Speaker 1: This is Bloomberg Daybreak Asia for this Wednesday, January eighteenth
Speaker 1: in Hong Kong, Tuesday, January sevent in New York, and
Speaker 1: coming up this hour, the Bank of Japan may keep
Speaker 1: policy unchanged, but traders are not ruling out of the moves.
Speaker 1: China's top economic official says growth will rebound this year
Speaker 1: and GOME sas revenue missing analysts estimates is expenses surge.
Speaker 1: The U s as it's finding it difficult to re
Speaker 1: enter military talks with China. Chancellor Schultz says Germany's efforts
Speaker 1: to talk with China is an effort at globalization. Jeeves
Speaker 1: Mayor on Bloomberg asks the world not to hesitate with
Speaker 1: help and rebuilding. I'm at Baxter with Global News. No
Speaker 1: Vak Djokovic dominates in his return to the Australian Open
Speaker 1: on Dan schwartzpen I'll have that story and Moore coming
Speaker 1: up in Bloomberg's boards. That's all straight ahead on Bloomberg
Speaker 1: Daybreak Asia on Bloomberg eleven and three on New York, Bloomberg, Washington,
Speaker 1: d C, Bloomberg one O six one, Boston, Bloomberg nine
Speaker 1: sixties Princes Go Syrius ex Am one nineteen and around
Speaker 1: the world on Bloomberg Radio dot com and via the
Speaker 1: Bloomberg Business app. Good morning, and I'm Brian Curtiz. Here
Speaker 1: are the stories were following today. Well, Goldman Sachs posted
Speaker 1: a bigger than expected increase in expenses than analysts expected,
Speaker 1: and we will get to that story in a few moments.
Speaker 1: One of the big stories of the day China's Vice
Speaker 1: Premier Leo hub saying the country's economy will likely rebound
Speaker 1: to its pre pandemic growth trend this year. This was
Speaker 1: in a speech to the World Economic Forum in Davos.
Speaker 1: He said that life in China had been restored to
Speaker 1: normal following the lifting of the restrictions, and that a
Speaker 1: peak in infections has passed. Leo added that Beijing's focus
Speaker 1: this year will be on boosting domestic demand and that
Speaker 1: that will lead to a notable increase in imports. He
Speaker 1: also addressed an international concern that Beijing is turning away
Speaker 1: from globalization to focus on self sufficiency. China's fundamental national
Speaker 1: reality dictates that opening up to the world is a must.
Speaker 1: We must open up wider and make it work better.
Speaker 1: We oppose unilateralism and protectionism. We also hope to strengthen
Speaker 1: international cooperation jointly maintain the stable development of the world
Speaker 1: economy and promote economic reglobalization. Separately, Leo, who is expected
Speaker 1: to meet US Treasury Secretary Janet Yellen in Switzerland this week,
Speaker 1: talked about confidence. The U. S. Treasury Department said that
Speaker 1: the two will exchange views on macro economic developments and
Speaker 1: some other economic issues. Look at the back of Japan
Speaker 1: delivering a much awaited policy decision in a few hours.
Speaker 1: Most economists expecting no major change, but there are chances
Speaker 1: of a surprise. Let's have a look at all. This
Speaker 1: is a blue David ingless. Yes. Most economists expect to hold,
Speaker 1: but an unusually high number of observers say they cannot
Speaker 1: rule out changes the yield curve control policies. Last month,
Speaker 1: of Central Bank widened its target ban on the tenure
Speaker 1: j GB to fifty basis points. Analysts say a further
Speaker 1: expansion to seventy five or even higher as possible. Even
Speaker 1: ditching the policy altogether could be considered. It depends on
Speaker 1: how the BOG reads the economy, prices, and financial markets.
Speaker 1: We'll get the decision later today, and traders are betting
Speaker 1: on a possible swing of get this two percent in
Speaker 1: dollar yen in Hong Kong. I'm David less Lumbrick Debrick Asia.
Speaker 1: Goldman Sachs posted a bigger increase in expenses than analysts
Speaker 1: had expected. It said that fourth quarter of compensation costs
Speaker 1: of three point eight billion dollars, or sixteen percent, higher
Speaker 1: than in the same period last year. It indicates that
Speaker 1: the bank's leadership was too conservative with its set aside
Speaker 1: for pay in the first nine months of two The
Speaker 1: investment banking giant has also poured billions of dollars into
Speaker 1: its retail effort. Separately, Goldman reported fourth quarter revenue that
Speaker 1: fell short banialists estimates. Goldman Sacks CEO David Solomon says
Speaker 1: that an industry wide slowdown has his clients worried. Deos
Speaker 1: and boards tell me they are cautious, particularly for the
Speaker 1: near term. They're rethinking business opportunities and would like to
Speaker 1: see more stability before committing to longer term plans. Many
Speaker 1: firms have started preparing for tougher times, focusing on factors
Speaker 1: within their control, and the stock did trade down pretty
Speaker 1: sharply during the session, down six point four percent and
Speaker 1: looking at further losses there in some of the banking sector.
Speaker 1: But Morgan Stanley went to the other direction with some
Speaker 1: big games. Well, here we are Doug Chrisner and Brian
Speaker 1: Curtis and Rashad Salama. So Doug, it's very interesting to
Speaker 1: look at the comments from Leo hu which we played
Speaker 1: for the audience a few moments ago. Leo is leaving
Speaker 1: the post in March when the new team comes in,
Speaker 1: but he's pretty close to China's president Hijin Ping. I
Speaker 1: think it's fair to say that in the figure to sense,
Speaker 1: he's not going anywhere. But the question is can Shine
Speaker 1: to really get back to pre pandemic levels, And there's
Speaker 1: at least a couple of big challenges even with the
Speaker 1: pent up demand that we know is there. One of
Speaker 1: the big challenges is the global eco absolutely right about that,
Speaker 1: and he seemed to blame a lot of the Western
Speaker 1: banks right on their sharper interest rate increases. We're talking
Speaker 1: a lot on this program about the probability of a
Speaker 1: global recession that is very much going to factor into
Speaker 1: the China recovery story. Kevin Rudd, the former Australian Prime
Speaker 1: Minister who will now be Australia's ambassador to the US
Speaker 1: was also speaking at Davos, and he said that China's
Speaker 1: recovery is going to be export challenged. So I think
Speaker 1: it's fair to say that if there is a strong,
Speaker 1: a robust recovery in China, it's very much going to
Speaker 1: depend on how well the rest of the world is
Speaker 1: is faring. Yeah, the other big challenge, I think we
Speaker 1: have to acknowledge his policy. I mean, will they stick
Speaker 1: with this new direction? And I think some of the
Speaker 1: comments they're from Leo Jo would would have reassured investors
Speaker 1: because he said that, you know, we're not going back
Speaker 1: to a planned economy, that's impossible. He also said that
Speaker 1: common prosperity it's not to be taken in a literal sense.
Speaker 1: It it doesn't mean in forcing strict equality. Uh. And
Speaker 1: he said, I think most importantly that it needs entrepreneurial
Speaker 1: effort and that could be a big thing too to
Speaker 1: the companies, particularly in China and also to investors looking
Speaker 1: at China. Well, that seems to dovetail with the relaxation
Speaker 1: that we're seeing in a lot of the regulatory crackdown.
Speaker 1: Put to your point, uh, in terms of the virus
Speaker 1: and where China is in the process. Next week it's
Speaker 1: the Lunar New Year, Brian. You know, well, I mean
Speaker 1: a lot is going to depend on how well this goes. Yeah. Absolutely,
Speaker 1: It'll be a stress test for sure, particularly with aviation
Speaker 1: and travel. Now it's time for global news. Let's get
Speaker 1: to add Baxter in San Francisco. Ed relations between China
Speaker 1: and the United States appear to be getting colder. What's
Speaker 1: the latest, Well, colder and colder, Brian. You have the
Speaker 1: Pentagon says it's struggling now to get China to resume
Speaker 1: military to military talks. China cut off talks in the
Speaker 1: military and climate change after then speaker to Anti Pelosi
Speaker 1: visited Taiwan. But this is also two months after President
Speaker 1: she and Biden met an Indonesian promise to work together.
Speaker 1: It is apparently not working out that way. German Chancellor
Speaker 1: Ala Schulz says that Germany believes in globalization and tells
Speaker 1: Bloomberg's John mickel Thwaite and an exclusive interview that China
Speaker 1: is part of that. The right thing to do now
Speaker 1: is that we all together and also the business sector
Speaker 1: in all our countries are willing to um to have
Speaker 1: not just one supplier to look for others for for
Speaker 1: for going to too many regions in the world. In
Speaker 1: the Berlin interview, Schultz also said it is developing hydrogen
Speaker 1: gas is the gas of the future, and that a
Speaker 1: trade war with the US will not happen. Schulz says
Speaker 1: Germany will support Ukraine as long as there's an age.
Speaker 1: Chancellor Schultz, in the exclusive interview with John says support
Speaker 1: with an eye on avoiding a war that involves NATO.
Speaker 1: We support the Ukraine as long as it is necessary,
Speaker 1: with all the means we can use, but also always
Speaker 1: avoiding that this war is escalating to a war not
Speaker 1: between Russia, which is the imperialistic aggressive, and Ukraine, who
Speaker 1: has all the reason for defending its own integrity now.
Speaker 1: Shul says the only way the war will end is
Speaker 1: for Russia to polite troops, which will have to happen
Speaker 1: at some point, he says, and the mayor of Kiev,
Speaker 1: which has been undergoing more attacks in the past couple
Speaker 1: of days. But Alliklisko in Davos with Lumberg's David Weston
Speaker 1: says the fight to keep infrastructure is very intense. In
Speaker 1: this period of time. We have a lot of challenges.
Speaker 1: We have to carry about the services electricity, water, hating,
Speaker 1: we have to give the public transportation, medical care and education.
Speaker 1: And that's why it's not easy time. It's a lot
Speaker 1: of challenges. And brother Vladimir says the major problem Ukraine
Speaker 1: has with the West hesitation. Hesitation costs destruction of our
Speaker 1: of our infrastructure and also losing our best man, woman, children,
Speaker 1: our future generation as well, and this hesitation is painful about.
Speaker 1: Both brothers reiterated time and again how much they appreciate
Speaker 1: the help coming from the world, saying without it, Ukraine
Speaker 1: will not survive. And former U S Secretary of State
Speaker 1: Henry Kissinger is a reverse course on Ukraine and says
Speaker 1: now he believed Ukraine joining NATO could be an appropriate outcome.
Speaker 1: In San Francisco, I'm at Baxter. This is Bloomberg, right, Brian,
Speaker 1: thanks very much. Let's get to our guest, Cheryl Smith,
Speaker 1: economist and portfolio manager at Trillion Asset Management. Cheryl, we
Speaker 1: had about three percent growth in China in the past year,
Speaker 1: the calendar year. Leo Hu, the economic chief, talking about
Speaker 1: almost double that this year. We had a guest on
Speaker 1: our show yesterday who is one of the most prominent
Speaker 1: strategists in China, how Hong saying that China would be
Speaker 1: lucky to get three percent this year. Your thoughts on that,
Speaker 1: I think your prior guest tour or your commentator who
Speaker 1: was talking about the dependence that China has on growth
Speaker 1: in the rest of the world. There's a really interesting point.
Speaker 1: We've always thought about the growth in China dragging the
Speaker 1: rest of the world along with it, but the post
Speaker 1: COVID situation has kind of flipped that. And with many
Speaker 1: of the developed countries looking at potential recession in this
Speaker 1: next year, or at the very least a distinct slow down,
Speaker 1: I think China will have more difficulty starting things back up. Also,
Speaker 1: China has the problem of an aging population, the same
Speaker 1: thing that Japan has been dealing with for years, the
Speaker 1: same thing that many developed countries in Europe have been
Speaker 1: dealing with, and that really makes it categorically more difficult
Speaker 1: to grow at those rapid rates such as a six
Speaker 1: percent growth rate. And you know, we had that population number,
Speaker 1: of course, reinforced by that big surprise in the data
Speaker 1: yesterday showing that actually in China's population actually shrank, and
Speaker 1: that's the first time that's happened in sixty years or thereabouts.
Speaker 1: And how does that change the game materially from an
Speaker 1: investment point of view, because it means that the structure
Speaker 1: of the economy is evolving, it's getting older and of
Speaker 1: course getting smaller as well. Demographically. Yes, it changes the
Speaker 1: relative balance between consumption and investment, and it also changes
Speaker 1: the balance that of workers to the um older population
Speaker 1: that needs support social support. So China doesn't have the
Speaker 1: same social support structures like social security, Medicare, and so
Speaker 1: forth at the United States has. It's more of a
Speaker 1: generational support. But each um. You know, if you have
Speaker 1: a one child policy through three generations, you have one
Speaker 1: grandchild supporting eight grandparents for parents, or one family to
Speaker 1: you to two people married supporting four and eight. That's
Speaker 1: a lot of people to be supporting. And with that
Speaker 1: being the case, you just don't have as much um
Speaker 1: devoted much available to devote to consumption or new growth
Speaker 1: or anything like that. It really makes it a very
Speaker 1: difficult calculation of how to grow. That said, last year
Speaker 1: was a very very unusual year and people are not
Speaker 1: moving around, not doing things, very scared about losing their jobs.
Speaker 1: As the economy was shut down, we probably have to
Speaker 1: wait another year or two to see whether that's a
Speaker 1: trend uh that continues at least in the negative fashion.
Speaker 1: But I think that point that we talked about earlier
Speaker 1: with if the US and if Europe are in recession
Speaker 1: this year, then is growth higher levels of growth doomed
Speaker 1: in China. So it begs the question do you think
Speaker 1: the US goes into recession this year and Europe as well?
Speaker 1: Our call is definitely that we will be going into recession.
Speaker 1: We do not see a soft landing as really possible
Speaker 1: given the degree of monetary tightening that's already happened in
Speaker 1: the United States and even more so sort of synchronized
Speaker 1: monetary tightening across the world with most of the major
Speaker 1: developed countries having done so that takes eighteen months to
Speaker 1: hit the economy. So we just started that tightening in
Speaker 1: the United States in March. So everybody is saying, well,
Speaker 1: it's got to be a soft landing because we haven't
Speaker 1: had employment, right, unemployment rise yet. Well, it's not time
Speaker 1: yet for unemployment to rise. What the stage we're in
Speaker 1: now is going to be disappointing corporate profits. Those disappointing
Speaker 1: corporate profits, Um, whether it's Goldman Sachs or the first
Speaker 1: bank starting to do it. You're going to see companies
Speaker 1: having a more and more difficult time making their earnings.
Speaker 1: We had economics blame the FED for it's not blaming
Speaker 1: the FED. It is a logical consequence of FED action.
Speaker 1: But the FED action is undertaken because you had everybody
Speaker 1: in the world screaming about inflation going on for too long.
Speaker 1: So the FED was backed into a political corner, if
Speaker 1: you will, to the point where you know, they had
Speaker 1: to say, well, we already have employment at a high level,
Speaker 1: so we have to address that other dual component of
Speaker 1: our mandate, the inflation, and we are going to have
Speaker 1: to raise interest rates. Other central banks around the world
Speaker 1: is saying the same thing because the COVID supply chain
Speaker 1: induced inflation worldwide was a worldwide problem, so everybody is
Speaker 1: applying the same policy solution. The difficulty in macroeconomics is
Speaker 1: that it's not like plumbing. You don't turn on the
Speaker 1: faucet and things start flowing, and you turn off the
Speaker 1: flawcet and things. Do you do preventive maintenance? Though, don't
Speaker 1: you know you do prevented maintenance. Didn't do the preventative maintenance.
Speaker 1: I would say that um, at the time when the
Speaker 1: FED UM. I mean that you're asking whether the FED
Speaker 1: should have started raising rates much earlier. I don't think. Well,
Speaker 1: many people asked, yes, okay, many people are asking, you know,
Speaker 1: should the FED have started raising rates earlier. I don't
Speaker 1: think that that was actually a possibility, because we were
Speaker 1: still at you know, at fairly high levels of unemployment
Speaker 1: at the time when you would have had to have
Speaker 1: started raising rates to have choked off the inflation that
Speaker 1: later happened. It's a very thorny issue, and I think
Speaker 1: it's really I would not blame the FED. I would
Speaker 1: say that the issue was in a h a structure
Speaker 1: of world production that required so much output in one
Speaker 1: country and input in another country, and depended on being
Speaker 1: able to ship it across borders easily costlessly, and we
Speaker 1: found that that wasn't the case when you had something
Speaker 1: like COVID show very quickly. I mean the bond market
Speaker 1: is actually a buy. Yeah. I think the bond market
Speaker 1: is overly optimistic. I think that we'll still see further
Speaker 1: tightening on the shorter end, and the bond market isn't
Speaker 1: fully accounting for how long the set is going to
Speaker 1: be raising rates, and I think that the bond mark
Speaker 1: is anticipating that the rates are going to be cut
Speaker 1: sooner than I think they actually will be. I think
Speaker 1: we're still at these high short term rates through the
Speaker 1: rest of three. This is Bloomberg Daybreak Asia, your morning
Speaker 1: brief on the story is making news from Hong Kong
Speaker 1: to Singapore and Wall Street. Look for us on your
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Speaker 1: I'm Brian Curtis and I'm rachand Slam. Join us again
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