WEBVTT - Bloomberg Daybreak Weekend: Banks , NATO, China, UK 0:00:02.200 --> 0:00:04.720 This is Bloomberg day Break Weekend, our global look at 0:00:04.760 --> 0:00:06.880 the top stories in the coming week from our day 0:00:06.880 --> 0:00:09.079 Break anchors all around the world, and straight ahead on 0:00:09.119 --> 0:00:12.840 the program, here comes US Bank Earnings. I'm Tom Busby 0:00:12.960 --> 0:00:13.480 in New York. 0:00:13.560 --> 0:00:16.640 I'm Kallie Lines in Washington, where we're looking toward Lithuania 0:00:16.840 --> 0:00:19.080 as President Biden heads to the meat of Summing. 0:00:19.120 --> 0:00:21.840 I'm Brian Curtis in Hong Kong. We weigh up monetary 0:00:21.960 --> 0:00:26.360 versus fiscal stimulus in China and weather Beijing is actually 0:00:26.400 --> 0:00:28.240 prepared to loosen the purse strings. 0:00:28.320 --> 0:00:30.760 I'm Klin Hedge in London, where we're looking to the 0:00:30.880 --> 0:00:33.920 Chancellor's mansion house speech and weather he delivers on a 0:00:34.080 --> 0:00:35.000 UK growth songs. 0:00:35.479 --> 0:00:39.440 That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 0:00:39.479 --> 0:00:42.000 E Love the three own New York, Bloomberg ninety nine 0:00:42.000 --> 0:00:45.400 to one, Washington, DC, Bloomberg one O six one, Boston, 0:00:45.440 --> 0:00:50.240 Bloomberg nine sixty, San Francisco, DAB Digital Radio, London, Sirius 0:00:50.400 --> 0:00:53.640 XM one nineteen and around the world on Bloomberg Radio 0:00:53.720 --> 0:00:56.040 dot com and via the Bloomberg Business App. 0:01:00.240 --> 0:01:02.160 Good day to you. I'm Tom Buzzby and We begin 0:01:02.200 --> 0:01:05.320 today's program with second quarter earning season beginning this week, 0:01:05.360 --> 0:01:08.520 and that means big bank earnings. To kick things off, 0:01:08.640 --> 0:01:10.480 and for what to expect and why, we turned to 0:01:10.560 --> 0:01:14.360 Alison Williams, senior analyst with Bloomberg Intelligence. Well, the major 0:01:14.400 --> 0:01:16.920 Wall Street banks turned in pretty solid results for the 0:01:16.920 --> 0:01:19.600 first quarter of this year. Things may be a little 0:01:19.680 --> 0:01:23.760 softer this quarter, and there are several reasons why. One, 0:01:24.319 --> 0:01:28.360 higher interest rates just this past week approaching seven percent 0:01:28.720 --> 0:01:32.319 for long term mortgage loans, putting the squeeze on loan originations, 0:01:32.360 --> 0:01:36.080 weighing on commercial real estate, that's one. What are your 0:01:36.120 --> 0:01:38.279 thoughts on how that may impact things. 0:01:38.560 --> 0:01:43.440 Higher rates have provided a big boost to banks, much 0:01:43.480 --> 0:01:47.160 of which we saw in twenty twenty two, But now 0:01:47.160 --> 0:01:51.240 we're starting to see the downside of higher rates, which 0:01:51.280 --> 0:01:55.000 is that the bank's cost of funding is going up. 0:01:55.120 --> 0:02:00.160 And there's two key reasons, one of which is deposit it. 0:02:00.640 --> 0:02:05.200 The price of those deposits is rising. And then secondly, 0:02:05.320 --> 0:02:11.760 deposits are flowing out of sources such as free checking 0:02:12.960 --> 0:02:16.600 or low rate savings accounts and flowing into things like 0:02:16.680 --> 0:02:20.840 money funds. So there's a there's a shift happening, you know, 0:02:21.440 --> 0:02:25.239 within the mix going to money funds, going to CDs, 0:02:25.880 --> 0:02:32.000 and then across all deposits, that cost of deposits is 0:02:32.040 --> 0:02:32.520 going up. 0:02:32.720 --> 0:02:37.240 Now also continued caution after this spring's banking crisis and 0:02:37.440 --> 0:02:40.640 failures of a signature bank. We had Silicon Valley Bank, 0:02:40.680 --> 0:02:43.360 first Republic Bank now part of JP Morgan Chase, now 0:02:43.960 --> 0:02:47.639 some say still unresolved this crisis. How has that impacted 0:02:47.760 --> 0:02:48.680 the major lenders? 0:02:49.120 --> 0:02:51.760 So part of it really I think has been a 0:02:51.800 --> 0:02:55.440 wake up call to consumers that maybe haven't looked for 0:02:56.880 --> 0:03:00.360 haven't looked at their deposits in a while, and so 0:03:00.680 --> 0:03:04.600 part of it is that sort of accelerating that that 0:03:04.680 --> 0:03:08.760 shift into higher yielding deposits, which is good for consumers, 0:03:08.880 --> 0:03:11.360 but not as good for the banks that have to 0:03:11.440 --> 0:03:15.120 pay those rates. If we look at the broad landscape, 0:03:15.160 --> 0:03:17.840 we had heard from most of the banks in April 0:03:17.880 --> 0:03:20.680 that things had sort of stabilized, and so I think 0:03:20.800 --> 0:03:27.880 that stability continues. So the concern was really very significant 0:03:27.919 --> 0:03:30.959 to positve flight at a few banks, so things were 0:03:31.760 --> 0:03:35.040 extreme in those cases, but the but the broad trend 0:03:35.080 --> 0:03:39.680 for the for the banking industry continues. The second part 0:03:39.680 --> 0:03:44.720 of that is bank investment portfolios. You know, This was 0:03:44.760 --> 0:03:47.880 another issue that led to some of the problems at 0:03:47.880 --> 0:03:53.320 the banks during the pandemic. As those balance deposit balances swelled, 0:03:53.960 --> 0:03:57.240 they were invested in securities. As rates have risen, those 0:03:57.280 --> 0:04:03.280 securities are worth less than they were and so as 0:04:03.360 --> 0:04:07.280 rates move up, will continue to see some pressure on 0:04:07.320 --> 0:04:08.320 those portfolios. 0:04:08.680 --> 0:04:11.240 A dearth of deals this past quarter of the IPO 0:04:11.320 --> 0:04:14.920 market nearly non existent, mergers few and far between. I mean, 0:04:15.360 --> 0:04:17.240 is this a real concern for lenders as well? 0:04:17.520 --> 0:04:23.200 So for the banks broadly, it's really the big six 0:04:23.400 --> 0:04:27.720 universal banks if you will, that are most impacted by 0:04:27.760 --> 0:04:31.120 trends in the global investment banking landscape, so that's fees 0:04:31.200 --> 0:04:34.919 as well as trading, and of the big six, it 0:04:35.000 --> 0:04:38.560 tends to be a smaller part of the business for Wellsbargo, 0:04:38.600 --> 0:04:41.200 though they did have some very good results last quarter, 0:04:41.839 --> 0:04:44.680 so on the investment banking fee front. As you know, 0:04:45.360 --> 0:04:49.640 we had a really solid year in twenty twenty one, 0:04:49.760 --> 0:04:53.880 record levels in businesses like M and A and IPOs. 0:04:54.760 --> 0:04:57.720 Last year things softened and I think the banks were 0:04:57.760 --> 0:05:01.680 still hopeful that things would pick up coming into this year. 0:05:01.720 --> 0:05:08.120 There were some very optimistic expectations built into estimates, but 0:05:08.279 --> 0:05:13.400 as things have progressed. It's looking like those fees are 0:05:13.400 --> 0:05:16.839 going to be studying at much lower levels now. We 0:05:16.920 --> 0:05:21.240 did see some signs of life in the IPO market 0:05:21.279 --> 0:05:24.599 in the quarter. High yield is also an area where 0:05:24.680 --> 0:05:28.279 we've seen some very good issuance in the quarter. But 0:05:28.520 --> 0:05:31.240 M and A, which really sort of held things up 0:05:31.440 --> 0:05:34.279 last year, has really now turned into a headwind. So 0:05:35.000 --> 0:05:37.679 on the feed front, we do expect things to be weaker. 0:05:38.080 --> 0:05:41.960 The question is how are the banks making adjustments to 0:05:42.120 --> 0:05:45.680 their headcount because all of last year the banks really 0:05:45.720 --> 0:05:48.920 did hold out hope and keep that headcount steady. They 0:05:48.920 --> 0:05:53.800 had to really scramble to add bankers when things were 0:05:53.839 --> 0:05:56.560 going really well, and they were hesitant to sort of 0:05:56.600 --> 0:05:59.000 let those people go. But I think now we are 0:05:59.040 --> 0:06:02.760 seeing some adjustment by the banks in terms of the 0:06:02.839 --> 0:06:06.320 expectations going forward that things could be soft. 0:06:06.600 --> 0:06:09.599 Well, let's talk about how the banks, big ones, small ones, 0:06:09.640 --> 0:06:13.760 twenty three in all navigated the Federal Reserve's latest stress test. 0:06:14.040 --> 0:06:15.719 What was different this time? 0:06:15.880 --> 0:06:20.919 So for the big banks, really it was generally pretty positive. 0:06:21.080 --> 0:06:24.200 All five of the six banks are going to see 0:06:24.200 --> 0:06:26.960 their capital requirements come down as a result of the 0:06:26.960 --> 0:06:30.840 stress test. So City group is that the outlier, their 0:06:31.040 --> 0:06:35.559 stressed capital in the tests actually looked a little worse, 0:06:35.640 --> 0:06:39.000 and so their requirement is going to be going up. 0:06:39.160 --> 0:06:43.719 I think one thing that is highlighted by the results 0:06:43.720 --> 0:06:46.960 both this year and last year is just the volatility 0:06:46.960 --> 0:06:50.000 that we're getting in terms of capital requirements for these 0:06:50.040 --> 0:06:54.120 big banks. So last year, JP Morgan, Bank of American 0:06:54.200 --> 0:06:58.400 City Group all saw very big increases in their capital requirements. 0:06:58.440 --> 0:07:03.120 They had to very rapidly shrink their balance sheets to 0:07:03.160 --> 0:07:04.960 make sure that they were going to comply with the 0:07:05.000 --> 0:07:09.200 newer requirements. This year, for the most part, it's the opposite. Again, 0:07:09.680 --> 0:07:12.400 the City was a little bit of different story, but 0:07:12.520 --> 0:07:16.400 also there's these big changes that we're seeing. But then 0:07:16.440 --> 0:07:19.960 also for the banks, are trying to understand some of 0:07:20.000 --> 0:07:22.080 the numbers that we get from the FED are so 0:07:22.200 --> 0:07:24.880 different than the tests that they run themselves, and so 0:07:25.120 --> 0:07:30.360 in particular Bank of America, which had a very significantly 0:07:31.080 --> 0:07:35.240 better result, it's not going to fully translate into a 0:07:35.240 --> 0:07:38.960 lower ratio because there is a minimum there. So a 0:07:38.960 --> 0:07:41.679 lot of that had to do with changes in their 0:07:41.840 --> 0:07:46.360 other comprehensive income and they are talking to the FED 0:07:46.400 --> 0:07:49.120 to try to understand why their number is so much 0:07:49.160 --> 0:07:50.119 different than the FED. 0:07:50.320 --> 0:07:54.119 And at the fed's meeting just now the following week 0:07:54.360 --> 0:07:57.720 after Earning Start, we're expected to see some new proposals 0:07:57.880 --> 0:07:59.520 on bank capital requirements. 0:07:59.560 --> 0:08:00.000 Is that right? 0:08:00.200 --> 0:08:04.000 That is that is correct? We're waiting for the big 0:08:04.040 --> 0:08:07.600 banks are waiting to see what we're calling the Basil 0:08:07.640 --> 0:08:13.040 three endgame. So the finalization of some rules which Powell 0:08:13.160 --> 0:08:17.000 to confirm, could lead to the banks having to hold 0:08:17.160 --> 0:08:21.040 more capital. And so that's another reason why that the 0:08:21.080 --> 0:08:24.640 stress tests were sort of, you know, one piece of 0:08:24.680 --> 0:08:28.040 information that we have for the for the near term. 0:08:28.640 --> 0:08:34.840 But the banks are conservative, we think on buybacks, despite 0:08:35.240 --> 0:08:38.079 the good results from the test for most banks, because 0:08:39.040 --> 0:08:42.000 they don't know what's coming from these endgame rules. I 0:08:42.040 --> 0:08:45.320 would say that these rules will obviously be phased in 0:08:45.440 --> 0:08:50.520 over time. The banks have a significant amount of capital 0:08:50.520 --> 0:08:53.640 that they're generating every quarter and every year to meet 0:08:53.679 --> 0:08:57.360 these higher requirements. But it is a question that the 0:08:57.400 --> 0:08:58.920 banks are looking to be resolved. 0:08:59.160 --> 0:08:59.360 Wow. 0:08:59.400 --> 0:09:02.080 Well, let's talk then about these some of the individual 0:09:02.160 --> 0:09:05.600 banks that are reporting later this week, JP, Morgan, Chase, Wells, 0:09:05.640 --> 0:09:09.400 Fargo City Group, those three giants. Alison, what are you 0:09:09.400 --> 0:09:12.520 expecting to see and will they be different? Those three 0:09:12.840 --> 0:09:15.160 are we going to see sort of a similar pattern. 0:09:16.320 --> 0:09:19.280 So I think we'll see sort of a similar pattern 0:09:20.080 --> 0:09:24.280 as we saw last quarter. That interest income growth still 0:09:24.480 --> 0:09:28.960 is very strong. So the issue is really not that 0:09:29.120 --> 0:09:32.640 it's weak, it's just that the strength is slowing, if 0:09:32.679 --> 0:09:36.720 you will. And so Bank of America, JP, Morgan, and 0:09:36.800 --> 0:09:39.840 Wells Fargo, we think are all still going to be 0:09:39.920 --> 0:09:42.720 able to are going to be the bigger beneficiaries there 0:09:43.120 --> 0:09:47.080 in terms of seeing revenue growth and operating leverage for 0:09:47.120 --> 0:09:50.360 a city group. On the cost side of things that 0:09:50.520 --> 0:09:54.880 you know, they're they're still working through some regulatory issues 0:09:54.920 --> 0:09:59.680 what they call the transformational costs, and so that will 0:09:59.760 --> 0:10:03.240 eat into their ability to post operating leverage. And then 0:10:03.880 --> 0:10:07.000 Goldman Sachs and Morgan Stanley because these banks are much 0:10:07.000 --> 0:10:11.680 more capital markets focused, we're seeing trading normalizing. We discuss 0:10:11.720 --> 0:10:16.760 the weaker fees, and so these banks may also have 0:10:16.880 --> 0:10:22.160 severance costs as they adjust their workforce, and so less 0:10:22.880 --> 0:10:24.319 positive for those banks. 0:10:24.679 --> 0:10:26.720 Oh, Allison, a lot to look forward to. Thank you 0:10:26.760 --> 0:10:29.520 so much for joining us. Coming up on Bloomberg Day 0:10:29.520 --> 0:10:33.920 Break weekend, President Biden and US relations with NATO. I'm 0:10:33.960 --> 0:10:48.520 Tom Busby, and this is Bloomberg. This is Bloomberg Day 0:10:48.559 --> 0:10:51.040 Break weekend, our global look ahead at the top stories 0:10:51.040 --> 0:10:53.760 for investors in the coming week. I'm Tom Busby in 0:10:53.840 --> 0:10:56.440 New York. Up later in our program and look at 0:10:56.480 --> 0:10:59.480 China's struggling economy and what to watch for this coming 0:10:59.480 --> 0:11:02.480 week on that front. But first, President Biden has been 0:11:02.520 --> 0:11:06.680 working on rebuilding closer relations with some NATO countries after 0:11:06.800 --> 0:11:11.280 the Trump administration's emphasis elsewhere. Now for more on why 0:11:11.400 --> 0:11:13.920 we'll be watching this in the coming days, let's head 0:11:13.920 --> 0:11:16.400 to our Bloomberg ninety nine one news from in Washington 0:11:16.720 --> 0:11:19.880 and Bloomberg Sound On host Kaylee Liones. 0:11:20.240 --> 0:11:22.640 Yeah, Tom all eyes will be not on Washington this 0:11:22.679 --> 0:11:26.240 coming week, but Lithuania, where the NATO Alliance is set 0:11:26.280 --> 0:11:28.800 to meet with a focus on Russia's war in Ukraine. 0:11:29.040 --> 0:11:31.679 US President Joe Biden will meet with his counterparts about 0:11:31.720 --> 0:11:35.160 future security assistance and economic deterrence and the future of 0:11:35.200 --> 0:11:38.400 the alliance, as well as Finland officially enters the group 0:11:38.480 --> 0:11:42.840 and Sweden faces stubborn opposition from Turkey on acceptance. President 0:11:42.920 --> 0:11:45.880 Joe Biden actually in advance of the summit welcomed Sweden's 0:11:45.920 --> 0:11:48.440 Prime minister to the White House this past week and 0:11:48.520 --> 0:11:50.920 praised the prospect of his country joining NATO. 0:11:51.200 --> 0:11:55.640 The United States fully, fully, fully support Sweden membership in NATO, 0:11:56.360 --> 0:11:59.680 and the bottom line is simple, Sweden that is going 0:11:59.760 --> 0:12:03.400 to make per alliance stronger and has the same value 0:12:03.440 --> 0:12:07.440 set that we have in NATO and really looking actiously 0:12:07.559 --> 0:12:08.559 looking forward. 0:12:08.800 --> 0:12:12.079 For your membership now. Sweden's Foreign minister also spoke to 0:12:12.120 --> 0:12:14.960 Bloomberg TV after meeting with his counterparts from Turkey and 0:12:15.000 --> 0:12:19.040 Finland at NATO headquarters this past Thursday about his hopes 0:12:19.280 --> 0:12:21.079 for completing a session we. 0:12:21.080 --> 0:12:24.320 Are now closing in towards the summit in Vilnius next week. 0:12:24.400 --> 0:12:27.960 It is Minam the Swedish government's hope that we will 0:12:27.960 --> 0:12:32.080 now see a clear response from the Turkish side so 0:12:32.080 --> 0:12:35.439 that the ratification process can start in the Turkish parliament 0:12:35.440 --> 0:12:37.000 and Sweden can become NATO member. 0:12:37.040 --> 0:12:38.840 All right, so let's talk more about what is to 0:12:38.880 --> 0:12:41.400 come from this NATO summit. Joining me here in Washington 0:12:41.520 --> 0:12:43.839 is Justin Sinc who covers the White House for US 0:12:44.120 --> 0:12:47.920 here at Bloomberg, So Justin at least for President Biden, 0:12:48.400 --> 0:12:51.920 what is his primary objective at NATO this coming week? 0:12:52.000 --> 0:12:52.760 Is it Sweden? 0:12:53.600 --> 0:12:55.880 I think Sweden's a huge part of it, because for 0:12:55.960 --> 0:13:01.000 President Biden, the ascension of Sweden and finn into NATO 0:13:01.559 --> 0:13:08.360 is representative of a new sort of block against Russia. 0:13:09.000 --> 0:13:12.319 For a long time, those Nordic states had stayed neutral, 0:13:12.559 --> 0:13:15.080 not wanted to depict sides. I actually really celebrated the 0:13:15.120 --> 0:13:18.080 fact that between Russia and the United States or Russia 0:13:18.120 --> 0:13:22.240 in the West, they were a neutral party. The Russia's 0:13:22.240 --> 0:13:26.840 invasion of Ukraine has sort of jambled politics in those 0:13:26.840 --> 0:13:30.120 countries that are now looking at what happened in Ukraine 0:13:30.120 --> 0:13:32.760 and worried about their own defense, and so getting them 0:13:32.760 --> 0:13:36.679 into the NATO alliance is a big symbolic move for 0:13:36.800 --> 0:13:40.880 President Biden, who has really sort of stressed that NATO 0:13:40.880 --> 0:13:44.480 has gotten larger and stronger since the invasion, contrary to 0:13:44.679 --> 0:13:49.120 what he believes Russian President of Vladimir Putin thought going in, 0:13:49.160 --> 0:13:51.440 which is that NATO would splinter under an attack and 0:13:51.480 --> 0:13:53.760 that there wouldn't be sustained support for Ukraine. 0:13:53.960 --> 0:13:56.840 So of what President Biden wants is to get Sweden 0:13:56.840 --> 0:13:58.800 into this alliance, it's a question of what he's willing 0:13:58.880 --> 0:14:01.000 to give up to make that happened right. The issue 0:14:01.040 --> 0:14:04.440 of f sixteens and Turkey. Do we have a full 0:14:04.520 --> 0:14:07.480 understanding of where exactly the administration comes down on this. 0:14:08.160 --> 0:14:10.640 It's a little tricky. I do think that there's broadly 0:14:10.720 --> 0:14:15.000 support within the Administration for giving Turkey F sixteens, despite 0:14:15.040 --> 0:14:18.400 some of the problems that they've had with Turkey adopting 0:14:19.000 --> 0:14:24.480 Russian technology into their military platforms that have caused sort 0:14:24.520 --> 0:14:28.080 of problems with the NATO alliance through the years. That 0:14:28.240 --> 0:14:32.200 you know, even with those concerns, there is support from 0:14:32.240 --> 0:14:35.400 the White House for these F sixteens. But there are 0:14:35.440 --> 0:14:39.800 Democrats on Capitol Hill, including Senator Menendez of who chairs 0:14:39.840 --> 0:14:43.120 the Foreign Relations Committee, who is opposed to the sale. 0:14:43.240 --> 0:14:47.120 And it will take some real legislative strong arming from 0:14:47.120 --> 0:14:50.600 the White House to get a possible deal through, particularly 0:14:50.800 --> 0:14:54.000 if everybody is upset with Turkey because they're holding up 0:14:54.040 --> 0:14:57.600 Sweden's membership, and so Turkey doesn't want to move first 0:14:57.960 --> 0:15:00.600 and potentially lose out on these F sixteen because they 0:15:00.640 --> 0:15:03.160 have already sort of publicly said that they'd accept Sweden. 0:15:03.680 --> 0:15:07.479 But in the US, you know, both Democrats and Republicans 0:15:07.640 --> 0:15:11.760 are skeptical about authorizing this defense deal unless they have 0:15:11.880 --> 0:15:12.800 that sort of in hand. 0:15:13.520 --> 0:15:16.000 So Obviously it's a tricky situation and frankly we might 0:15:16.040 --> 0:15:18.760 not even be talking about Sweden trying to join NATO 0:15:18.840 --> 0:15:20.800 or the US, you know, trying to put forward that 0:15:20.840 --> 0:15:22.960 effort if not for the war in Ukraine, as you 0:15:23.000 --> 0:15:26.280 were alluding to. So Ukraine has to feature highly on 0:15:26.320 --> 0:15:29.120 the agenda as well expansion of NATO aside, what else 0:15:29.160 --> 0:15:33.320 are we expecting to come from this summit Regarding Ukraine specifically. 0:15:32.960 --> 0:15:35.600 I think there's two things that we'll really be looking for. 0:15:36.120 --> 0:15:39.520 One is what the new stepped up defense packages that 0:15:39.600 --> 0:15:42.960 the US and other allies are shipping to Ukraine. Shortly 0:15:43.000 --> 0:15:45.400 before the SUMMITO was announced that the US would start 0:15:45.440 --> 0:15:50.880 providing cluster bombs, which have been controversial because of how 0:15:50.920 --> 0:15:53.520 they are not as sort of precision guided as other 0:15:54.320 --> 0:15:56.640 weapon systems and that can lead to collateral damage. But 0:15:56.680 --> 0:15:59.360 it's something that Ukraine has said could be really helpful 0:15:59.400 --> 0:16:02.520 to them, especially in areas where Russia has sort of 0:16:02.600 --> 0:16:05.840 dug in on the battlefield. So that was a big concession. 0:16:05.880 --> 0:16:10.600 Ukraine is always pushing for more supplies, new types of supplies, 0:16:10.640 --> 0:16:15.080 bigger supplies, and so that will be an area to 0:16:15.080 --> 0:16:18.000 look and it'll especially be interesting within the prism of 0:16:18.040 --> 0:16:21.920 the sort of two percent of GDP goal that NATO 0:16:21.960 --> 0:16:25.480 countries have long set but long for the most part 0:16:25.600 --> 0:16:30.520 failed to sort of reach up to, and so less 0:16:30.640 --> 0:16:33.600 tangible but almost as significant thing will be if there's 0:16:33.680 --> 0:16:37.040 new language about that two percent goal, and whether it 0:16:37.120 --> 0:16:40.960 becomes rather than an aspiration or a ceiling of a 0:16:41.080 --> 0:16:43.440 floor for defense mending for NATO countries. 0:16:43.760 --> 0:16:46.400 Is there a real conversation to be had or currently 0:16:46.440 --> 0:16:50.840 being had about Ukraine becoming a part of NATO, because obviously, 0:16:50.880 --> 0:16:53.680 given the articles of the Alliance, an attack against one 0:16:53.760 --> 0:16:55.640 is an attack against all, and this is a country 0:16:55.640 --> 0:16:58.880 that is at war, which makes that a highly complicated proposition. 0:16:59.440 --> 0:17:02.280 Yeah, it's it's a huge question, especially because Ukraine is 0:17:02.400 --> 0:17:05.480 very eager to enter the Alliance because it would offer 0:17:05.520 --> 0:17:11.159 them new protections and sort of trigger a more aggressive 0:17:11.920 --> 0:17:16.000 potential response from the West. But at the same time, 0:17:16.320 --> 0:17:19.280 you know, the United States and many of its allies 0:17:19.320 --> 0:17:23.480 are very wary of escalating the current the current conflict 0:17:23.480 --> 0:17:26.520 beyond what is already obviously a sort of tragic and 0:17:26.560 --> 0:17:31.320 sweeping situation. So I think what we'll see is language 0:17:31.359 --> 0:17:35.679 that you know, post war may make it much easier 0:17:35.720 --> 0:17:38.560 for Ukraine to enter the Alliance. This is even before 0:17:38.640 --> 0:17:43.000 the invasion, been an aspiration of Theirs and a long 0:17:43.080 --> 0:17:46.879 and winding path to get there. So there's no doubt 0:17:46.880 --> 0:17:50.879 that President Selenski and some of the countries that are 0:17:50.880 --> 0:17:52.600 really close to Ukraine, like Poland, are going to be 0:17:52.640 --> 0:17:56.919 pushing hard on this front. But it's unclear how exactly 0:17:56.960 --> 0:17:57.840 it's all going to shake out. 0:17:57.920 --> 0:18:00.720 Yeah, and it's very unclear when post war or even 0:18:00.880 --> 0:18:03.960 will be. We have no real endgame that's in sight 0:18:04.040 --> 0:18:06.639 at this point, and as the war is ongoing, just 0:18:06.680 --> 0:18:09.040 talking about the composition of the Alliance and who really 0:18:09.080 --> 0:18:11.399 is at the helm, Jen Stoltenberg's going to be sticking 0:18:11.400 --> 0:18:13.080 around for a while longer. 0:18:13.119 --> 0:18:17.399 There's a real you once you get in a Yeah, 0:18:18.440 --> 0:18:22.640 he is sticking around because the Alliance could not come 0:18:22.680 --> 0:18:26.680 to a consensus around a replacement candidate. The UK had 0:18:26.720 --> 0:18:30.040 put forward a candidate, there were other candidates within Europe, 0:18:30.080 --> 0:18:34.199 and there had not really been somebody that everybody co 0:18:34.359 --> 0:18:36.840 ust around, And part of the reason is that we 0:18:36.920 --> 0:18:39.879 didn't see the US sort of pick aside. There have 0:18:39.920 --> 0:18:44.080 been reports, though the White House is flatly declined to 0:18:44.119 --> 0:18:47.480 comment on them, that we were upset over the UK 0:18:47.840 --> 0:18:54.760 sort of pressuring US and other countries into going forward 0:18:54.760 --> 0:18:59.119 with the F sixteen program for Ukraine, which there was 0:18:59.359 --> 0:19:02.399 a genuine concern that it could escalate the conflict, and 0:19:02.440 --> 0:19:06.720 so as a as a result, it may have resulted 0:19:06.760 --> 0:19:11.680 in it may have resulted in the US not backing 0:19:12.200 --> 0:19:16.200 the UK bid to lead NATO. But a big conversation 0:19:16.240 --> 0:19:18.720 among leaders is going to be who can bring the 0:19:18.720 --> 0:19:22.199 alliance forward. Stolenberg's not going to be there forever and 0:19:22.240 --> 0:19:23.960 they need to find a consensus. 0:19:23.960 --> 0:19:25.879 Canada, all right, So it's a busy week ahead for 0:19:26.040 --> 0:19:28.520 President Biden and for those who cover him like are 0:19:28.600 --> 0:19:30.480 very own Justin Sink, who covers the White House for 0:19:30.560 --> 0:19:33.480 us here at Bloomberg. Thank you so much. Tom. We'll 0:19:33.520 --> 0:19:34.199 send it back to you. 0:19:34.320 --> 0:19:36.600 Thank you, Kaylee. That was Bloomberg Sound don co host 0:19:36.680 --> 0:19:39.480 Kaylee Lines, reporting from our Bloomberg ninety nine to one 0:19:39.520 --> 0:19:43.200 newsroom in Washington, and you can hear sound on weekdays 0:19:43.240 --> 0:19:45.840 one to three pm on Bloomberg Radio and coming up 0:19:45.920 --> 0:19:49.560 on Bloomberg Day Break weekend, What's next for China's economy. 0:19:49.840 --> 0:19:51.800 I'm Tom Busby and this is. 0:19:51.760 --> 0:20:06.320 Bloomberg broadcasting live from the Bloomberg It a active brokers 0:20:06.320 --> 0:20:09.199 studio in New York. Bloomberg eleven three to zero to 0:20:09.359 --> 0:20:12.959 Washington d C, Bloomberg ninety nine one to Boston, Bloomberg 0:20:13.000 --> 0:20:16.280 one oh six one to San Francisco, Bloomberg nine sixteen 0:20:16.359 --> 0:20:19.199 to the country Syrius XM channel one to nineteen to 0:20:19.320 --> 0:20:23.159 London DAB Digital Radio, and around the globe the Bloomberg 0:20:23.200 --> 0:20:27.080 Business app in Bloomberg Radio dot Com. This is Bloomberg 0:20:27.160 --> 0:20:28.200 Daybreak Weekend. 0:20:34.520 --> 0:20:36.560 I'm Tom Busby in New York with your global look 0:20:36.560 --> 0:20:39.760 ahead at the top stories for investors in the coming week. Next, 0:20:39.760 --> 0:20:43.600 we look at China's faltering recovery. Can policymakers crack the 0:20:43.640 --> 0:20:47.960 code and unleash the animal spirits? Let's get to Brian Curtis, 0:20:48.160 --> 0:20:50.119 co host of Bloomberg Daybreak Asia. 0:20:50.520 --> 0:20:54.640 Tom, investors are dropping their expectations for gains in Chinese 0:20:54.720 --> 0:20:57.840 assets this year. Now, there's a wealth of disappointment in 0:20:57.920 --> 0:21:00.760 the measures being taken to try to re vitalize the 0:21:00.840 --> 0:21:05.919 Chinese economy. Despite calls from more aggressive stimulus, policymakers, at 0:21:06.000 --> 0:21:09.280 least at the moment, appear to be sticking with targeted measures. 0:21:09.720 --> 0:21:12.440 What might change that. We've got a lot to discuss 0:21:12.520 --> 0:21:14.879 I've asked ten Chen, the team leader for FX and 0:21:14.960 --> 0:21:18.880 rates in Asia, to join us here on the program. Tenchen, 0:21:19.000 --> 0:21:21.720 thanks very much for being with us well. The PBOC 0:21:22.040 --> 0:21:25.119 has extended its support for the yuan with some of 0:21:25.160 --> 0:21:27.959 these stronger fixes that we've seen of late. But this 0:21:28.040 --> 0:21:31.920 is really more about arresting the decline in the currency. 0:21:31.960 --> 0:21:35.320 It's not really about stimulus. But let's talk a little 0:21:35.320 --> 0:21:39.919 bit about why the PBOC wants to address that decline. 0:21:40.400 --> 0:21:43.360 Yes, of course that's a good question. So basically PBOC 0:21:43.520 --> 0:21:48.440 is in a very difficult dilemma right now. So PBOC 0:21:48.600 --> 0:21:51.000 knows that if the yuan is weak, when the economic 0:21:51.080 --> 0:21:53.880 fundamentals are weak, a weaker currency is going to help 0:21:53.960 --> 0:21:56.320 the economy is because it's a big support for the 0:21:56.359 --> 0:22:00.160 exports sector. But at the same time, a very weak 0:22:00.680 --> 0:22:04.199 yuan means that we're going to see financial stability because 0:22:04.400 --> 0:22:06.720 a very fast decline in the yuan, that means that 0:22:06.880 --> 0:22:09.120 it's gonna spill over to the stocks market, it's gonna 0:22:09.119 --> 0:22:11.760 spill over to the to the bunk market, and that's 0:22:11.800 --> 0:22:15.760 going to prevent foreign investors from buying Chinese assets. So 0:22:15.760 --> 0:22:18.520 so in the stylema BBOC has to strike a balance 0:22:18.600 --> 0:22:22.960 of you know, keeping the yuana weak, but not so 0:22:23.000 --> 0:22:25.720 weak that's going to trigger any sort of panic. That's 0:22:25.720 --> 0:22:29.040 why you are seeing this. We're in this situation where 0:22:29.080 --> 0:22:33.400 the PBOC is supporting the yuan with stronger than expected fixings, 0:22:33.640 --> 0:22:36.760 but the bias, I mean, that's the actual fixing versus 0:22:36.840 --> 0:22:39.879 the Bloombird estimate. The bias is not very big. It's 0:22:39.920 --> 0:22:43.359 about three hundred pips every single day, and that's far 0:22:43.560 --> 0:22:46.200 away from the levels that we saw last year where 0:22:46.240 --> 0:22:49.040 it went to as high as eight hundred pips. So 0:22:49.080 --> 0:22:52.240 the PBOC is only taking very moderate measures to support 0:22:52.240 --> 0:22:55.680 the yuan, and it has a ton of tools they 0:22:55.680 --> 0:22:59.320 can use to be more aggressive when it sees the 0:22:59.400 --> 0:23:02.639 yuan being two week But right now the PBOs is 0:23:02.680 --> 0:23:06.240 really keeping it spowder dry, just using the fixing with 0:23:06.280 --> 0:23:07.760 a little bit of verbal intervention. 0:23:08.119 --> 0:23:10.600 It's something else you didn't mention, which has been an 0:23:10.640 --> 0:23:13.439 issue at times in the past is capital flight. But 0:23:13.520 --> 0:23:15.800 they have made a number of moves on this front 0:23:15.880 --> 0:23:19.000 to keep capital from flowing out of China, but still 0:23:19.160 --> 0:23:20.879 must be in the back of everyone's minds. 0:23:21.560 --> 0:23:25.000 Yeah, there's still pent up demand to take capital out 0:23:25.040 --> 0:23:29.200 of China. Remember that onshore investors, onshore residents. They can 0:23:29.240 --> 0:23:34.720 only convert fifty k of US dollars into the of 0:23:34.880 --> 0:23:38.840 US dollars. They can only buy fifty k of US dollars, 0:23:39.280 --> 0:23:41.600 So that's not a lot of money. Like if you 0:23:41.600 --> 0:23:44.080