Speaker 1: This is Bloomberg day Break Weekend, our global look at
Speaker 1: the top stories in the coming week from our day
Speaker 1: Break anchors all around the world, and straight ahead on
Speaker 1: the program, here comes US Bank Earnings. I'm Tom Busby
Speaker 1: in New York.
Speaker 2: I'm Kallie Lines in Washington, where we're looking toward Lithuania
Speaker 2: as President Biden heads to the meat of Summing.
Speaker 3: I'm Brian Curtis in Hong Kong. We weigh up monetary
Speaker 3: versus fiscal stimulus in China and weather Beijing is actually
Speaker 3: prepared to loosen the purse strings.
Speaker 4: I'm Klin Hedge in London, where we're looking to the
Speaker 4: Chancellor's mansion house speech and weather he delivers on a
Speaker 4: UK growth songs.
Speaker 5: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 1: Good day to you. I'm Tom Buzzby and We begin
Speaker 1: today's program with second quarter earning season beginning this week,
Speaker 1: and that means big bank earnings. To kick things off,
Speaker 1: and for what to expect and why, we turned to
Speaker 1: Alison Williams, senior analyst with Bloomberg Intelligence. Well, the major
Speaker 1: Wall Street banks turned in pretty solid results for the
Speaker 1: first quarter of this year. Things may be a little
Speaker 1: softer this quarter, and there are several reasons why. One,
Speaker 1: higher interest rates just this past week approaching seven percent
Speaker 1: for long term mortgage loans, putting the squeeze on loan originations,
Speaker 1: weighing on commercial real estate, that's one. What are your
Speaker 1: thoughts on how that may impact things.
Speaker 6: Higher rates have provided a big boost to banks, much
Speaker 6: of which we saw in twenty twenty two, But now
Speaker 6: we're starting to see the downside of higher rates, which
Speaker 6: is that the bank's cost of funding is going up.
Speaker 6: And there's two key reasons, one of which is deposit it.
Speaker 6: The price of those deposits is rising. And then secondly,
Speaker 6: deposits are flowing out of sources such as free checking
Speaker 6: or low rate savings accounts and flowing into things like
Speaker 6: money funds. So there's a there's a shift happening, you know,
Speaker 6: within the mix going to money funds, going to CDs,
Speaker 6: and then across all deposits, that cost of deposits is
Speaker 6: going up.
Speaker 1: Now also continued caution after this spring's banking crisis and
Speaker 1: failures of a signature bank. We had Silicon Valley Bank,
Speaker 1: first Republic Bank now part of JP Morgan Chase, now
Speaker 1: some say still unresolved this crisis. How has that impacted
Speaker 1: the major lenders?
Speaker 6: So part of it really I think has been a
Speaker 6: wake up call to consumers that maybe haven't looked for
Speaker 6: haven't looked at their deposits in a while, and so
Speaker 6: part of it is that sort of accelerating that that
Speaker 6: shift into higher yielding deposits, which is good for consumers,
Speaker 6: but not as good for the banks that have to
Speaker 6: pay those rates. If we look at the broad landscape,
Speaker 6: we had heard from most of the banks in April
Speaker 6: that things had sort of stabilized, and so I think
Speaker 6: that stability continues. So the concern was really very significant
Speaker 6: to positve flight at a few banks, so things were
Speaker 6: extreme in those cases, but the but the broad trend
Speaker 6: for the for the banking industry continues. The second part
Speaker 6: of that is bank investment portfolios. You know, This was
Speaker 6: another issue that led to some of the problems at
Speaker 6: the banks during the pandemic. As those balance deposit balances swelled,
Speaker 6: they were invested in securities. As rates have risen, those
Speaker 6: securities are worth less than they were and so as
Speaker 6: rates move up, will continue to see some pressure on
Speaker 6: those portfolios.
Speaker 1: A dearth of deals this past quarter of the IPO
Speaker 1: market nearly non existent, mergers few and far between. I mean,
Speaker 1: is this a real concern for lenders as well?
Speaker 6: So for the banks broadly, it's really the big six
Speaker 6: universal banks if you will, that are most impacted by
Speaker 6: trends in the global investment banking landscape, so that's fees
Speaker 6: as well as trading, and of the big six, it
Speaker 6: tends to be a smaller part of the business for Wellsbargo,
Speaker 6: though they did have some very good results last quarter,
Speaker 6: so on the investment banking fee front. As you know,
Speaker 6: we had a really solid year in twenty twenty one,
Speaker 6: record levels in businesses like M and A and IPOs.
Speaker 6: Last year things softened and I think the banks were
Speaker 6: still hopeful that things would pick up coming into this year.
Speaker 6: There were some very optimistic expectations built into estimates, but
Speaker 6: as things have progressed. It's looking like those fees are
Speaker 6: going to be studying at much lower levels now. We
Speaker 6: did see some signs of life in the IPO market
Speaker 6: in the quarter. High yield is also an area where
Speaker 6: we've seen some very good issuance in the quarter. But
Speaker 6: M and A, which really sort of held things up
Speaker 6: last year, has really now turned into a headwind. So
Speaker 6: on the feed front, we do expect things to be weaker.
Speaker 6: The question is how are the banks making adjustments to
Speaker 6: their headcount because all of last year the banks really
Speaker 6: did hold out hope and keep that headcount steady. They
Speaker 6: had to really scramble to add bankers when things were
Speaker 6: going really well, and they were hesitant to sort of
Speaker 6: let those people go. But I think now we are
Speaker 6: seeing some adjustment by the banks in terms of the
Speaker 6: expectations going forward that things could be soft.
Speaker 1: Well, let's talk about how the banks, big ones, small ones,
Speaker 1: twenty three in all navigated the Federal Reserve's latest stress test.
Speaker 1: What was different this time?
Speaker 6: So for the big banks, really it was generally pretty positive.
Speaker 6: All five of the six banks are going to see
Speaker 6: their capital requirements come down as a result of the
Speaker 6: stress test. So City group is that the outlier, their
Speaker 6: stressed capital in the tests actually looked a little worse,
Speaker 6: and so their requirement is going to be going up.
Speaker 6: I think one thing that is highlighted by the results
Speaker 6: both this year and last year is just the volatility
Speaker 6: that we're getting in terms of capital requirements for these
Speaker 6: big banks. So last year, JP Morgan, Bank of American
Speaker 6: City Group all saw very big increases in their capital requirements.
Speaker 6: They had to very rapidly shrink their balance sheets to
Speaker 6: make sure that they were going to comply with the
Speaker 6: newer requirements. This year, for the most part, it's the opposite. Again,
Speaker 6: the City was a little bit of different story, but
Speaker 6: also there's these big changes that we're seeing. But then
Speaker 6: also for the banks, are trying to understand some of
Speaker 6: the numbers that we get from the FED are so
Speaker 6: different than the tests that they run themselves, and so
Speaker 6: in particular Bank of America, which had a very significantly
Speaker 6: better result, it's not going to fully translate into a
Speaker 6: lower ratio because there is a minimum there. So a
Speaker 6: lot of that had to do with changes in their
Speaker 6: other comprehensive income and they are talking to the FED
Speaker 6: to try to understand why their number is so much
Speaker 6: different than the FED.
Speaker 1: And at the fed's meeting just now the following week
Speaker 1: after Earning Start, we're expected to see some new proposals
Speaker 1: on bank capital requirements.
Speaker 7: Is that right?
Speaker 6: That is that is correct? We're waiting for the big
Speaker 6: banks are waiting to see what we're calling the Basil
Speaker 6: three endgame. So the finalization of some rules which Powell
Speaker 6: to confirm, could lead to the banks having to hold
Speaker 6: more capital. And so that's another reason why that the
Speaker 6: stress tests were sort of, you know, one piece of
Speaker 6: information that we have for the for the near term.
Speaker 6: But the banks are conservative, we think on buybacks, despite
Speaker 6: the good results from the test for most banks, because
Speaker 6: they don't know what's coming from these endgame rules. I
Speaker 6: would say that these rules will obviously be phased in
Speaker 6: over time. The banks have a significant amount of capital
Speaker 6: that they're generating every quarter and every year to meet
Speaker 6: these higher requirements. But it is a question that the
Speaker 6: banks are looking to be resolved.
Speaker 3: Wow.
Speaker 1: Well, let's talk then about these some of the individual
Speaker 1: banks that are reporting later this week, JP, Morgan, Chase, Wells,
Speaker 1: Fargo City Group, those three giants. Alison, what are you
Speaker 1: expecting to see and will they be different? Those three
Speaker 1: are we going to see sort of a similar pattern.
Speaker 6: So I think we'll see sort of a similar pattern
Speaker 6: as we saw last quarter. That interest income growth still
Speaker 6: is very strong. So the issue is really not that
Speaker 6: it's weak, it's just that the strength is slowing, if
Speaker 6: you will. And so Bank of America, JP, Morgan, and
Speaker 6: Wells Fargo, we think are all still going to be
Speaker 6: able to are going to be the bigger beneficiaries there
Speaker 6: in terms of seeing revenue growth and operating leverage for
Speaker 6: a city group. On the cost side of things that
Speaker 6: you know, they're they're still working through some regulatory issues
Speaker 6: what they call the transformational costs, and so that will
Speaker 6: eat into their ability to post operating leverage. And then
Speaker 6: Goldman Sachs and Morgan Stanley because these banks are much
Speaker 6: more capital markets focused, we're seeing trading normalizing. We discuss
Speaker 6: the weaker fees, and so these banks may also have
Speaker 6: severance costs as they adjust their workforce, and so less
Speaker 6: positive for those banks.
Speaker 1: Oh, Allison, a lot to look forward to. Thank you
Speaker 1: so much for joining us. Coming up on Bloomberg Day
Speaker 1: Break weekend, President Biden and US relations with NATO. I'm
Speaker 1: Tom Busby, and this is Bloomberg. This is Bloomberg Day
Speaker 1: Break weekend, our global look ahead at the top stories
Speaker 1: for investors in the coming week. I'm Tom Busby in
Speaker 1: New York. Up later in our program and look at
Speaker 1: China's struggling economy and what to watch for this coming
Speaker 1: week on that front. But first, President Biden has been
Speaker 1: working on rebuilding closer relations with some NATO countries after
Speaker 1: the Trump administration's emphasis elsewhere. Now for more on why
Speaker 1: we'll be watching this in the coming days, let's head
Speaker 1: to our Bloomberg ninety nine one news from in Washington
Speaker 1: and Bloomberg Sound On host Kaylee Liones.
Speaker 2: Yeah, Tom all eyes will be not on Washington this
Speaker 2: coming week, but Lithuania, where the NATO Alliance is set
Speaker 2: to meet with a focus on Russia's war in Ukraine.
Speaker 2: US President Joe Biden will meet with his counterparts about
Speaker 2: future security assistance and economic deterrence and the future of
Speaker 2: the alliance, as well as Finland officially enters the group
Speaker 2: and Sweden faces stubborn opposition from Turkey on acceptance. President
Speaker 2: Joe Biden actually in advance of the summit welcomed Sweden's
Speaker 2: Prime minister to the White House this past week and
Speaker 2: praised the prospect of his country joining NATO.
Speaker 8: The United States fully, fully, fully support Sweden membership in NATO,
Speaker 8: and the bottom line is simple, Sweden that is going
Speaker 8: to make per alliance stronger and has the same value
Speaker 8: set that we have in NATO and really looking actiously
Speaker 8: looking forward.
Speaker 2: For your membership now. Sweden's Foreign minister also spoke to
Speaker 2: Bloomberg TV after meeting with his counterparts from Turkey and
Speaker 2: Finland at NATO headquarters this past Thursday about his hopes
Speaker 2: for completing a session we.
Speaker 9: Are now closing in towards the summit in Vilnius next week.
Speaker 9: It is Minam the Swedish government's hope that we will
Speaker 9: now see a clear response from the Turkish side so
Speaker 9: that the ratification process can start in the Turkish parliament
Speaker 9: and Sweden can become NATO member.
Speaker 2: All right, so let's talk more about what is to
Speaker 2: come from this NATO summit. Joining me here in Washington
Speaker 2: is Justin Sinc who covers the White House for US
Speaker 2: here at Bloomberg, So Justin at least for President Biden,
Speaker 2: what is his primary objective at NATO this coming week?
Speaker 2: Is it Sweden?
Speaker 10: I think Sweden's a huge part of it, because for
Speaker 10: President Biden, the ascension of Sweden and finn into NATO
Speaker 10: is representative of a new sort of block against Russia.
Speaker 10: For a long time, those Nordic states had stayed neutral,
Speaker 10: not wanted to depict sides. I actually really celebrated the
Speaker 10: fact that between Russia and the United States or Russia
Speaker 10: in the West, they were a neutral party. The Russia's
Speaker 10: invasion of Ukraine has sort of jambled politics in those
Speaker 10: countries that are now looking at what happened in Ukraine
Speaker 10: and worried about their own defense, and so getting them
Speaker 10: into the NATO alliance is a big symbolic move for
Speaker 10: President Biden, who has really sort of stressed that NATO
Speaker 10: has gotten larger and stronger since the invasion, contrary to
Speaker 10: what he believes Russian President of Vladimir Putin thought going in,
Speaker 10: which is that NATO would splinter under an attack and
Speaker 10: that there wouldn't be sustained support for Ukraine.
Speaker 2: So of what President Biden wants is to get Sweden
Speaker 2: into this alliance, it's a question of what he's willing
Speaker 2: to give up to make that happened right. The issue
Speaker 2: of f sixteens and Turkey. Do we have a full
Speaker 2: understanding of where exactly the administration comes down on this.
Speaker 10: It's a little tricky. I do think that there's broadly
Speaker 10: support within the Administration for giving Turkey F sixteens, despite
Speaker 10: some of the problems that they've had with Turkey adopting
Speaker 10: Russian technology into their military platforms that have caused sort
Speaker 10: of problems with the NATO alliance through the years. That
Speaker 10: you know, even with those concerns, there is support from
Speaker 10: the White House for these F sixteens. But there are
Speaker 10: Democrats on Capitol Hill, including Senator Menendez of who chairs
Speaker 10: the Foreign Relations Committee, who is opposed to the sale.
Speaker 10: And it will take some real legislative strong arming from
Speaker 10: the White House to get a possible deal through, particularly
Speaker 10: if everybody is upset with Turkey because they're holding up
Speaker 10: Sweden's membership, and so Turkey doesn't want to move first
Speaker 10: and potentially lose out on these F sixteen because they
Speaker 10: have already sort of publicly said that they'd accept Sweden.
Speaker 10: But in the US, you know, both Democrats and Republicans
Speaker 10: are skeptical about authorizing this defense deal unless they have
Speaker 10: that sort of in hand.
Speaker 2: So Obviously it's a tricky situation and frankly we might
Speaker 2: not even be talking about Sweden trying to join NATO
Speaker 2: or the US, you know, trying to put forward that
Speaker 2: effort if not for the war in Ukraine, as you
Speaker 2: were alluding to. So Ukraine has to feature highly on
Speaker 2: the agenda as well expansion of NATO aside, what else
Speaker 2: are we expecting to come from this summit Regarding Ukraine specifically.
Speaker 10: I think there's two things that we'll really be looking for.
Speaker 10: One is what the new stepped up defense packages that
Speaker 10: the US and other allies are shipping to Ukraine. Shortly
Speaker 10: before the SUMMITO was announced that the US would start
Speaker 10: providing cluster bombs, which have been controversial because of how
Speaker 10: they are not as sort of precision guided as other
Speaker 10: weapon systems and that can lead to collateral damage. But
Speaker 10: it's something that Ukraine has said could be really helpful
Speaker 10: to them, especially in areas where Russia has sort of
Speaker 10: dug in on the battlefield. So that was a big concession.
Speaker 10: Ukraine is always pushing for more supplies, new types of supplies,
Speaker 10: bigger supplies, and so that will be an area to
Speaker 10: look and it'll especially be interesting within the prism of
Speaker 10: the sort of two percent of GDP goal that NATO
Speaker 10: countries have long set but long for the most part
Speaker 10: failed to sort of reach up to, and so less
Speaker 10: tangible but almost as significant thing will be if there's
Speaker 10: new language about that two percent goal, and whether it
Speaker 10: becomes rather than an aspiration or a ceiling of a
Speaker 10: floor for defense mending for NATO countries.
Speaker 2: Is there a real conversation to be had or currently
Speaker 2: being had about Ukraine becoming a part of NATO, because obviously,
Speaker 2: given the articles of the Alliance, an attack against one
Speaker 2: is an attack against all, and this is a country
Speaker 2: that is at war, which makes that a highly complicated proposition.
Speaker 10: Yeah, it's it's a huge question, especially because Ukraine is
Speaker 10: very eager to enter the Alliance because it would offer
Speaker 10: them new protections and sort of trigger a more aggressive
Speaker 10: potential response from the West. But at the same time,
Speaker 10: you know, the United States and many of its allies
Speaker 10: are very wary of escalating the current the current conflict
Speaker 10: beyond what is already obviously a sort of tragic and
Speaker 10: sweeping situation. So I think what we'll see is language
Speaker 10: that you know, post war may make it much easier
Speaker 10: for Ukraine to enter the Alliance. This is even before
Speaker 10: the invasion, been an aspiration of Theirs and a long
Speaker 10: and winding path to get there. So there's no doubt
Speaker 10: that President Selenski and some of the countries that are
Speaker 10: really close to Ukraine, like Poland, are going to be
Speaker 10: pushing hard on this front. But it's unclear how exactly
Speaker 10: it's all going to shake out.
Speaker 2: Yeah, and it's very unclear when post war or even
Speaker 2: will be. We have no real endgame that's in sight
Speaker 2: at this point, and as the war is ongoing, just
Speaker 2: talking about the composition of the Alliance and who really
Speaker 2: is at the helm, Jen Stoltenberg's going to be sticking
Speaker 2: around for a while longer.
Speaker 10: There's a real you once you get in a Yeah,
Speaker 10: he is sticking around because the Alliance could not come
Speaker 10: to a consensus around a replacement candidate. The UK had
Speaker 10: put forward a candidate, there were other candidates within Europe,
Speaker 10: and there had not really been somebody that everybody co
Speaker 10: ust around, And part of the reason is that we
Speaker 10: didn't see the US sort of pick aside. There have
Speaker 10: been reports, though the White House is flatly declined to
Speaker 10: comment on them, that we were upset over the UK
Speaker 10: sort of pressuring US and other countries into going forward
Speaker 10: with the F sixteen program for Ukraine, which there was
Speaker 10: a genuine concern that it could escalate the conflict, and
Speaker 10: so as a as a result, it may have resulted
Speaker 10: in it may have resulted in the US not backing
Speaker 10: the UK bid to lead NATO. But a big conversation
Speaker 10: among leaders is going to be who can bring the
Speaker 10: alliance forward. Stolenberg's not going to be there forever and
Speaker 10: they need to find a consensus.
Speaker 2: Canada, all right, So it's a busy week ahead for
Speaker 2: President Biden and for those who cover him like are
Speaker 2: very own Justin Sink, who covers the White House for
Speaker 2: us here at Bloomberg. Thank you so much. Tom. We'll
Speaker 2: send it back to you.
Speaker 1: Thank you, Kaylee. That was Bloomberg Sound don co host
Speaker 1: Kaylee Lines, reporting from our Bloomberg ninety nine to one
Speaker 1: newsroom in Washington, and you can hear sound on weekdays
Speaker 1: one to three pm on Bloomberg Radio and coming up
Speaker 1: on Bloomberg Day Break weekend, What's next for China's economy.
Speaker 1: I'm Tom Busby and this is.
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Speaker 5: Daybreak Weekend.
Speaker 1: I'm Tom Busby in New York with your global look
Speaker 1: ahead at the top stories for investors in the coming week. Next,
Speaker 1: we look at China's faltering recovery. Can policymakers crack the
Speaker 1: code and unleash the animal spirits? Let's get to Brian Curtis,
Speaker 1: co host of Bloomberg Daybreak Asia.
Speaker 3: Tom, investors are dropping their expectations for gains in Chinese
Speaker 3: assets this year. Now, there's a wealth of disappointment in
Speaker 3: the measures being taken to try to re vitalize the
Speaker 3: Chinese economy. Despite calls from more aggressive stimulus, policymakers, at
Speaker 3: least at the moment, appear to be sticking with targeted measures.
Speaker 3: What might change that. We've got a lot to discuss
Speaker 3: I've asked ten Chen, the team leader for FX and
Speaker 3: rates in Asia, to join us here on the program. Tenchen,
Speaker 3: thanks very much for being with us well. The PBOC
Speaker 3: has extended its support for the yuan with some of
Speaker 3: these stronger fixes that we've seen of late. But this
Speaker 3: is really more about arresting the decline in the currency.
Speaker 3: It's not really about stimulus. But let's talk a little
Speaker 3: bit about why the PBOC wants to address that decline.
Speaker 11: Yes, of course that's a good question. So basically PBOC
Speaker 11: is in a very difficult dilemma right now. So PBOC
Speaker 11: knows that if the yuan is weak, when the economic
Speaker 11: fundamentals are weak, a weaker currency is going to help
Speaker 11: the economy is because it's a big support for the
Speaker 11: exports sector. But at the same time, a very weak
Speaker 11: yuan means that we're going to see financial stability because
Speaker 11: a very fast decline in the yuan, that means that
Speaker 11: it's gonna spill over to the stocks market, it's gonna
Speaker 11: spill over to the to the bunk market, and that's
Speaker 11: going to prevent foreign investors from buying Chinese assets. So
Speaker 11: so in the stylema BBOC has to strike a balance
Speaker 11: of you know, keeping the yuana weak, but not so
Speaker 11: weak that's going to trigger any sort of panic. That's
Speaker 11: why you are seeing this. We're in this situation where
Speaker 11: the PBOC is supporting the yuan with stronger than expected fixings,
Speaker 11: but the bias, I mean, that's the actual fixing versus
Speaker 11: the Bloombird estimate. The bias is not very big. It's
Speaker 11: about three hundred pips every single day, and that's far
Speaker 11: away from the levels that we saw last year where
Speaker 11: it went to as high as eight hundred pips. So
Speaker 11: the PBOC is only taking very moderate measures to support
Speaker 11: the yuan, and it has a ton of tools they
Speaker 11: can use to be more aggressive when it sees the
Speaker 11: yuan being two week But right now the PBOs is
Speaker 11: really keeping it spowder dry, just using the fixing with
Speaker 11: a little bit of verbal intervention.
Speaker 3: It's something else you didn't mention, which has been an
Speaker 3: issue at times in the past is capital flight. But
Speaker 3: they have made a number of moves on this front
Speaker 3: to keep capital from flowing out of China, but still
Speaker 3: must be in the back of everyone's minds.
Speaker 11: Yeah, there's still pent up demand to take capital out
Speaker 11: of China. Remember that onshore investors, onshore residents. They can
Speaker 11: only convert fifty k of US dollars into the of
Speaker 11: US dollars. They can only buy fifty k of US dollars,
Speaker 11: So that's not a lot of money. Like if you
Speaker 11: want to buy apartment in Hong Kong that it can
Speaker 11: only buy you like one square feet or something. So
Speaker 11: it does it is the curbs are very high. I mean,
Speaker 11: once the curbs got dropped, we're going to see a
Speaker 11: lot of all flows happening. Right now, we haven't seen
Speaker 11: very recent measures of the PBOC titan macro prudential measures
Speaker 11: on the on the corporate side. But when if it
Speaker 11: wants to it can you really can't do that.
Speaker 3: Now people ask me sometimes you know, how uncomfortable is
Speaker 3: the PBOC with you on weakness, and I think you've
Speaker 3: outlined that, well, there's a balance there. A slightly weaker
Speaker 3: currency is actually good in some ways for China, stimulating
Speaker 3: exports and such. But they do have these other concerns.
Speaker 3: But where does it get uncomfortable for them in terms
Speaker 3: of like at the moment, we're around seven to twenty
Speaker 3: five and change against the greenback for the offshore Chinese
Speaker 3: currency where would it have to be for all of
Speaker 3: a sudden more aggressive measures to come into play.
Speaker 11: I think it's going to be seven point three, because
Speaker 11: that would be very close to the low in twenty
Speaker 11: twenty three, twenty twenty two, last year in November. So
Speaker 11: if we reach that level, that's gonna the UN's gonna
Speaker 11: get a lot of interest from shorting overseas. And another
Speaker 11: thing that we have to watch out for is the
Speaker 11: R and B C Fast Index. That's uan's value against
Speaker 11: not just the dollar, but a bunch of other effects.
Speaker 11: So if that basket keeps falling, that means the yuan
Speaker 11: is falling against a lot of things. So that's really
Speaker 11: gonna hurt trade. So that's another thing the PBOs is
Speaker 11: looking at, and of course hard behavior.
Speaker 3: Now in terms of the other area of what can
Speaker 3: the PBOC do to actually help stimulate the Chinese economy,
Speaker 3: interest rates is one thing, and also the triple RS
Speaker 3: is another. How much do we expect more aggressive behavior
Speaker 3: here coming soon?
Speaker 11: It is pretty hard, and the PBOC has done a
Speaker 11: lot already and it's not doing more because there's nothing
Speaker 11: else it can do. I mean the triple R cut,
Speaker 11: of course it can it can cut rids further. But
Speaker 11: that's just for a sentiment, like for to restore market sentiment.
Speaker 11: But is it going to be useful. It's not going
Speaker 11: to be useful because the problem is that the demand
Speaker 11: is very weak no matter how much raised the PBOs cut.
Speaker 11: If an investor, like if a Chinese individual doesn't want
Speaker 11: to buy a new home or doesn't want to buy
Speaker 11: a new car, she's not going to buy a new car.
Speaker 11: So what needs to be done right now is fiscal policy,
Speaker 11: Like that's not under PBOs, that's under the Ministry of Finance.
Speaker 11: So if that's if we see more physical stimulus, local
Speaker 11: governments start to sell bounds and to build infrastructure, that's
Speaker 11: going to stimulate the economy. But that's going to carry
Speaker 11: risks Like in twenty eight during the financial crisis, the
Speaker 11: massive stimulus package resulted in a lot of local government
Speaker 11: dead and other issues. And obviously the government is aware
Speaker 11: of that.
Speaker 3: Yeah, we heard a lot from Richard Ku from Nomura
Speaker 3: Research Institute about how fiscal stimulus should be done in
Speaker 3: China And basically, even if they wanted to do that,
Speaker 3: what are the constraints for strong fiscal stimulus that the
Speaker 3: government feels.
Speaker 11: Yeah, there is a side effect for fiscal policy if
Speaker 11: you'll let local governments to sell a lot of bonds
Speaker 11: to that to build infrastructure like highways and then subways,
Speaker 11: when in the end they have to repay the debt
Speaker 11: in like ten years time. And China is already having
Speaker 11: a massive local government debt problem, and we have avs
Speaker 11: facing issues, we have credit risks with corporates. So that's
Speaker 11: that is well. It can resolve the problem maybe stimularly
Speaker 11: economy today, but years from now it can be a
Speaker 11: bigger problem for the government.
Speaker 3: In terms of institutional strength in China. I wanted to
Speaker 3: ask you about Pangong Chung, who has been named the
Speaker 3: new party Secretary for the PBOC and we think will
Speaker 3: become the next governor of the PBOC. Now, he was
Speaker 3: not on the list of the Central Committee, the two
Speaker 3: hundred highest ranking party officials. In any way, does that
Speaker 3: weaken the institution of the PBOC. We already know the
Speaker 3: PBOC has been put under the State Council, right, so
Speaker 3: from that standpoint, it would seem to have a little
Speaker 3: bit less independence than it did before. How do you
Speaker 3: see it?
Speaker 11: That's definitely right, that's the interpretation A lot of people
Speaker 11: are getting from this change, not just from Pangonshan. It's
Speaker 11: been going on for a while. So before Pangonshan, in
Speaker 11: the Egon age, they have Gaciuting as the party's secretary,
Speaker 11: and Egon's level as PBOs governor is being seen as
Speaker 11: less important than Gotiuting's role as a part of governor.
Speaker 11: And it still remains a mystery. We don't know whether
Speaker 11: Punkonshan is going to be the governor, but that's the
Speaker 11: party secretary is definitely a bigger boss than a governor job.
Speaker 11: And the role of the PBOC is is becoming less
Speaker 11: and less independent for sure. Now it's under the State Council,
Speaker 11: and starting from years ago before the PBSC country pollar,
Speaker 11: you can always get some sort of a spoiler from
Speaker 11: the state state consols saying that, oh, we think the
Speaker 11: PBOs should culture pillar soon, and two days later the
Speaker 11: PBOCA does that.
Speaker 3: I wonder how much it matters in that power really
Speaker 3: flows from the very top anyway in China, doesn't it.
Speaker 11: Yeah, yeah, yeah, so's it is. All the government agencies
Speaker 11: are to some extent losing a bit of a power,
Speaker 11: and it is quite concerning if this is happening to
Speaker 11: the PBOC.
Speaker 3: Tinggent thanks so much for joining us Tangent team leader
Speaker 3: for FX and Rates in Asia. I'm Brian Curtis along
Speaker 3: with Doug Krisner. You can catch us every weekday here
Speaker 3: for Bloomberg day Break Asia, beginning at six am in
Speaker 3: Hong Kong and six pm on Wall Street.
Speaker 1: Tom, thank you, Brian, and coming up here. On Bloomberg
Speaker 1: day Break weekend, we turned to the UK economy and
Speaker 1: one controversial idea to get things going again. I'm Tom
Speaker 1: Busby and this is Bloomberg. This is Bloomberg day Break weekend,
Speaker 1: our global look ahead at the top stories for investors
Speaker 1: in the coming week. I'm Tom Busby in New York.
Speaker 1: The UK needs to boost economic growth and one strategy
Speaker 1: being pressed amid a dearth of London IPOs is tapping
Speaker 1: the cash in pension funds. It's thought that a plan
Speaker 1: may be announced by the UK Chancellor next week at
Speaker 1: a major City of London event. And for more, let's
Speaker 1: head to London and bring in Bloomberg Daybreak Europe Banker
Speaker 1: Caroline Hepgar Tom.
Speaker 4: The Chancellor Jeremy Hunt's Mansion House speech is a set
Speaker 4: piece event of the financial calendar in London this year,
Speaker 4: though maybe particularly important for the pensions industry, with big
Speaker 4: pension funds potentially agreeing to invest up to five percent
Speaker 4: of their assets into unlisted UK companies to provide better
Speaker 4: returns and grow the British economy well. For more on
Speaker 4: the story, I'm joined by Bloomberg City Editor Katherine Griffiths.
Speaker 4: Welcome to Radio Katherine, great to have you with us.
Speaker 4: Lots of focus then on the Lord Mayor of London's initiative,
Speaker 4: his idea fifty billion pounds a future growth fund. Who
Speaker 4: do you think is actually going to be in favor?
Speaker 4: Will it get rolled out in this speech?
Speaker 7: It probably will get rolled out in this speech, and
Speaker 7: it's kind of all to play for in the run up.
Speaker 7: There's lots of different conflicting groups. Some are quite in favor,
Speaker 7: some are not even within the same industry. Among the insurers,
Speaker 7: which is other group that are really affected by this,
Speaker 7: Some are quite keen on the idea of signing up
Speaker 7: and allowing about five percent of their defined contribution pension
Speaker 7: funds to go into growth assets, but some are really
Speaker 7: kind of holding out and saying that it could be
Speaker 7: quite problematic. So it's going to the wire ahead of
Speaker 7: the speech as to what the details will actually be Yeah.
Speaker 4: Absolutely, How do you think it's going to work though?
Speaker 4: It's it going to be mandatory? Is it going to
Speaker 4: be a nudge a deal?
Speaker 7: So I think it's not going to be mandatory. So
Speaker 7: Nick Lyons, who is interestingly of the industry, he is
Speaker 7: the chairman of Phoenix, which is the UK's biggest pensions provider.
Speaker 7: He was suggesting that the contributions could be mandatory. That's
Speaker 7: not his preferred option, but they could be mandatory. He's
Speaker 7: not a fool. The reason why he raised that quite
Speaker 7: contentious idea is because if insurers and other asset managers
Speaker 7: are not forced to hand over these funds or to
Speaker 7: direct them in a certain way, they may not do it.
Speaker 7: A decade ago, the Cameron Osborne government tried to do
Speaker 7: something really quite similar. The whole project just didn't go
Speaker 7: anywhere because the insurers and the asset managers and the
Speaker 7: pension funds just couldn't really agree on the terms and
Speaker 7: who to invest in and how so that's where this
Speaker 7: mandatory idea came from. But it's been killed certainly in
Speaker 7: the run up to the Mansion House speech.
Speaker 4: But as you say, it's also quite fraught with difficulty
Speaker 4: I mean, to my mind, I think back to one
Speaker 4: of London's star investors, Neil Woodford, who only a few
Speaker 4: years ago ran it's a huge difficulty with much less
Speaker 4: liquid investments in UK assets, and it's sort of did
Speaker 4: for him in some ways. So I guess maybe you
Speaker 4: could think of that being a kind of a risk.
Speaker 7: Sure, And actually yes, I think the industry says, look,
Speaker 7: it's all very well to want to invest in these
Speaker 7: startups and liquid assets, but you have to face the
Speaker 7: fact that the rate of failure is higher in those areas.
Speaker 7: They are inherently riskier. And the counter argument there as well.
Speaker 7: You know, you invest in a wide range and overtime
Speaker 7: things come good, but when you're talking about people's pensions money,
Speaker 7: there is clearly a problem.
Speaker 4: The pressure there is on the government to deliver better growth.
Speaker 4: We've seen, you know, months of anemic growth. Bloomberg Economics
Speaker 4: now expects a recession in the fourth quarter of this year.
Speaker 4: So the pressure is on this Chancellor and the Prime Minister.
Speaker 7: The pressure is massively on and I suppose they would
Speaker 7: say the hope, and some in the city would say too,
Speaker 7: that the hope is to kind of create a virtuous
Speaker 7: circle where you do invest more in the UK and
Speaker 7: they hark back to say twenty thirty years ago when
Speaker 7: pension funds did invest in UK companies, And so of
Speaker 7: course if you've got that kind of bank of money
Speaker 7: being invested into UK companies, the chances are those companies
Speaker 7: may do better, their valuations will rise. That in turn,
Speaker 7: of course is good for their owners. So the hope
Speaker 7: is to create that virtuous circle. Kathin, thank you so
Speaker 7: much for being with us. Bloomberg City Editor Kathy Griffith,
Speaker 7: and I've Caroline Hepkee here in London. You can catch
Speaker 7: us every weekday morning for Bloomberg Daybreak. Youre at the
Speaker 7: beginning at six am in London. That's one am on
Speaker 7: Wall Street.
Speaker 1: Tom, Thank you Caroline, and that does it for this
Speaker 1: edition of Bloomberg day Break Weekend. Join us again Monday
Speaker 1: morning at five am Wall Street time for the latest
Speaker 1: don markets, overseas and the news you need to start
Speaker 1: your day. I'm Tom Buzzby. Stay with us. Top stories
Speaker 1: and global business headlines are coming up right now.