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Speaker 1: This is Bloomberg Daybreak Asia for this Monday, January twenty

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Speaker 1: three in Hong Kong, Sunday January two in New York,

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Speaker 1: and coming up this hour, some FED official support reducing

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Speaker 1: the size of rate hikes at the next meeting. Germany

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Speaker 1: and France push for huge spending increases to compete with

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Speaker 1: the United States. Incoming. New Zealand Prime Minister Chris Hipkins

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Speaker 1: says he will prioritize the economy as a recession looms.

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Speaker 1: Dramatic man hunt after that mass shooting near Los Angeles

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Speaker 1: White House on the back foot after more documents turn up,

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Speaker 1: Jeb Science to be Biden's next chief of step and

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Speaker 1: Hong Kong may drop COVID tests for travel to mainland China.

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Speaker 1: I'm dense Peligrity with Global News Arsenal at the big

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Speaker 1: time win over Manchester United in the Premier League. Dan schwartzmen,

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Speaker 1: I'll have that story more coming up in Bloomberg Sports.

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Speaker 1: That's all straight ahead on Bloomberg Daybreak Asia on Bloomberg

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Speaker 1: eleven and three on New York, Bloomberg, Washington, d C,

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Speaker 1: bloom Burg one of those six one Boston, Bloomberg nine

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Speaker 1: six San Francisco sirius XM one nineteen and around the

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Speaker 1: world on Bloomberg Radio dot com and via the Bloomberg Business.

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Speaker 1: Good Morning, I'm de Prisoner and I'm Brian Curtis. Here

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Speaker 1: are the stories we're following today. Well, a lot of

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Speaker 1: this optim is some in addition to China's growth coming

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Speaker 1: back is that the Federal Reserve is ratcheting down the

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Speaker 1: intensity of the of the rate hikes, and some FED

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Speaker 1: officials are furthering this UH this view. Today, FED Governor

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Speaker 1: Chris Wallace said that FED policy looks pretty close to

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Speaker 1: being sufficiently restrictive. He back slowing the next rate hike

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Speaker 1: to twenty five basis points. In Kansas City's FED chief

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Speaker 1: Esther George said she supported the moderation in rate hikes

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Speaker 1: last month and suggested that she's wary of tightening too much.

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Speaker 1: George also said the US economy can avoid a sharp downturn,

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Speaker 1: so I think this scenario, can there be a soft

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Speaker 1: landing is one we would all want to see, and

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Speaker 1: there are some possibilities of that. There's still a lot

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Speaker 1: of money sitting UH in the checking accounts of households.

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Speaker 1: FED officials began a ten day blackout period yesterday, so

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Speaker 1: we won't be hearing any more commentary until the feds

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Speaker 1: next policy decision on February two. Well, earning season will

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Speaker 1: be up and running here in the States beginning on Tuesday,

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Speaker 1: and the Tech group is going to be challenged with

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Speaker 1: clearing a high hurdle for some of the most influential

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Speaker 1: companies within the S and P five hundred. Let's get

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Speaker 1: a preview from Bloomberg Susanna Palmer. Fourth quarter earnings for

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Speaker 1: tech firms in the benchmark are projected to drop nine

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Speaker 1: point two percent from the same time a year earlier,

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Speaker 1: the steepest slide since that's according to data compiled by

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Speaker 1: Bloomberg Intelligence. Revenue growth for these companies is fading relative

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Speaker 1: to the past couple of years, when the pandemic and

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Speaker 1: ensuing lockdowns supercharged to sales for everything from digital services

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Speaker 1: to personal computers and the components that power them. Susanna

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Speaker 1: Palm or Bloomberg day Break, Asia, Germany and France say

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Speaker 1: European businesses will need to spend more to keep up

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Speaker 1: with US and Chinese firms. German Chancellor Olive Schultze and

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Speaker 1: French President Emmanuel Macron met on Sunday in Paris. It

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Speaker 1: discussed how the European Union might respond to the US

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Speaker 1: Inflation Reduction Act. The act includes five billion dollars in

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Speaker 1: spending and tax breaks over a decade that would benefit

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Speaker 1: US companies. The EU is looking to file a complaint

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Speaker 1: with the World Trade Organization. It says the law does

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Speaker 1: not comply with international rules. The aim of the legislation

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Speaker 1: is to reduce US reliance on China or other nations.

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Speaker 1: Germany and France want European companies to have more access

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Speaker 1: to credits being offered in the new US effort. So, Doug,

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Speaker 1: it looks like yeah, I mean talking about a slight

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Speaker 1: um deceleration from the Fed is one positive mentioned as

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Speaker 1: well China, but there's still challenges out there as well.

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Speaker 1: Many we got earnings. We just heard from Susanna on

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Speaker 1: that front. The other thing, in terms of data this week,

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Speaker 1: I think that's going to be critical, Brian. The PC

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Speaker 1: index was out on Friday. Now Bloomberg Intelligence is talking

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Speaker 1: about goods disinflation. Remember that pp I number we had

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Speaker 1: last week much weaker than forecast, which a larger than

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Speaker 1: expected decline. And so some of the conversation is not

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Speaker 1: only around recession but disinflationary forces building in the economy.

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Speaker 1: What's interesting is there were a few surveys out that

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Speaker 1: suggests that the p M I s may be ticking

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Speaker 1: up a little bit, which is kind of surprising given

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Speaker 1: what we've seen from the latest data, and that is

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Speaker 1: starting to fuel a little bit of hope that the

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Speaker 1: global economy can avoid a recession. We'll have to wait

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Speaker 1: and see. I mean, last week's numbers on retail sales,

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Speaker 1: industrial production here in the US, and housing construction. We're

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Speaker 1: all a little disappointing, but I think you might be

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Speaker 1: right in terms of directionally if we get some improvement,

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Speaker 1: even though as I mentioned earlier, the overall p M

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Speaker 1: eyes will remain in contraction. That's the forecast. So maybe

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Speaker 1: maybe this idea of soft lending becomes some something a

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Speaker 1: little bit more durable, at least in Thinking and China.

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Speaker 1: Maybe part of this story, because we've heard from a

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Speaker 1: lot of different financial institutions that are ratcheting up their

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Speaker 1: expectations for growth this year. Most of them are getting

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Speaker 1: up in the high five percent range, and they were

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Speaker 1: coming from much lower than that. And the Bank of

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Speaker 1: America survey of fund managers says that the rally that

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Speaker 1: we've seen, which has been really tori. The m c

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Speaker 1: i A Pacific Index is up some twenty three since

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Speaker 1: late October. The survey of these fund managers says that

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Speaker 1: they expect it has many months to run. Yeah, growth

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Speaker 1: seems to be improving. It's going to be a critical week, obviously,

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Speaker 1: with a lunar near your holiday, the strength of the

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Speaker 1: Chinese consumer and against the backdrop, obviously is the situation

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Speaker 1: with the virus. I was also noting that JP Morgan

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Speaker 1: Chase now in some of their work they're looking at

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Speaker 1: seven out of ten asset classes and they've come to

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Speaker 1: the collusion that the odds of an economic downturn have

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Speaker 1: actually fallen sharply from their highs in Yeah, it's pretty interesting. Uh.

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Speaker 1: You know, John Author is a good friend of this program,

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Speaker 1: wrote a piece last week saying that giant sucking sound

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Speaker 1: is an exit from US docks. That wasn't the case

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Speaker 1: on Friday at all, but it's something that we've been

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Speaker 1: putting to a lot of our guests on the program.

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Speaker 1: Does money that sucks out of the US market come

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Speaker 1: to Asia? And you know, there's been some indications that

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Speaker 1: it's been more local fund managers than big American and

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Speaker 1: European fund managers. So is it a zero sum game though?

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Speaker 1: How much cash do you think on the sidelines. Yeah,

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Speaker 1: I think plenty, and I think you're right, it's not

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Speaker 1: not necessarily a zero sum game. Okay, coming up on

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Speaker 1: eight minutes past the hour, it is time now for

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Speaker 1: Global news. White House is trying to explain more classified documents.

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Speaker 1: Police are praising the cooperation between cities for chasing down

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Speaker 1: a suspect in a mass shooting north of Los Angeles.

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Speaker 1: For more, let's get into the Bloomberg newsroom and Denise Pellegrini. Denise,

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Speaker 1: all right, thank you, Brian. A man has been found

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Speaker 1: dead now in a van in Torrance, near Los Angeles.

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Speaker 1: We're waiting for more information about the connection to that

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Speaker 1: mass shooting in Monterey Park. Here's what we do know, Brian.

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Speaker 1: Asian American community on high alert after ten people fatally

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Speaker 1: shot others injured a mass shooting overnight at a ballroom

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Speaker 1: dance studio all near lunar New Year's celebrations. Congresswoman Judy Chew,

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Speaker 1: it is horrible that such a thing could occur at

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Speaker 1: a time of celebration for so many in the a

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Speaker 1: a p I community and in the Asian community worldwide. Yeah,

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Speaker 1: and who speaking there as we wait for another press conference,

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Speaker 1: this one will be from Monterey Park. They're promising to

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Speaker 1: explain the connection between the body believed to be the

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Speaker 1: suspect found in that VanDette of a gunshot wound in Torrents.

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Speaker 1: Extra protections in place, according to Monterey Park Mayor Henry Lowe,

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Speaker 1: to express our condolences victims and their families and moving forward,

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Speaker 1: you know, it is important that we'll be there for

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Speaker 1: them to provide services and support they need and what

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Speaker 1: will be a time of healing in next week's months,

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Speaker 1: if not years. And some news reports do say the

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Speaker 1: suspect was planning a second attack. We're tracking developments for

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Speaker 1: you and we'll bring them to you as they unfold.

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Speaker 1: The FBI found more classified documents at President Biden's Wilmington,

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Speaker 1: Delaware home Friday. Delaware Senator Chris Cohn's calling it basically

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Speaker 1: likely a clerical error, nothing of significance. I'm confident that

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Speaker 1: President Biden has said truthfully that there's no there there,

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Speaker 1: and in the end we will see this was just

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Speaker 1: an inadvertent matter of filing in sharp contrast to his predecessor.

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Speaker 1: All right, and that's coon's their main time. Texas GOP

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Speaker 1: Representative Michael McCall also on ABC's This Week, saying too

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Speaker 1: early to make that call, and no Watergate start is

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Speaker 1: a very small burglary in it led to the President

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Speaker 1: United States for resigning. So I don't know what's there

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Speaker 1: until we see the documents. Republican Representative Michael McCall. There,

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Speaker 1: President Biden is about to name Jeff Zience meantime, as

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Speaker 1: is next chief of staff. Sources say the official announcement

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Speaker 1: is coming tomorrow. Hong Kong could be about to drop

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Speaker 1: COVID PCR test requirements for travelers to mainland China. That's

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Speaker 1: according to our th HK. Treasury Secretary Janet Ellen says

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Speaker 1: she expects Congress to eventually reach a bipartisan solution to

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Speaker 1: raise the debt ceiling, but for now, she says, she

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Speaker 1: is concerned. I mean it is possible for markets to

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Speaker 1: become quite concerned UM about whether or not the US

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Speaker 1: will pay its bills before the day of reckoning comes.

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Speaker 1: And we saw that in twenty eleven, the United States

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Speaker 1: UM experienced a credit downgrade for the first time in

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Speaker 1: its history and Yellen speaking there in an interview in

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Speaker 1: AP Global News twenty four hours a day. I'm Denise

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Speaker 1: Pelgred in the Bloomberg news room, and this is Bloomberg alright.

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Speaker 1: It is a loving minutes past the hour. Very good

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Speaker 1: morning to you. I'm Brian Curtis here in Hong Kong

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Speaker 1: along with Vonnie Quinn in New York, and this is

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Speaker 1: Bloomberg Daybreak Asia. Our guest is Pria miss Ra, Global

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Speaker 1: Head of Rates Strategy at t D Securities. Pria, thanks

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Speaker 1: very much for joining us here, especially on a holiday.

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Speaker 1: Talk to us about the inversion of the yield curve

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Speaker 1: and the message being sent by now the yield on

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Speaker 1: the tenure falling this far below the FED funds, right, sure,

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Speaker 1: thanks for having me on. So we had quite a

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Speaker 1: move lower in rates so far this year, and you know,

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Speaker 1: I think the inversion has been in place for a while.

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Speaker 1: I think the inversion is saying that the market beliefs

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Speaker 1: at FED policy is restrictive and a recession is forthcoming.

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Speaker 1: But I would say the huge move lower in rates,

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Speaker 1: I think, in my view, a lot of that has

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Speaker 1: to do with lower inflation expectations. I think that's reduced

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Speaker 1: risk premium around inflation around the end point of the

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Speaker 1: FED hiking cycle. I mean, I think the market is

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Speaker 1: fairly convinced that maybe two or twenty five basis point

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Speaker 1: hikes and the Fed's done. So I think that's brought

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Speaker 1: in money into fixed income, you know, money that was

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Speaker 1: on on on the sidelines for the last I would

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Speaker 1: say a year nervous about the FED hiking cycle that's

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Speaker 1: been able to come in. I think that that's much

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Speaker 1: more the case rather than than you know, recession fears,

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Speaker 1: because if you look across fixed income, mortgages have done well,

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Speaker 1: credit has outperformed despite a lot of supply. So I

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Speaker 1: think this is sort of risk on you know, uh,

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Speaker 1: money coming into fixed income. I think it's a little

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Speaker 1: too optimistic. The market maybe a little too optimistic here.

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Speaker 1: We actually think interest rates can rise and in the

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Speaker 1: near term, because you know, I think inflation is declining,

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Speaker 1: but it's not clear to us that we're heading close

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Speaker 1: to two percent. So I think we might have come

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Speaker 1: a little bit too far. But I do think that

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Speaker 1: the market is more comfortable about the FED hiking cycle now,

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Speaker 1: which is a huge departure from you know, the dynamic

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Speaker 1: that we lived with over the last year. So if

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Speaker 1: the bond market has written down inflation too far as

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Speaker 1: you gauge, what's likely to happen if it has to reprice,

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Speaker 1: will be an orderly repricing, you know. I think if

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Speaker 1: it is that the inflation is sticky on the way down,

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Speaker 1: I think it could be fairly orderly, because you know,

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Speaker 1: I think the FED hikes now at twenty five basis

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Speaker 1: point increments, and perhaps the market things of the last

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Speaker 1: hike is March, and maybe there's another one in me

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Speaker 1: or another one in June, and the Fed remains data dependent,

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Speaker 1: so it could be orderly that increase in rates, because

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Speaker 1: you know, the market will just add a couple more

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Speaker 1: hikes at the end. I think if you get a

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Speaker 1: rise in inflation, and I'm really looking at China here

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Speaker 1: for this so far, I think it's not going to

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Speaker 1: be enough to offset the supply chain related decline and inflation.

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Speaker 1: But if you get a surprise and inflation where it

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Speaker 1: actually moves high and the next CPI report is not

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Speaker 1: that far out, I think then it could be somewhat

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Speaker 1: disorderly because I think the market is so convinced that

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Speaker 1: the Fed's almost done, and if we realize, oh, now

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Speaker 1: there's inflation coming from some other angle. I think then

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Speaker 1: you could have, you know, more oviousness in the market.

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Speaker 1: I saw an interesting bit of data late last week

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Speaker 1: which I'd like to get you to comment on, that

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Speaker 1: suggests that with right now, taxes are at of g

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Speaker 1: d P and any time that you get over eighteen

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Speaker 1: percent it virtually guarantees recession. Um. So there's that, and

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Speaker 1: then there's the dead ceiling that could go down to

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Speaker 1: the wire and it could be a tricky time around June. Um.

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Speaker 1: Can you talk about the consequences of those two forces. Sure?

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Speaker 1: So I think the taxis point is essentially telling you

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Speaker 1: that there's there's wages. You know, typically the FED response

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Speaker 1: to high wage inflation that titans financially conditions. So I

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Speaker 1: think that it's being all driven by the fact that

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Speaker 1: the FED is raising rates, and they've raised rates a lot,

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Speaker 1: and I think actually a recession is baked in at

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Speaker 1: this point, so we are calling for a recession leader

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Speaker 1: this year. I think the dead ceiling is a huge

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Speaker 1: wild card. I mean, we're expecting it right now to

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Speaker 1: be resolved before that drop dead date sometime in July

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Speaker 1: or August. But you know, markets are less liquid. If

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Speaker 1: this brinkmanship continues until the end, you could have an

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Speaker 1: accident where we technically default. I think that's a huge

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Speaker 1: risk for the market. It's not being priced in. It's

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Speaker 1: not even clear what the trade is. I think it's

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Speaker 1: risk of it's actually perversely lower interest rates. You know,

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Speaker 1: maybe you get spending cuts in that scenario. So I

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Speaker 1: think that just adds to that recession fear. But I

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Speaker 1: would say given the tightening in financial conditions, um, you know,

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Speaker 1: slowing global growth again, China is a lot better today

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Speaker 1: than what I was thinking a month ago, two months ago.

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Speaker 1: But if we still don't have enough to turn that

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Speaker 1: positive on global growth, I think that recession later this year.

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Speaker 1: I think that's increasingly getting becoming. I think the market's

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Speaker 1: base case. You mentioned China and how that could translate

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Speaker 1: into further inflation the I m F T pointing that

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Speaker 1: out of the w A F as well. How would

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Speaker 1: that work there? Would it be through higher oil and

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Speaker 1: gas prices? Yes, I think largely through commodities. Um, you

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Speaker 1: know the other thing I'm watching and China, I mean

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Speaker 1: there's the the organic if you may reopening, but there's

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Speaker 1: also what does what do Chinese policymakers do around stimulus.

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Speaker 1: Is there some massive credit easing that's coming, Is there

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Speaker 1: skill eazing? And then it ends up being much more

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Speaker 1: broad based demand for commodities, which will then be globally inflationary.

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Speaker 1: That's the one I don't have enough information on and

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Speaker 1: something I'm watching because they've certainly moved up their growth

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Speaker 1: target and I think the only way they can achieve

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Speaker 1: it is significant fiscal easing. So pretty just some final comments.

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Speaker 1: We've talked a little bit about how the Fed in

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Speaker 1: the markets are in a different place. So when when

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Speaker 1: the truth is known, who will have had to have

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Speaker 1: given more? I think the market is going to have to, um,

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Speaker 1: you know, move a little bit more where you know,

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Speaker 1: we're extrapolating from three nice you know, lower than expected

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Speaker 1: inflation prints. But I think there's that part of inflation

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Speaker 1: that's very hard, that sticky that's hard to come down,

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Speaker 1: you know, service inflation next shelter. I think we're going

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Speaker 1: to the market's going to be disappointed that it doesn't

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Speaker 1: decline as fast, and the FED therefore responds. But the

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Speaker 1: fan wants to be data dependent. They're not giving us

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Speaker 1: any forward guidance beyond really the next meeting, so it

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Speaker 1: could be a while. I think we're gonna need a

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Speaker 1: few months of slightly higher inflation and that service component

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Speaker 1: for the market to say, Okay, not so fast, We've

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Speaker 1: still got a few more hikes to prices. Pria, Thanks

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Speaker 1: so much, Pres, a Global head of rate strategy at

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Speaker 1: t D Securities. This is Bloomberg Daybreak Asia, your morning

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