 00:28:32,119 Speaker 11: Punkonshan is going to be the governor, but that's the 490 00:28:32,119 --> 00:28:35,840 Speaker 11: party secretary is definitely a bigger boss than a governor job. 491 00:28:37,000 --> 00:28:40,800 Speaker 11: And the role of the PBOC is is becoming less 492 00:28:40,800 --> 00:28:45,160 Speaker 11: and less independent for sure. Now it's under the State Council, 493 00:28:45,320 --> 00:28:49,240 Speaker 11: and starting from years ago before the PBSC country pollar, 494 00:28:49,280 --> 00:28:51,880 Speaker 11: you can always get some sort of a spoiler from 495 00:28:51,920 --> 00:28:54,000 Speaker 11: the state state consols saying that, oh, we think the 496 00:28:54,000 --> 00:28:56,960 Speaker 11: PBOs should culture pillar soon, and two days later the 497 00:28:56,960 --> 00:28:57,800 Speaker 11: PBOCA does that. 498 00:28:58,360 --> 00:29:00,720 Speaker 3: I wonder how much it matters in that power really 499 00:29:00,760 --> 00:29:03,440 Speaker 3: flows from the very top anyway in China, doesn't it. 500 00:29:03,760 --> 00:29:08,959 Speaker 11: Yeah, yeah, yeah, so's it is. All the government agencies 501 00:29:09,000 --> 00:29:12,200 Speaker 11: are to some extent losing a bit of a power, 502 00:29:12,360 --> 00:29:15,320 Speaker 11: and it is quite concerning if this is happening to 503 00:29:15,360 --> 00:29:15,880 Speaker 11: the PBOC. 504 00:29:16,120 --> 00:29:19,360 Speaker 3: Tinggent thanks so much for joining us Tangent team leader 505 00:29:19,360 --> 00:29:22,520 Speaker 3: for FX and Rates in Asia. I'm Brian Curtis along 506 00:29:22,560 --> 00:29:25,240 Speaker 3: with Doug Krisner. You can catch us every weekday here 507 00:29:25,360 --> 00:29:28,160 Speaker 3: for Bloomberg day Break Asia, beginning at six am in 508 00:29:28,200 --> 00:29:31,400 Speaker 3: Hong Kong and six pm on Wall Street. 509 00:29:31,440 --> 00:29:34,400 Speaker 1: Tom, thank you, Brian, and coming up here. On Bloomberg 510 00:29:34,480 --> 00:29:37,120 Speaker 1: day Break weekend, we turned to the UK economy and 511 00:29:37,280 --> 00:29:40,760 Speaker 1: one controversial idea to get things going again. I'm Tom 512 00:29:40,800 --> 00:29:54,600 Speaker 1: Busby and this is Bloomberg. This is Bloomberg day Break weekend, 513 00:29:54,680 --> 00:29:57,120 Speaker 1: our global look ahead at the top stories for investors 514 00:29:57,160 --> 00:29:59,840 Speaker 1: in the coming week. I'm Tom Busby in New York. 515 00:30:00,440 --> 00:30:04,080 Speaker 1: The UK needs to boost economic growth and one strategy 516 00:30:04,160 --> 00:30:08,080 Speaker 1: being pressed amid a dearth of London IPOs is tapping 517 00:30:08,120 --> 00:30:11,600 Speaker 1: the cash in pension funds. It's thought that a plan 518 00:30:11,800 --> 00:30:14,400 Speaker 1: may be announced by the UK Chancellor next week at 519 00:30:14,400 --> 00:30:17,280 Speaker 1: a major City of London event. And for more, let's 520 00:30:17,320 --> 00:30:20,000 Speaker 1: head to London and bring in Bloomberg Daybreak Europe Banker 521 00:30:20,120 --> 00:30:21,480 Speaker 1: Caroline Hepgar Tom. 522 00:30:21,520 --> 00:30:25,080 Speaker 4: The Chancellor Jeremy Hunt's Mansion House speech is a set 523 00:30:25,200 --> 00:30:28,680 Speaker 4: piece event of the financial calendar in London this year, 524 00:30:28,680 --> 00:30:32,640 Speaker 4: though maybe particularly important for the pensions industry, with big 525 00:30:32,680 --> 00:30:36,800 Speaker 4: pension funds potentially agreeing to invest up to five percent 526 00:30:36,840 --> 00:30:41,200 Speaker 4: of their assets into unlisted UK companies to provide better 527 00:30:41,240 --> 00:30:44,360 Speaker 4: returns and grow the British economy well. For more on 528 00:30:44,440 --> 00:30:47,800 Speaker 4: the story, I'm joined by Bloomberg City Editor Katherine Griffiths. 529 00:30:47,880 --> 00:30:50,440 Speaker 4: Welcome to Radio Katherine, great to have you with us. 530 00:30:51,000 --> 00:30:55,400 Speaker 4: Lots of focus then on the Lord Mayor of London's initiative, 531 00:30:55,800 --> 00:30:59,680 Speaker 4: his idea fifty billion pounds a future growth fund. Who 532 00:30:59,720 --> 00:31:02,240 Speaker 4: do you think is actually going to be in favor? 533 00:31:02,280 --> 00:31:04,440 Speaker 4: Will it get rolled out in this speech? 534 00:31:04,680 --> 00:31:06,920 Speaker 7: It probably will get rolled out in this speech, and 535 00:31:06,960 --> 00:31:09,880 Speaker 7: it's kind of all to play for in the run up. 536 00:31:10,240 --> 00:31:14,640 Speaker 7: There's lots of different conflicting groups. Some are quite in favor, 537 00:31:14,720 --> 00:31:19,080 Speaker 7: some are not even within the same industry. Among the insurers, 538 00:31:19,080 --> 00:31:21,280 Speaker 7: which is other group that are really affected by this, 539 00:31:21,720 --> 00:31:24,719 Speaker 7: Some are quite keen on the idea of signing up 540 00:31:24,760 --> 00:31:28,920 Speaker 7: and allowing about five percent of their defined contribution pension 541 00:31:28,920 --> 00:31:31,840 Speaker 7: funds to go into growth assets, but some are really 542 00:31:31,920 --> 00:31:33,760 Speaker 7: kind of holding out and saying that it could be 543 00:31:33,840 --> 00:31:37,040 Speaker 7: quite problematic. So it's going to the wire ahead of 544 00:31:37,080 --> 00:31:39,680 Speaker 7: the speech as to what the details will actually be Yeah. 545 00:31:39,680 --> 00:31:42,320 Speaker 4: Absolutely, How do you think it's going to work though? 546 00:31:42,320 --> 00:31:44,040 Speaker 4: It's it going to be mandatory? Is it going to 547 00:31:44,040 --> 00:31:45,400 Speaker 4: be a nudge a deal? 548 00:31:45,920 --> 00:31:48,000 Speaker 7: So I think it's not going to be mandatory. So 549 00:31:48,200 --> 00:31:51,640 Speaker 7: Nick Lyons, who is interestingly of the industry, he is 550 00:31:51,680 --> 00:31:55,120 Speaker 7: the chairman of Phoenix, which is the UK's biggest pensions provider. 551 00:31:55,640 --> 00:32:00,520 Speaker 7: He was suggesting that the contributions could be mandatory. That's 552 00:32:00,560 --> 00:32:03,720 Speaker 7: not his preferred option, but they could be mandatory. He's 553 00:32:03,760 --> 00:32:06,080 Speaker 7: not a fool. The reason why he raised that quite 554 00:32:06,160 --> 00:32:09,840 Speaker 7: contentious idea is because if insurers and other asset managers 555 00:32:09,880 --> 00:32:12,360 Speaker 7: are not forced to hand over these funds or to 556 00:32:12,440 --> 00:32:15,040 Speaker 7: direct them in a certain way, they may not do it. 557 00:32:15,440 --> 00:32:19,040 Speaker 7: A decade ago, the Cameron Osborne government tried to do 558 00:32:19,120 --> 00:32:22,800 Speaker 7: something really quite similar. The whole project just didn't go 559 00:32:22,840 --> 00:32:25,800 Speaker 7: anywhere because the insurers and the asset managers and the 560 00:32:25,840 --> 00:32:29,320 Speaker 7: pension funds just couldn't really agree on the terms and 561 00:32:29,360 --> 00:32:31,760 Speaker 7: who to invest in and how so that's where this 562 00:32:31,920 --> 00:32:35,640 Speaker 7: mandatory idea came from. But it's been killed certainly in 563 00:32:35,680 --> 00:32:37,120 Speaker 7: the run up to the Mansion House speech. 564 00:32:37,200 --> 00:32:40,560 Speaker 4: But as you say, it's also quite fraught with difficulty 565 00:32:40,680 --> 00:32:44,040 Speaker 4: I mean, to my mind, I think back to one 566 00:32:44,080 --> 00:32:47,440 Speaker 4: of London's star investors, Neil Woodford, who only a few 567 00:32:47,520 --> 00:32:52,280 Speaker 4: years ago ran it's a huge difficulty with much less 568 00:32:52,400 --> 00:32:57,640 Speaker 4: liquid investments in UK assets, and it's sort of did 569 00:32:57,680 --> 00:32:59,360 Speaker 4: for him in some ways. So I guess maybe you 570 00:32:59,360 --> 00:33:01,400 Speaker 4: could think of that being a kind of a risk. 571 00:33:01,640 --> 00:33:05,000 Speaker 7: Sure, And actually yes, I think the industry says, look, 572 00:33:05,240 --> 00:33:07,560 Speaker 7: it's all very well to want to invest in these 573 00:33:08,040 --> 00:33:11,320 Speaker 7: startups and liquid assets, but you have to face the 574 00:33:11,320 --> 00:33:15,440 Speaker 7: fact that the rate of failure is higher in those areas. 575 00:33:15,440 --> 00:33:18,800 Speaker 7: They are inherently riskier. And the counter argument there as well. 576 00:33:18,840 --> 00:33:22,200 Speaker 7: You know, you invest in a wide range and overtime 577 00:33:22,440 --> 00:33:25,760 Speaker 7: things come good, but when you're talking about people's pensions money, 578 00:33:25,760 --> 00:33:27,040 Speaker 7: there is clearly a problem. 579 00:33:27,200 --> 00:33:30,160 Speaker 4: The pressure there is on the government to deliver better growth. 580 00:33:30,160 --> 00:33:34,040 Speaker 4: We've seen, you know, months of anemic growth. Bloomberg Economics 581 00:33:34,040 --> 00:33:37,040 Speaker 4: now expects a recession in the fourth quarter of this year. 582 00:33:37,080 --> 00:33:40,440 Speaker 4: So the pressure is on this Chancellor and the Prime Minister. 583 00:33:40,800 --> 00:33:43,240 Speaker 7: The pressure is massively on and I suppose they would 584 00:33:43,240 --> 00:33:45,680 Speaker 7: say the hope, and some in the city would say too, 585 00:33:45,720 --> 00:33:48,000 Speaker 7: that the hope is to kind of create a virtuous 586 00:33:48,000 --> 00:33:50,840 Speaker 7: circle where you do invest more in the UK and 587 00:33:50,880 --> 00:33:54,400 Speaker 7: they hark back to say twenty thirty years ago when 588 00:33:54,760 --> 00:33:57,920 Speaker 7: pension funds did invest in UK companies, And so of 589 00:33:57,960 --> 00:34:00,200 Speaker 7: course if you've got that kind of bank of money 590 00:34:00,280 --> 00:34:03,960 Speaker 7: being invested into UK companies, the chances are those companies 591 00:34:04,320 --> 00:34:07,400 Speaker 7: may do better, their valuations will rise. That in turn, 592 00:34:07,440 --> 00:34:09,759 Speaker 7: of course is good for their owners. So the hope 593 00:34:09,800 --> 00:34:12,239 Speaker 7: is to create that virtuous circle. Kathin, thank you so 594 00:34:12,360 --> 00:34:15,280 Speaker 7: much for being with us. Bloomberg City Editor Kathy Griffith, 595 00:34:15,640 --> 00:34:17,839 Speaker 7: and I've Caroline Hepkee here in London. You can catch 596 00:34:17,920 --> 00:34:20,239 Speaker 7: us every weekday morning for Bloomberg Daybreak. Youre at the 597 00:34:20,239 --> 00:34:22,840 Speaker 7: beginning at six am in London. That's one am on 598 00:34:22,960 --> 00:34:23,560 Speaker 7: Wall Street. 599 00:34:23,680 --> 00:34:26,200 Speaker 1: Tom, Thank you Caroline, and that does it for this 600 00:34:26,320 --> 00:34:29,200 Speaker 1: edition of Bloomberg day Break Weekend. Join us again Monday 601 00:34:29,200 --> 00:34:31,400 Speaker 1: morning at five am Wall Street time for the latest 602 00:34:31,400 --> 00:34:34,280 Speaker 1: don markets, overseas and the news you need to start 603 00:34:34,280 --> 00:34:37,840 Speaker 1: your day. I'm Tom Buzzby. Stay with us. Top stories 604 00:34:37,840 --> 00:34:41,680 Speaker 1: and global business headlines are coming up right now.