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Speaker 1: This is Bloomberg Daybreak you up for this Friday, the

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Speaker 1: twelfth of May in London.

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Speaker 2: Coming up today, Yellen out loud.

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Speaker 3: US Treasury Secretary Janet Yellen says America has to raise

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Speaker 3: the debtlimit to avoid being labeled a dead beat country.

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Speaker 1: Bumping along the bottom. The UK posts anemic growth but

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Speaker 1: no recession. As the Bank of England's Bailey tells Bloomberg,

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Speaker 1: he hopes rates have peaked.

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Speaker 2: Get ready to feel the squeeze.

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Speaker 3: Soop gen Ceo says rates are impacting the economy.

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Speaker 2: And it's going to get worse for banks.

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Speaker 1: Jamie Diamond says that lenders should expect more regulation.

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Speaker 4: That's all straight ahead on Bloomberg Daybreak Europe, the business

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Speaker 4: news you need to start your day in just one

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Speaker 4: fifteen minute podcast on Apple, Spotify, the Bloomberg Business App

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Speaker 4: and everywhere you get your podcasts.

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Speaker 2: Good morning from London.

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Speaker 3: I'm Caroline Hepca and I'm Tom McKenzie. You're listening to

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Speaker 3: day Break Europe. Let's get brought up then with the

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Speaker 3: top stories of the day and Yellen, of course front center.

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Speaker 3: Given that exclusive interview, the US Treasury Secretary Jality Anna

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Speaker 3: saying that there is no good fix for the debt

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Speaker 3: limits short of lifting the ceiling. Speaking to US exclusively,

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Speaker 3: Yellen said that markets need to see a decision.

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Speaker 5: What global markets and American households and businesses need to

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Speaker 5: see is that we have for Congress that's committed to

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Speaker 5: paying the bills that we've incurred as a consequence of

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Speaker 5: our legislation. That we're not a dead beat country.

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Speaker 3: Not a dead beat country. Yellen, speaking to Bloomberg in

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Speaker 3: that exclusive one on one interview after a meeting between

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Speaker 3: President Joe Biden and US House Speaker Kevin McCarthy was

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Speaker 3: pushed back. According to White House officials, the decision to

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Speaker 3: delay the meeting is a sign that negotiations are making progress,

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Speaker 3: at least at a staff level.

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Speaker 1: Now to the UK, the economy here out a small

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Speaker 1: gain in the first quarter, so further reducing the risk

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Speaker 1: of a recession. GDP did rise by tenth of one

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Speaker 1: percent from the fourth quarter, but strikes curtailed activity in March.

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Speaker 1: Output declined by three tens of one per cent in

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Speaker 1: that month, but it was nullified by an upward revision

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Speaker 1: for January. The figures do leave the UK on track

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Speaker 1: for anemic growth for the first half of this year,

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Speaker 1: as sawing inflation and rising interest rates eat into consumer

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Speaker 1: spending power.

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Speaker 3: Meanwhile, Bank of England Governor Andrew Bailey says rates are

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Speaker 3: now getting close to their peak. Speaking to Bloomberg after

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Speaker 3: announcing a twenty five basis point hike, Bailey was asked

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Speaker 3: whether the BOE is close to a pause.

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Speaker 2: I'm going to say I hope we are. This is

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Speaker 2: the twelfth consecutive increase and rates.

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Speaker 3: I'll be very clear that we will be guided by

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Speaker 3: the effort once as it comes to us. Andrew Bailey

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Speaker 3: was speaking to Bloomberg's Guy Johnson after the BOE raised

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Speaker 3: its benchmark raat two four point five percent. That's the

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Speaker 3: highest since two thousand. Markets anticipate the central Bank may

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Speaker 3: push the base rate to five percent this summer. We'll

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Speaker 3: bring you more of our interview with the Bank of

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Speaker 3: England governor in a moment.

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Speaker 1: So General's fixed income trading unit outperformed most of its

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Speaker 1: peers in the first quarter. Income from debt and currencies

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Speaker 1: trading at the French bank jumped sixteen percent from a

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Speaker 1: year earlier to eight hundred and ninety million euros. This

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Speaker 1: is the last earnings report under the CEO of Fred Guder,

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Speaker 1: who's stepping down later this month. Speaking exclusively to Bloomberg,

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Speaker 1: he says he believes rates will squeeze the economy soon.

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Speaker 6: The central banks started a bit late compared with the

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Speaker 6: existing inflation twelve to fifteen months ago. They are catched up.

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Speaker 6: But I think that we see certainly the impact and

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Speaker 6: we will see the impact on the economy, and I

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Speaker 6: tend to think that the central banks will then be

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Speaker 6: comfortable to stop and then probably start decreasing progressively their

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Speaker 6: short term interest rates.

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Speaker 1: UDAYA will be succeeded by a slavom crooper who currently

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Speaker 1: runs SoC Gen's investment banking business.

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Speaker 3: Now struggling US regional banks are about to get hit

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Speaker 3: with more red tape. That's according to Jamie Diamond, speaking

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Speaker 3: exclusively to Bloombogs transling like what the JP Morgan chief said,

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Speaker 3: he expects policymakers to take the.

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Speaker 2: Wrong lessons from this year's upheaval.

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Speaker 7: He to get worse for banks. They're just more regulations

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Speaker 7: and more rules and more requirements. I hope they do

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Speaker 7: it very thoughtful, you because you know, if we love

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Speaker 7: the community banks, the regional banks, we're the biggest banks

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Speaker 7: of those folks. But you know, if you overd certain rules, requirements, regulations,

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Speaker 7: there are so many community banks tell me they have

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Speaker 7: more compliance people than loan officers, you know, and so

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Speaker 7: at one point and make it harder for.

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Speaker 2: Them to do business.

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Speaker 3: Diamonds warning comes just weeks after JP Morgan stepped in

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Speaker 3: to buy troubled lender First Republic. At the time, he

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Speaker 3: declared that the crisis is over, but those comments did

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Speaker 3: little to quell invest a concern, and regional banking shares

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Speaker 3: have since dropped considerably well.

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Speaker 1: Our interview with the boss of America's largest lender comes

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Speaker 1: as news emerged at the country's biggest banks face billions

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Speaker 1: of dollars in extra fees in order to replenish the

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Speaker 1: US government's deposit Insurance Fund. The assessment from the FDIC

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Speaker 1: stems from the regulator's decision to ensure all deposits at

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Speaker 1: Silicon Valley Bank and Signature Bank. The FDIC estimates that

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Speaker 1: that move costs its deposit insurance fund around fifteen point

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Speaker 1: eight billion dollars.

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Speaker 3: NBC Universal's head of advertising, Linda Yaraquino, is in talks

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Speaker 3: to become Twitter's new CEO. That's according to The Wall

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Speaker 3: Street Journal. The report comes after Elon Musk tweeted that

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Speaker 3: he's leaving the job the top job at the social network,

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Speaker 3: to become executive chair and CTO, where he will oversee product,

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Speaker 3: software and system operations.

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Speaker 2: Bloomberg's Ed Ludlow has the details.

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Speaker 8: Boiler. Musk says in the tweet that the new CEO

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Speaker 8: she will be starting in the role in around six weeks.

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Speaker 8: Muscat actually said in February that he may need a

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Speaker 8: year to fix Twitter before handing over the rain to

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Speaker 8: someone else. What he is doing in the second paragraph

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Speaker 8: on the tweet you see on your screen is reiterracing

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Speaker 8: something he's done said before that irrespect of his title,

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Speaker 8: he wanted to be involved on the engineering, product and

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Speaker 8: functionality side of Twitter.

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Speaker 3: Massport Twitter for forty four billion dollars last October at

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Speaker 3: the time, said he would only be in charge for

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Speaker 3: a limited time to complete an organizational overhaul.

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Speaker 1: That story is the last in our roundup of top

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Speaker 1: news stories. So it's kind of funny, really, isn't it,

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Speaker 1: Because Elon Musk talked about, you know, whoever would be

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Speaker 1: foolish enough to take over that top job at Twitter.

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Speaker 1: But it looks as if he's found somebody actually potentially incredible,

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Speaker 1: quite credible obviously to lead the business.

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Speaker 3: Yeah, credible of course, with a very strong background in

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Speaker 3: advertising and sales, which is going to be important for Twitter.

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Speaker 3: They are a smaller buyer, much smaller buyer than the

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Speaker 3: likes of Meta, but still of course consequential, crucial for

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Speaker 3: that business if they're actually going to get back to

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Speaker 3: kind of the levels of valuations for which he paid.

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Speaker 3: But also interestingly importantly, a female CEO a rare thing,

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Speaker 3: still disappointingly in the tech world. Yes, but that's good

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Speaker 3: news on that front. Yeah.

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Speaker 2: Absolutely.

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Speaker 1: I also want to mention the rand this morning is

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Speaker 1: plunging at the moment one point two percent. The currency

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Speaker 1: also for the week has done incredibly badly. It's just

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Speaker 1: another issue for South Africa. There is this diplomatic spart

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Speaker 1: that's going on between the US and South Africa, the

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Speaker 1: accusation that South Africa supplied weapons and ammunition to Russia

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Speaker 1: in the war in Ukraine. This has really sent government

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Speaker 1: bond yields sowing and the rand slumping to the lowest

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Speaker 1: level against the dollar frankly on record. So there's now

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Speaker 1: an investigation by the president, but there's still the s

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Speaker 1: com power supply issue in South Africa going on.

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Speaker 3: So it's just a fascinating twist. Not even China has

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Speaker 3: supplied weapons to Russia, but now accusations that potentially South

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Speaker 3: Africa has. They've taken a quote unquote neutral stance on Ukraine.

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Speaker 3: Maybe that's coming back to bite them. And this, by

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Speaker 3: the way, the pressure on the rand coming despite the

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Speaker 3: fact that the US dollar, the Bloomber dollar is down

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Speaker 3: about ten percents in September.

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Speaker 4: Yeah.

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Speaker 1: Absolutely, Okay, that's something we're watching in the markets for you.

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Speaker 1: But let's get back to that fascinating interview with the

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Speaker 1: US Traasury Secretary Janet Yellen speaking to Bloomberg's A Mui

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Speaker 1: Hordan in an exclusive interview. Now, Yellen made clear that

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Speaker 1: she believes that is only one solution to the debt

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Speaker 1: ceiling in pass in Washington.

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Speaker 5: All I can say is that there is no satisfactory

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Speaker 5: solution for the United States, a solution that will be

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Speaker 5: good for the economy and financial markets, or through the

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Speaker 5: in Congress acting to raise the debt ceiling. There are

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Speaker 5: potential different paths that could be taken if it doesn't happen,

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Speaker 5: but there is not a single thing that can be

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Speaker 5: done that will save the United States from considerable economic

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Speaker 5: and financial damage.

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Speaker 9: But this planned was outlining back in twenty eleven, and

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Speaker 9: you were there at the FOMC meeting about it, and

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Speaker 9: it's said that Treasury principles and securities would be paid.

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Speaker 9: Is this something that at least for contingency plan has

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Speaker 9: been discussed with the President?

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Speaker 5: So my understanding I was at the FED in twenty

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Speaker 5: eleven is that this plan was never presented to the

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Speaker 5: President and never approved.

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Speaker 10: And but would you present it now? Look, we would.

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Speaker 10: We were working full time to work with Congress to

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Speaker 10: raise the debt ceiling. That's where our focus is.

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Speaker 5: We know that the only good outcome is one in

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Speaker 5: which Congress act acts, as it has many times, almost

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Speaker 5: eighty times since nineteen sixty, to raise the debt ceiling.

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Speaker 5: What global markets and American households and businesses need to

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Speaker 5: see is that we have a Congress that's committed to

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Speaker 5: paying the bills that we have incurred as a consequence

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Speaker 5: of our legislation, that we're not a dead beat country.

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Speaker 5: And if Congress fails to do that, it really impairs

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Speaker 5: our credit rating. We have to default on some obligation,

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Speaker 5: whether it's treasuries or payments to social security recipients. That's

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Speaker 5: something America hasn't done since seventeen eighty nine, and we

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Speaker 5: shouldn't start now. So we've not discussed what to do

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Speaker 5: if that doesn't occur with the president. Our focus is

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Speaker 5: on getting it done.

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Speaker 9: Because, as you know, treasuries are the bedrock of the

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Speaker 9: global financial system and the asset managers I speak to

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Speaker 9: the investors, they don't have the luxury of not contingency planning,

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Speaker 9: So at this point should they assume that debt may

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Speaker 9: not be serviced if there's no deal.

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Speaker 5: If Congress doesn't raise the debt ceiling, we face economic

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Speaker 5: and financial catastrophe one way or the other. And that's

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Speaker 5: why our focus is on making sure the Congress does

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Speaker 5: raise the debt ceiling. I feel that that's something we're

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Speaker 5: going to succeed at doing, and we're working hard to

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Speaker 5: make sure that that gets done.

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Speaker 9: As we get closer to June first, will you alert

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Speaker 9: Congress on a more precise date.

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Speaker 5: Yes, I will update Congress as we have available information, But.

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Speaker 11: Anything new now or still June first, Well, what I've

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Speaker 11: said is early June and potentially as early as June one,

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Speaker 11: as we get closer, I may be able to provide

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Speaker 11: more refined guidance.

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Speaker 5: But you know, there is a lot of uncertainty about

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Speaker 5: the exact level of cash balances and payments that we

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Speaker 5: have to make from day to day, and so theory

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Speaker 5: means level of uncertainty about precisely when we would run

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Speaker 5: out of cash to be able to pay the government's bills.

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Speaker 1: So that was Janet Yellen, the US Treasury Secretary, speaking

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Speaker 1: exclusively to Bloomberg's and mury hal Dan.

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Speaker 3: Okay, let's get some context analysis there and bring in

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Speaker 3: our senior Asia Economy reporter of Michelle Jehn Risco from

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Speaker 3: some context on this. Michelle, the warning is getting loud

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Speaker 3: and not a surprise from Janet Yell and the austrocial

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Speaker 3: sector to kind of drum beat on the warnings around this,

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Speaker 3: but really kind of insight, fascinating insight in terms of

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Speaker 3: the color and.

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Speaker 2: Some of the details.

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Speaker 3: At a time when we're at the staff level, will

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Speaker 3: being told that there is a little bit of traction.

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Speaker 12: At least, well, that's right, and she has to really

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Speaker 12: tread this delicate balanced time. I mean, she's upping the stakes,

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Speaker 12: as you say, talking about it being catastrophic. Yesterday in

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Speaker 12: her press conference, she talked about, you know, a potential

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Speaker 12: of a default leading to a global meltdown. I mean,

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Speaker 12: there's no shortage of you know, I won't say hyperbole,

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Speaker 12: but you know, these big, big, big talk about what

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Speaker 12: could happen if they do reach that X date. Now,

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Speaker 12: she also has to reassure, as she did in this

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Speaker 12: interview with Anne Marie, that you know, they're doing everything

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Speaker 12: possible and she does have confidence that they will avoid that.

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Speaker 12: But at the same time, she's not tipping her hand.

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Speaker 12: She's not telling which course of action they would take

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Speaker 12: or what they're favoring. She does lay out some options there,

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Speaker 12: as you heard, and what our reporters have been looking

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Speaker 12: at is the different things that could happen at that

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Speaker 12: X date, the fourteenth Amendment potentially being invoked, even though

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Speaker 12: that's a pretty legally fraught decision. There, payments on the debt,

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Speaker 12: you know, being a top priority, as Yellen mentioned in

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Speaker 12: that interview, and then from there it's a reduction of

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Speaker 12: payments on any number of obligations that could be in

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Speaker 12: the crossfire. A lot of things that are politically sensitive,

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Speaker 12: like social security, federal salaries, and critical agencies like the

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Speaker 12: Federal Aviation Administration. So a lot at stake here and

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Speaker 12: little certainty going forward, but we are fast approaching that's

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Speaker 12: so called X date.

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Speaker 2: Yes, we are.

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Speaker 1: The fourteenth Amendment also we should be besides relate to

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Speaker 1: the US upholding and paying its debts effectively a very

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Speaker 1: much shortened and boiled down version of the fourteenth Amendment.

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Speaker 6: Look.

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Speaker 1: Theuretic on the Republican side, though, is also equally quite

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Speaker 1: firm and noteworthy the House Speaker Kevin McCarthy talking about

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Speaker 1: President Biden Senator Schumer are stuck on no. And then

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Speaker 1: also I think it's worth underlying that the former President

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Speaker 1: Donald Trump at a CNN town hall talked about, you

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Speaker 1: know that the Republicans are going to have to default

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Speaker 1: if Democrats don't give massive cuts. Here's the front runner

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Speaker 1: in the Republican potentially for the Republican presidential nomination.

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Speaker 2: So it's very fought politically.

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Speaker 6: Yeah.

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Speaker 12: No, absolutely, And this is the same sort of game

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Speaker 12: that we've been playing for years and that you know,

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Speaker 12: more pragmatic and callerminds are saying like this is ridiculous.

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Speaker 12: I mean, even a Yellen in her press conference yesterday

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Speaker 12: was asked about how we should do this going forward,

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Speaker 12: and she said personally, I think we need to change

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Speaker 12: all of how full fiscal policy is conducted. I mean,

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Speaker 12: this just isn't sustainable. So I mean, yes, it's very

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Speaker 12: politically fraud especially right now as we're heading into the

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Speaker 12: US presidential election season, which you know, in some ways

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Speaker 12: has no end, but is really heating up leading up

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Speaker 12: to the twenty twenty four and we're hearing things as

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Speaker 12: you mentioned, Speaker McCarthy even after that somewhat upbeat postponement

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Speaker 12: of the meeting on Friday because it was a sign

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Speaker 12: that AIDS were making progress, he came out and said

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Speaker 12: what you quoted and talked about Democrats not wanting to

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Speaker 12: actually avoid default and having no plan and no desire

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Speaker 12: to get there. So there are going to be a

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Speaker 12: lot of expectations, setting comments, and I can imagine between

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Speaker 12: now and whenever McCarthy and Biden meet again, you know,

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Speaker 12: supposedly next week, we will hear more from both sides

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Speaker 12: about you know, the sort of blame game and what

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Speaker 12: is at stake and trying to kind of save face

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Speaker 12: as we lurch toward that critical ding.

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Speaker 3: And for the markets. At Michelle, we were speaking to

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Speaker 3: UBS's chief European equity stratsus. She was making the call

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Speaker 3: that maybe you want to lean into gold at this

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Speaker 3: point as a bit of a risk, diversify maybe higher

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Speaker 3: quality bonds bill gross saying, look, this is ultimately going

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Speaker 3: to get solved. This is an opportunity to buy short

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Speaker 3: dated T bills and the kind of two three month range.

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Speaker 3: How are markets How challenging is it for markets to

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Speaker 3: position around this risk?

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Speaker 5: Yeah?

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Speaker 12: I mean among many days, Tom, this is a day

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Speaker 12: where I do not envy money managers. I have no

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Speaker 12: idea what you should be doing, but I can say

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Speaker 12: that a lot of them are. You know, you know,

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Speaker 12: there are comparisons made to previous debt ceiling standoffs. It

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Speaker 12: seems like, you know, in some ways some are thinking

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Speaker 12: this could be more serious. There's it's more intractable, and

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Speaker 12: in other ways, you know, you do hear a lot

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Speaker 12: of people saying, well, this is kind of similar. We

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Speaker 12: do hold out hope that they'll get it, and might

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Speaker 12: be in the eleventh hour, might be in the twelfth hour,

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Speaker 12: but they'll they'll get there, and you know, all investments

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Speaker 12: will be to say, in the meantime, but it is

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Speaker 12: highly fraught and what we heard from Jamie Diamond in

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Speaker 12: that interview yesterday was he's got a so called war

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Speaker 12: room of contingency. So they're taking this very seriously, and

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Speaker 12: everyone's very on edge.