WEBVTT - Daybreak Asia: January 18, 2023

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<v Speaker 1>This is Bloomberg Daybreak Asia for this Wednesday, January eighteenth

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<v Speaker 1>in Hong Kong, Tuesday, January sevent in New York, and

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<v Speaker 1>coming up this hour, the Bank of Japan may keep

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<v Speaker 1>policy unchanged, but traders are not ruling out of the moves.

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<v Speaker 1>China's top economic official says growth will rebound this year

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<v Speaker 1>and GOME sas revenue missing analysts estimates is expenses surge.

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<v Speaker 1>The U s as it's finding it difficult to re

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<v Speaker 1>enter military talks with China. Chancellor Schultz says Germany's efforts

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<v Speaker 1>to talk with China is an effort at globalization. Jeeves

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<v Speaker 1>Mayor on Bloomberg asks the world not to hesitate with

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<v Speaker 1>help and rebuilding. I'm at Baxter with Global News. No

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<v Speaker 1>Vak Djokovic dominates in his return to the Australian Open

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<v Speaker 1>on Dan schwartzpen I'll have that story and Moore coming

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<v Speaker 1>up in Bloomberg's boards. That's all straight ahead on Bloomberg

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<v Speaker 1>Daybreak Asia on Bloomberg eleven and three on New York, Bloomberg, Washington,

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<v Speaker 1>d C, Bloomberg one O six one, Boston, Bloomberg nine

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<v Speaker 1>sixties Princes Go Syrius ex Am one nineteen and around

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<v Speaker 1>the world on Bloomberg Radio dot com and via the

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<v Speaker 1>Bloomberg Business app. Good morning, and I'm Brian Curtiz. Here

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<v Speaker 1>are the stories were following today. Well, Goldman Sachs posted

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<v Speaker 1>a bigger than expected increase in expenses than analysts expected,

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<v Speaker 1>and we will get to that story in a few moments.

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<v Speaker 1>One of the big stories of the day China's Vice

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<v Speaker 1>Premier Leo hub saying the country's economy will likely rebound

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<v Speaker 1>to its pre pandemic growth trend this year. This was

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<v Speaker 1>in a speech to the World Economic Forum in Davos.

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<v Speaker 1>He said that life in China had been restored to

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<v Speaker 1>normal following the lifting of the restrictions, and that a

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<v Speaker 1>peak in infections has passed. Leo added that Beijing's focus

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<v Speaker 1>this year will be on boosting domestic demand and that

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<v Speaker 1>that will lead to a notable increase in imports. He

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<v Speaker 1>also addressed an international concern that Beijing is turning away

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<v Speaker 1>from globalization to focus on self sufficiency. China's fundamental national

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<v Speaker 1>reality dictates that opening up to the world is a must.

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<v Speaker 1>We must open up wider and make it work better.

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<v Speaker 1>We oppose unilateralism and protectionism. We also hope to strengthen

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<v Speaker 1>international cooperation jointly maintain the stable development of the world

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<v Speaker 1>economy and promote economic reglobalization. Separately, Leo, who is expected

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<v Speaker 1>to meet US Treasury Secretary Janet Yellen in Switzerland this week,

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<v Speaker 1>talked about confidence. The U. S. Treasury Department said that

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<v Speaker 1>the two will exchange views on macro economic developments and

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<v Speaker 1>some other economic issues. Look at the back of Japan

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<v Speaker 1>delivering a much awaited policy decision in a few hours.

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<v Speaker 1>Most economists expecting no major change, but there are chances

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<v Speaker 1>of a surprise. Let's have a look at all. This

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<v Speaker 1>is a blue David ingless. Yes. Most economists expect to hold,

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<v Speaker 1>but an unusually high number of observers say they cannot

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<v Speaker 1>rule out changes the yield curve control policies. Last month,

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<v Speaker 1>of Central Bank widened its target ban on the tenure

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<v Speaker 1>j GB to fifty basis points. Analysts say a further

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<v Speaker 1>expansion to seventy five or even higher as possible. Even

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<v Speaker 1>ditching the policy altogether could be considered. It depends on

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<v Speaker 1>how the BOG reads the economy, prices, and financial markets.

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<v Speaker 1>We'll get the decision later today, and traders are betting

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<v Speaker 1>on a possible swing of get this two percent in

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<v Speaker 1>dollar yen in Hong Kong. I'm David less Lumbrick Debrick Asia.

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<v Speaker 1>Goldman Sachs posted a bigger increase in expenses than analysts

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<v Speaker 1>had expected. It said that fourth quarter of compensation costs

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<v Speaker 1>of three point eight billion dollars, or sixteen percent, higher

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<v Speaker 1>than in the same period last year. It indicates that

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<v Speaker 1>the bank's leadership was too conservative with its set aside

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<v Speaker 1>for pay in the first nine months of two The

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<v Speaker 1>investment banking giant has also poured billions of dollars into

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<v Speaker 1>its retail effort. Separately, Goldman reported fourth quarter revenue that

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<v Speaker 1>fell short banialists estimates. Goldman Sacks CEO David Solomon says

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<v Speaker 1>that an industry wide slowdown has his clients worried. Deos

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<v Speaker 1>and boards tell me they are cautious, particularly for the

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<v Speaker 1>near term. They're rethinking business opportunities and would like to

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<v Speaker 1>see more stability before committing to longer term plans. Many

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<v Speaker 1>firms have started preparing for tougher times, focusing on factors

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<v Speaker 1>within their control, and the stock did trade down pretty

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<v Speaker 1>sharply during the session, down six point four percent and

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<v Speaker 1>looking at further losses there in some of the banking sector.

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<v Speaker 1>But Morgan Stanley went to the other direction with some

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<v Speaker 1>big games. Well, here we are Doug Chrisner and Brian

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<v Speaker 1>Curtis and Rashad Salama. So Doug, it's very interesting to

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<v Speaker 1>look at the comments from Leo hu which we played

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<v Speaker 1>for the audience a few moments ago. Leo is leaving

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<v Speaker 1>the post in March when the new team comes in,

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<v Speaker 1>but he's pretty close to China's president Hijin Ping. I

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<v Speaker 1>think it's fair to say that in the figure to sense,

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<v Speaker 1>he's not going anywhere. But the question is can Shine

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<v Speaker 1>to really get back to pre pandemic levels, And there's

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<v Speaker 1>at least a couple of big challenges even with the

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<v Speaker 1>pent up demand that we know is there. One of

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<v Speaker 1>the big challenges is the global eco absolutely right about that,

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<v Speaker 1>and he seemed to blame a lot of the Western

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<v Speaker 1>banks right on their sharper interest rate increases. We're talking

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<v Speaker 1>a lot on this program about the probability of a

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<v Speaker 1>global recession that is very much going to factor into

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<v Speaker 1>the China recovery story. Kevin Rudd, the former Australian Prime

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<v Speaker 1>Minister who will now be Australia's ambassador to the US

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<v Speaker 1>was also speaking at Davos, and he said that China's

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<v Speaker 1>recovery is going to be export challenged. So I think

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<v Speaker 1>it's fair to say that if there is a strong,

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<v Speaker 1>a robust recovery in China, it's very much going to

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<v Speaker 1>depend on how well the rest of the world is

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<v Speaker 1>is faring. Yeah, the other big challenge, I think we

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<v Speaker 1>have to acknowledge his policy. I mean, will they stick

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<v Speaker 1>with this new direction? And I think some of the

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<v Speaker 1>comments they're from Leo Jo would would have reassured investors

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<v Speaker 1>because he said that, you know, we're not going back

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<v Speaker 1>to a planned economy, that's impossible. He also said that

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<v Speaker 1>common prosperity it's not to be taken in a literal sense.

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<v Speaker 1>It it doesn't mean in forcing strict equality. Uh. And

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<v Speaker 1>he said, I think most importantly that it needs entrepreneurial

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<v Speaker 1>effort and that could be a big thing too to

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<v Speaker 1>the companies, particularly in China and also to investors looking

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<v Speaker 1>at China. Well, that seems to dovetail with the relaxation

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<v Speaker 1>that we're seeing in a lot of the regulatory crackdown.

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<v Speaker 1>Put to your point, uh, in terms of the virus

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<v Speaker 1>and where China is in the process. Next week it's

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<v Speaker 1>the Lunar New Year, Brian. You know, well, I mean

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<v Speaker 1>a lot is going to depend on how well this goes. Yeah. Absolutely,

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<v Speaker 1>It'll be a stress test for sure, particularly with aviation

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<v Speaker 1>and travel. Now it's time for global news. Let's get

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<v Speaker 1>to add Baxter in San Francisco. Ed relations between China

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<v Speaker 1>and the United States appear to be getting colder. What's

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<v Speaker 1>the latest, Well, colder and colder, Brian. You have the

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<v Speaker 1>Pentagon says it's struggling now to get China to resume

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<v Speaker 1>military to military talks. China cut off talks in the

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<v Speaker 1>military and climate change after then speaker to Anti Pelosi

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<v Speaker 1>visited Taiwan. But this is also two months after President

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<v Speaker 1>she and Biden met an Indonesian promise to work together.

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<v Speaker 1>It is apparently not working out that way. German Chancellor

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<v Speaker 1>Ala Schulz says that Germany believes in globalization and tells

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<v Speaker 1>Bloomberg's John mickel Thwaite and an exclusive interview that China

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<v Speaker 1>is part of that. The right thing to do now

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<v Speaker 1>is that we all together and also the business sector

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<v Speaker 1>in all our countries are willing to um to have

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<v Speaker 1>not just one supplier to look for others for for

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<v Speaker 1>for going to too many regions in the world. In

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<v Speaker 1>the Berlin interview, Schultz also said it is developing hydrogen

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<v Speaker 1>gas is the gas of the future, and that a

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<v Speaker 1>trade war with the US will not happen. Schulz says

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<v Speaker 1>Germany will support Ukraine as long as there's an age.

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<v Speaker 1>Chancellor Schultz, in the exclusive interview with John says support

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<v Speaker 1>with an eye on avoiding a war that involves NATO.

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<v Speaker 1>We support the Ukraine as long as it is necessary,

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<v Speaker 1>with all the means we can use, but also always

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<v Speaker 1>avoiding that this war is escalating to a war not

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<v Speaker 1>between Russia, which is the imperialistic aggressive, and Ukraine, who

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<v Speaker 1>has all the reason for defending its own integrity now.

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<v Speaker 1>Shul says the only way the war will end is

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<v Speaker 1>for Russia to polite troops, which will have to happen

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<v Speaker 1>at some point, he says, and the mayor of Kiev,

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<v Speaker 1>which has been undergoing more attacks in the past couple

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<v Speaker 1>of days. But Alliklisko in Davos with Lumberg's David Weston

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<v Speaker 1>says the fight to keep infrastructure is very intense. In

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<v Speaker 1>this period of time. We have a lot of challenges.

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<v Speaker 1>We have to carry about the services electricity, water, hating,

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<v Speaker 1>we have to give the public transportation, medical care and education.

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<v Speaker 1>And that's why it's not easy time. It's a lot

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<v Speaker 1>of challenges. And brother Vladimir says the major problem Ukraine

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<v Speaker 1>has with the West hesitation. Hesitation costs destruction of our

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<v Speaker 1>of our infrastructure and also losing our best man, woman, children,

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<v Speaker 1>our future generation as well, and this hesitation is painful about.

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<v Speaker 1>Both brothers reiterated time and again how much they appreciate

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<v Speaker 1>the help coming from the world, saying without it, Ukraine

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<v Speaker 1>will not survive. And former U S Secretary of State

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<v Speaker 1>Henry Kissinger is a reverse course on Ukraine and says

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<v Speaker 1>now he believed Ukraine joining NATO could be an appropriate outcome.

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<v Speaker 1>In San Francisco, I'm at Baxter. This is Bloomberg, right, Brian,

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<v Speaker 1>thanks very much. Let's get to our guest, Cheryl Smith,

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<v Speaker 1>economist and portfolio manager at Trillion Asset Management. Cheryl, we

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<v Speaker 1>had about three percent growth in China in the past year,

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<v Speaker 1>the calendar year. Leo Hu, the economic chief, talking about

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<v Speaker 1>almost double that this year. We had a guest on

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<v Speaker 1>our show yesterday who is one of the most prominent

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<v Speaker 1>strategists in China, how Hong saying that China would be

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<v Speaker 1>lucky to get three percent this year. Your thoughts on that,

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<v Speaker 1>I think your prior guest tour or your commentator who

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<v Speaker 1>was talking about the dependence that China has on growth

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<v Speaker 1>in the rest of the world. There's a really interesting point.

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<v Speaker 1>We've always thought about the growth in China dragging the

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<v Speaker 1>rest of the world along with it, but the post

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<v Speaker 1>COVID situation has kind of flipped that. And with many

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<v Speaker 1>of the developed countries looking at potential recession in this

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<v Speaker 1>next year, or at the very least a distinct slow down,

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<v Speaker 1>I think China will have more difficulty starting things back up. Also,

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<v Speaker 1>China has the problem of an aging population, the same

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<v Speaker 1>thing that Japan has been dealing with for years, the

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<v Speaker 1>same thing that many developed countries in Europe have been

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<v Speaker 1>dealing with, and that really makes it categorically more difficult

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<v Speaker 1>to grow at those rapid rates such as a six

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<v Speaker 1>percent growth rate. And you know, we had that population number,

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<v Speaker 1>of course, reinforced by that big surprise in the data

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<v Speaker 1>yesterday showing that actually in China's population actually shrank, and

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<v Speaker 1>that's the first time that's happened in sixty years or thereabouts.

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<v Speaker 1>And how does that change the game materially from an

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<v Speaker 1>investment point of view, because it means that the structure

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<v Speaker 1>of the economy is evolving, it's getting older and of

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<v Speaker 1>course getting smaller as well. Demographically. Yes, it changes the

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<v Speaker 1>relative balance between consumption and investment, and it also changes

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<v Speaker 1>the balance that of workers to the um older population

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<v Speaker 1>that needs support social support. So China doesn't have the

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<v Speaker 1>same social support structures like social security, Medicare, and so

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<v Speaker 1>forth at the United States has. It's more of a

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<v Speaker 1>generational support. But each um. You know, if you have

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<v Speaker 1>a one child policy through three generations, you have one

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<v Speaker 1>grandchild supporting eight grandparents for parents, or one family to

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<v Speaker 1>you to two people married supporting four and eight. That's

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<v Speaker 1>a lot of people to be supporting. And with that

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<v Speaker 1>being the case, you just don't have as much um

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<v Speaker 1>devoted much available to devote to consumption or new growth

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<v Speaker 1>or anything like that. It really makes it a very

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<v Speaker 1>difficult calculation of how to grow. That said, last year

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<v Speaker 1>was a very very unusual year and people are not

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<v Speaker 1>moving around, not doing things, very scared about losing their jobs.

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<v Speaker 1>As the economy was shut down, we probably have to

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<v Speaker 1>wait another year or two to see whether that's a

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<v Speaker 1>trend uh that continues at least in the negative fashion.

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<v Speaker 1>But I think that point that we talked about earlier

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<v Speaker 1>with if the US and if Europe are in recession

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<v Speaker 1>this year, then is growth higher levels of growth doomed

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<v Speaker 1>in China. So it begs the question do you think

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<v Speaker 1>the US goes into recession this year and Europe as well?

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<v Speaker 1>Our call is definitely that we will be going into recession.

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<v Speaker 1>We do not see a soft landing as really possible

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<v Speaker 1>given the degree of monetary tightening that's already happened in

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<v Speaker 1>the United States and even more so sort of synchronized

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<v Speaker 1>monetary tightening across the world with most of the major

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<v Speaker 1>developed countries having done so that takes eighteen months to

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<v Speaker 1>hit the economy. So we just started that tightening in

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<v Speaker 1>the United States in March. So everybody is saying, well,

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<v Speaker 1>it's got to be a soft landing because we haven't

0:13:37.880 --> 0:13:41.839
<v Speaker 1>had employment, right, unemployment rise yet. Well, it's not time

0:13:41.960 --> 0:13:44.440
<v Speaker 1>yet for unemployment to rise. What the stage we're in

0:13:44.520 --> 0:13:49.079
<v Speaker 1>now is going to be disappointing corporate profits. Those disappointing

0:13:49.080 --> 0:13:53.400
<v Speaker 1>corporate profits, Um, whether it's Goldman Sachs or the first

0:13:53.400 --> 0:13:56.600
<v Speaker 1>bank starting to do it. You're going to see companies

0:13:56.640 --> 0:13:59.520
<v Speaker 1>having a more and more difficult time making their earnings.

0:13:59.760 --> 0:14:05.119
<v Speaker 1>We had economics blame the FED for it's not blaming

0:14:05.240 --> 0:14:08.840
<v Speaker 1>the FED. It is a logical consequence of FED action.

0:14:09.080 --> 0:14:13.480
<v Speaker 1>But the FED action is undertaken because you had everybody

0:14:13.480 --> 0:14:16.760
<v Speaker 1>in the world screaming about inflation going on for too long.

0:14:17.160 --> 0:14:20.720
<v Speaker 1>So the FED was backed into a political corner, if

0:14:20.760 --> 0:14:22.800
<v Speaker 1>you will, to the point where you know, they had

0:14:22.840 --> 0:14:25.800
<v Speaker 1>to say, well, we already have employment at a high level,

0:14:26.000 --> 0:14:29.400
<v Speaker 1>so we have to address that other dual component of

0:14:29.400 --> 0:14:32.400
<v Speaker 1>our mandate, the inflation, and we are going to have

0:14:32.480 --> 0:14:34.840
<v Speaker 1>to raise interest rates. Other central banks around the world

0:14:34.880 --> 0:14:38.680
<v Speaker 1>is saying the same thing because the COVID supply chain

0:14:38.800 --> 0:14:43.400
<v Speaker 1>induced inflation worldwide was a worldwide problem, so everybody is

0:14:43.440 --> 0:14:47.920
<v Speaker 1>applying the same policy solution. The difficulty in macroeconomics is

0:14:48.000 --> 0:14:52.320
<v Speaker 1>that it's not like plumbing. You don't turn on the

0:14:52.320 --> 0:14:54.840
<v Speaker 1>faucet and things start flowing, and you turn off the

0:14:54.840 --> 0:14:58.680
<v Speaker 1>flawcet and things. Do you do preventive maintenance? Though, don't

0:14:58.680 --> 0:15:02.600
<v Speaker 1>you know you do prevented maintenance. Didn't do the preventative maintenance.

0:15:03.640 --> 0:15:07.000
<v Speaker 1>I would say that um, at the time when the

0:15:07.000 --> 0:15:09.840
<v Speaker 1>FED UM. I mean that you're asking whether the FED

0:15:09.880 --> 0:15:12.880
<v Speaker 1>should have started raising rates much earlier. I don't think. Well,

0:15:14.560 --> 0:15:17.960
<v Speaker 1>many people asked, yes, okay, many people are asking, you know,

0:15:18.000 --> 0:15:20.920
<v Speaker 1>should the FED have started raising rates earlier. I don't

0:15:20.920 --> 0:15:23.520
<v Speaker 1>think that that was actually a possibility, because we were

0:15:23.560 --> 0:15:27.880
<v Speaker 1>still at you know, at fairly high levels of unemployment

0:15:28.000 --> 0:15:30.000
<v Speaker 1>at the time when you would have had to have

0:15:30.200 --> 0:15:35.920
<v Speaker 1>started raising rates to have choked off the inflation that

0:15:36.000 --> 0:15:40.840
<v Speaker 1>later happened. It's a very thorny issue, and I think

0:15:41.160 --> 0:15:43.320
<v Speaker 1>it's really I would not blame the FED. I would

0:15:43.320 --> 0:15:48.600
<v Speaker 1>say that the issue was in a h a structure

0:15:48.720 --> 0:15:53.200
<v Speaker 1>of world production that required so much output in one

0:15:53.760 --> 0:15:56.680
<v Speaker 1>country and input in another country, and depended on being

0:15:56.680 --> 0:16:00.640
<v Speaker 1>able to ship it across borders easily costlessly, and we

0:16:00.760 --> 0:16:02.760
<v Speaker 1>found that that wasn't the case when you had something

0:16:02.800 --> 0:16:06.440
<v Speaker 1>like COVID show very quickly. I mean the bond market

0:16:06.720 --> 0:16:12.120
<v Speaker 1>is actually a buy. Yeah. I think the bond market

0:16:12.200 --> 0:16:15.800
<v Speaker 1>is overly optimistic. I think that we'll still see further

0:16:16.080 --> 0:16:18.800
<v Speaker 1>tightening on the shorter end, and the bond market isn't

0:16:18.800 --> 0:16:21.160
<v Speaker 1>fully accounting for how long the set is going to

0:16:21.200 --> 0:16:23.320
<v Speaker 1>be raising rates, and I think that the bond mark

0:16:23.560 --> 0:16:26.200
<v Speaker 1>is anticipating that the rates are going to be cut

0:16:26.280 --> 0:16:28.560
<v Speaker 1>sooner than I think they actually will be. I think

0:16:28.560 --> 0:16:32.240
<v Speaker 1>we're still at these high short term rates through the

0:16:32.280 --> 0:16:36.840
<v Speaker 1>rest of three. This is Bloomberg Daybreak Asia, your morning

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