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Speaker 1: This is Bloomberg day Break Asia for this Monday, May

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Speaker 1: twenty second in Hong Kong, Sunday May twenty first in

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Speaker 1: New York. Coming up today, markets brace for volatility as

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Speaker 1: the US struggles to clinch a deal on raising the

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Speaker 1: debt ceiling. Treasury Secretary Yellen says the US is unlikely

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Speaker 1: to reach mid June and still be able to pay

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Speaker 1: its bills, and China tells tech companies to stop using

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Speaker 1: chips from Micron Technology in a move that further escalates

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Speaker 1: tensions with the US.

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Speaker 2: After death ceiling talks breakdown, Biden McCarthy agree to me tomorrow.

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Speaker 2: G seven countries agree on training on F sixteen jets

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Speaker 2: for Ukraine. Taiwan's president to focus on China and chips

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Speaker 2: in our last year in office. I met Baxter with

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Speaker 2: Global News.

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Speaker 3: Brooks Kapka holds off the field to win his third

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Speaker 3: PGA championship.

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Speaker 4: That's all straight Ahead on Bloomberg Daybreak Asia, 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, available on Apple, Spotify, the Bloomberg Business App,

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Speaker 4: and everywhere you get your podcasts.

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Speaker 5: Good morning, I'm Richard Salama.

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Speaker 1: And I'm Doug Krisner. Here are the stories we're following today.

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Speaker 5: Let's get to what Treasury Secretory Janet Yellen has been saying,

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Speaker 5: because she's been expressing doubts about the United States being

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Speaker 5: able to pay its bills next month. All of this

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Speaker 5: coming is the White House urgently tries to reach a

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Speaker 5: deal with Republicans to raise the debt limit. Here here

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Speaker 5: is Yellen speaking on NBC's Meet the Press.

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Speaker 6: There's always uncertainty about a tax, receipts and spending, and

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Speaker 6: so it's hard to be absolutely certain about this. But

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Speaker 6: my assessment is that the odds of reaching June fifteenth

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Speaker 6: while being able to pay all of our bills is

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Speaker 6: quite low.

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Speaker 5: That is Janet Yellen heard here on Bloomberg Get The

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Speaker 5: Treasury secretor years previously said that the US could lose

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Speaker 5: its ability to pay all its bills as soon as

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Speaker 5: the first of June. Now, this would put the country

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Speaker 5: at risk of a catastrophic default. Excepting Goldman Sax economists

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Speaker 5: estimated that the Treasury Department will see its cash levels

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Speaker 5: drop below the thirty billion dollar mark by June the

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Speaker 5: eighth or ninth, and that's the bare minimum for meeting

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Speaker 5: federal obligations falling June. Yellen is expected to update Congress

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Speaker 5: this week on how long the US does have before

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Speaker 5: it risks running out of cash to pay its bills.

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Speaker 5: President Biden House Speaker Kevin McCarthy are also expected to

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Speaker 5: meet Monday well.

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Speaker 1: The head of the Minneapolis Fed, Neil cash Carry, is

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Speaker 1: saying he may support holding interest rates at current levels

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Speaker 1: at the Fed's next meeting in June. In an interview

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Speaker 1: with Dow Jones, cash Carry said this would allow the

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Speaker 1: FED a little more time to assess the impact of

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Speaker 1: higher interest rates than those that have been done recently,

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Speaker 1: along with the outlook for inflation. It was on Friday

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Speaker 1: that Fed sha J. Powell signaled an openness to pausing

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Speaker 1: rate hikes next month. Here is Powell speaking at a

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Speaker 1: conference in Washington.

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Speaker 7: Is limited to identifying the factors will be monitoring as

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Speaker 7: we assess the extent to which additional policy firming may

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Speaker 7: be appropriate to return inflation to two percent over time.

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Speaker 3: As I noted at.

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Speaker 7: The last press conference, that assessment will be an ongoing

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Speaker 7: one as we move ahead, meeting by meeting. Having come

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Speaker 7: this far, we can afford to look at the data

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Speaker 7: and the evolving outlook and make careful assessments.

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Speaker 1: That is fed shir J. Powell. He went on to

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Speaker 1: say that rates may not need to rise as high

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Speaker 1: as originally thought because of tighter credit conditions partially caused

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Speaker 1: by problems among the regional banks were shot.

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Speaker 5: Yeah, we're looking into an earning season now which is

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Speaker 5: winding down, but there are plenty of companies schedule to

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Speaker 5: report in the next few days. Let's get details now

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Speaker 5: from Bloomberg's Charlie Pennett.

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Speaker 3: Retailers will be front and stead of this week, including Costco,

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Speaker 3: wholesale Lows, and Dollar Tree. Results have been coming in

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Speaker 3: better than fear, but there are concerns about growth and valuation.

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Speaker 3: Laurie Calvasina's head of US equity strategy at RBC Capital Markets,

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Speaker 3: multiples are.

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Speaker 8: About where they deserve to be. I think there's still

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Speaker 8: some uncertainty in their earnings outlook. You know, we've had

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Speaker 8: a very very good reporting season, but there is still

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Speaker 8: a lot of questions that investors have about the outlook

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Speaker 8: for financials.

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Speaker 3: Earnings in particular, we will be hearing from a number

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Speaker 3: of tech names this week, including Analog Devices, into It,

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Speaker 3: in Vidia, Palo Alto Networks, and Snowflake in New York

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Speaker 3: Charlie Pellett Bloomberg Daybreak Asia.

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Speaker 1: China is banning purchases of chips made by Micron Technology,

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Speaker 1: with Beijing saying these chips represent a security risk. The

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Speaker 1: story from Bloomberg's Denise Pellegrini.

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Speaker 9: The Cyberspace Administration of China is telling operators of key

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Speaker 9: infrastructure not to purchase the Micron chips because of what

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Speaker 9: it calls relatively serious cybersecurity risks. The regulator says that

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Speaker 9: components cause significant security risks to China's critical infrastructure supply chain,

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Speaker 9: which would impact national security privately, though some Chinese officials

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Speaker 9: said it's part of an increase in pro retaliation voices

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Speaker 9: in Beijing after Washington intensified its effort to contain China's

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Speaker 9: technological development. Mike crowd only gets about ten percent of

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Speaker 9: its revenue from China. It's much more for its US competitors.

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Speaker 9: Denise Pelgriny, Bloomberg Day Breck Asia.

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Speaker 5: Right G seven leaders have agreed on the need for

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Speaker 5: governance in the field of generative artificial intelligence. Details not

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Speaker 5: come from Bloomberg's Joanna Woll.

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Speaker 10: G seven leaders that their governments are now set to

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Speaker 10: hold cabinet level discussions on AI. They're calling it the

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Speaker 10: Hiroshima process. This comes after G seven leaders expressed concern

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Speaker 10: at their summit over the potential of AI to cause

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Speaker 10: rapid disruption. Leaders have been calling for greater regulation since

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Speaker 10: Open ais Chat GPT set off a raise among companies

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Speaker 10: to develop the technology more quickly. The fear is that

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Speaker 10: the advancements, if allowed to progress and checked, could be

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Speaker 10: a powerful tool for disinformation and political disruption. Separately, the

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Speaker 10: World Health Organization warrant that adopting AI too quickly runs

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Speaker 10: the risk of medical errors, which may erode trust and

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Speaker 10: the technology and delay its adoption. In Hong Kong and

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Speaker 10: join Wan Bloomberg Day Brigasia.

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Speaker 1: Well, if you think the debate over artificial intelligence is complicated,

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Speaker 1: just wait until AI meets quantum computing. Now we know

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Speaker 1: that the University of Chicago will be partnering with IBM

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Speaker 1: and Google on the development of quantum computing. This deal,

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Speaker 1: involving the three parties, will total as much as one

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Speaker 1: hundred and fifty million dollars.

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Speaker 11: Now.

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Speaker 1: IBM will develop blueprints with the University of Chicago and

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Speaker 1: the University of Tokyo over ten years in a plan

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Speaker 1: that's valued it around one hundred million dollars, and then Google,

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Speaker 1: as a partner with these universities, will be investing as

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Speaker 1: much as fifty million toward accelerating the creation of a

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Speaker 1: fault tolerant quantum computer. Google's participation will also help develop

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Speaker 1: a quantum workforce over ten years. Day Break Asia and

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Speaker 1: an update on Global News is next. Negotiations over the

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Speaker 1: US debt ceiling hit a wall over the weekend, but

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Speaker 1: now House Speaker Kevin McCarthy and President Biden have agreed

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Speaker 1: to talk tomorrow at Baxter has Global News from the

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Speaker 1: Bloomberg nine to sixty. Userm in San Francisco ed.

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Speaker 2: Yeah, Doug, exactly. Right after wrapping up his time at

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Speaker 2: the G seven, President Biden got on the phone with

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Speaker 2: Speaker McCarthy and had what both describe as a positive call.

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Speaker 2: McCarthy right now, this is where we're at.

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Speaker 4: We want to get this done.

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Speaker 6: We've got to come to an agreement, but we also

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Speaker 6: legislatively have to pass it, and so we want to

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Speaker 6: try to find those barriers.

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Speaker 2: Yeah, and says to two. We'll walk their negotiators through

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Speaker 2: what they want and have them work today and then

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Speaker 2: the two principals meeting tomorrow. Biden earlier in the day,

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Speaker 2: by the way, took a very hard line.

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Speaker 12: Now it's time for the other side to move from

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Speaker 12: their extreme positions because much of what they've already proposed

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Speaker 12: is simply quite frankly unacceptable.

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Speaker 2: Yeah, so no agreement, but at least work back on

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Speaker 2: and meeting tomorrow. G seven UK Prime Minister Rishisunac says

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Speaker 2: that the UK will begin training Ukrainian pilots on using

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Speaker 2: F sixteen fighters. It feeds the narrative.

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Speaker 5: And we've made a real breakthrough at this summit thanks

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Speaker 5: to President Biden's support for an international coalition to provide

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Speaker 5: F sixteen jets.

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Speaker 2: And the President Biden saying a total G seven resolve

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Speaker 2: on the issue.

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Speaker 12: G seven reaffirmed are shared and unwavering. Let me say

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Speaker 12: it again, our shared and unwavering commitment to stand with

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Speaker 12: the brave people of Ukraine as they defend themselves against

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Speaker 12: Russell's brutal war of aggression and the war crimes being committed.

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Speaker 2: And Ukraine's President of Vladimir Zlenski says Ukraine will win

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Speaker 2: the war, but says the current battle in bak mood.

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Speaker 13: The pictures of ruined Hiroshima really remind me, totally remind

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Speaker 13: me Bachmont and other similar settlements and towns just the same,

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Speaker 13: nothing alive left, all of the buildings have been ruined.

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Speaker 2: And their conflicting reports of what's really happening there. Zelenski

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Speaker 2: said Russian forces have been driven out. Russia is saying

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Speaker 2: its forces with a mercenary Wagner group of encircled back

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Speaker 2: moot as well as they say liberated. Taiwan's president Sayang

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Speaker 2: Wayan is putting China, phrasing it as across straight security

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Speaker 2: as well as chip power center stage. In her final

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Speaker 2: year in office. She says war with China is not

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Speaker 2: an option. She says differences can be resolved through dialogue

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Speaker 2: and by promoting orderly exchanges. Four person crew include two

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Speaker 2: from Saudi Arabia for the first time due to Doc Tomorrow,

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Speaker 2: SpaceX up three and uh way.

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Speaker 13: Its full power.

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Speaker 11: He left the Falcon.

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Speaker 13: Nine Go Actio from.

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Speaker 2: Again. The crew including two from Saudi Arabia for the

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Speaker 2: first time due to Doc.

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Speaker 13: Tomorrow, Godspeed AX two.

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Speaker 2: And Falcon nine successfully landed at Cape Canaveral PGA scoreboard. Today.

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Speaker 2: We're in final round and Brooks Koepka is holding on

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Speaker 2: now ten under par Wow so he is on whole sixteen.

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Speaker 2: Victor Hobland at six under Scotty Scheffler at six under

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Speaker 2: Global News powered by more than twenty seven hundred journalist

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Speaker 2: and analyst in over one hundred and twenty countries. In

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Speaker 2: San Francisco, I'm at Baxter and this is Bloomberg.

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Speaker 1: Let's get to our guests. Walter Todd is with us.

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Speaker 1: He is president, also the chief investment officer and managing

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Speaker 1: director at Greenwood Capital. On the line from South Carolina, Walter,

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Speaker 1: thanks for being with us. It appears, though this point

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Speaker 1: in time, that the FED is inclined maybe to hit

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Speaker 1: the pause button come June. This notion of a hawkish

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Speaker 1: pause kind of implies that they would be ready to

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Speaker 1: hike again if necessary. Is that the way you see

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Speaker 1: things right now?

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Speaker 13: Yes?

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Speaker 5: And no.

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Speaker 11: I mean I think that the FED will potentially have

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Speaker 11: to cut as we move through the back half of

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Speaker 11: this year because everything seems to be most things seem

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Speaker 11: to be pointing to a slow down and or recession.

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Speaker 11: But I think the market perhaps is wrong and what

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Speaker 11: the implications of those rate cuts are because the playbook

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Speaker 11: for a decade has then when the FED cuts rates,

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Speaker 11: it's risk gone. I don't think that's the case this time,

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Speaker 11: given the recessionary setup that we have here and the

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Speaker 11: reason that the FED would be cutting rates in the

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Speaker 11: back half of this year. Of course, they're not willing

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Speaker 11: to admit that yet. They're saying they're going to hold

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Speaker 11: it five and a quarter. But if you look at

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Speaker 11: where the two year is almost one hundred basis points

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Speaker 11: below that bed fund rate, that's what we're watching.

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Speaker 5: Well, have they overdone it? I mean, been going from

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Speaker 5: probably one of the most steep increases percentage wise on

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Speaker 5: the US cost of borrowing in recent memory. And you know,

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Speaker 5: you got to ask yourself. You even you know, Povolka

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Speaker 5: stopped raising rates two months before they had he saw

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Speaker 5: peak inflation.

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Speaker 11: Yeah, we we do believe that they've definitely done enough,

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Speaker 11: possibly gone too far. I think the you know, the

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Speaker 11: stress and the banking system that we witnessed over the

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Speaker 11: past several months, or an indication that something finally broke.

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Speaker 11: And again, looking at the structure of the yield curve

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Speaker 11: today and the steep inversion that we have across the

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Speaker 11: curve as well as where the two year is relative

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Speaker 11: to the FED fund right, as I said earlier, I

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Speaker 11: think that's the indication that they're overly tight and they

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Speaker 11: need to eventually catch down to the two year yield.

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Speaker 11: That's what has happened in the past. That has been

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Speaker 11: the leader of the FED on the upside and the downside,

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Speaker 11: and that's why we're paying such close attention to it.

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Speaker 1: So a very important number will not happen until Friday,

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Speaker 1: when we get to personal consumption expenditures. And I'm wondering

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Speaker 1: whether or not, as if Bloomberg Economics is right and

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Speaker 1: we do see through this data elevated inflation in the

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Speaker 1: month of April, we know this is the Fed's preferred metric.

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Speaker 1: I'm wondering if the story on the fourth quarter of

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Speaker 1: this year, maybe perhaps as soon as the third is

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Speaker 1: is stagflation in the US. Is that possible?

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Speaker 11: It is, But I mean, if you look at all

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Speaker 11: the indicators, kind of out forward looking indicators of prices,

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Speaker 11: they are coming down rapidly. If you look at commodity prices,

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Speaker 11: if you look at the price components of these FED

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Speaker 11: surveys that we've gotten recently from Empire in Philly, and

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Speaker 11: we think as we get more of those we'll see

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Speaker 11: this prices, prey prices received are really collapsing, so we

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Speaker 11: think looking at inflation, are being concerned that in place

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Speaker 11: is really looking in the rearview mirror and prices are

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Speaker 11: coming down. We think in placement is going to have

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Speaker 11: a three handle on it by the end of the year.

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Speaker 11: So I hope the Fed does not overreact to perhaps

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Speaker 11: a hot number in April.

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Speaker 5: Yeah, I mean, but you could also argue that the

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Speaker 5: Fed Reserve needs to get some bullets into the chamber

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Speaker 5: before the next time there is actually a recession because

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Speaker 5: they don't have any.

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Speaker 11: Now oh well they no, they have. I would disagree

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Speaker 11: with that. I think they have plenty of bullets in

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Speaker 11: the chamber because they've gone from zero to five and

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Speaker 11: a quarter in a little over twelve months, so they

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Speaker 11: can they could turn around the balance sheet. They could

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Speaker 11: obviously cut rates quickly to try to deal with a

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Speaker 11: drop in economic growth. So I think there's plenty of

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Speaker 11: room for them to maneuver in a recessionary environment. I

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Speaker 11: think they're just unwilling to admit yet that we are

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Speaker 11: heading into a recession. But again, a lot of those

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Speaker 11: indicators are pointing us in that direction. At this point.

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Speaker 1: Walter Rish and I were talking a short while ago

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Speaker 1: about this incredible rally that we have seen in Japanese equities.

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Speaker 1: Are you attempted to put money to work offshore maybe

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Speaker 1: in Japan?

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Speaker 11: Yeah, So we do have exposure in our ETF portfolios,

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Speaker 11: which have exposure to overseas markets, into the Japanese market.

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Speaker 11: It has been very strong, a lot of people saying

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Speaker 11: from just a pure technical perspective, we could actually challenge

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Speaker 11: those old highs from nineteen eighty nine on the NIK.

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Speaker 11: So structurally, the Japanese market does look like one of

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Speaker 11: the better markets. And I know you guys were discussing

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Speaker 11: buffets investments there over the past several years, so that's

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Speaker 11: another tailwind for that market. So yeah, we do have

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Speaker 11: exposure there and we like it right now.

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Speaker 5: So Toby, what else are you looking at Walter to

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Speaker 5: invest in.

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Speaker 11: Yeah, So within our equity portfolios that are focused domestically,

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Speaker 11: we're kind of in that Barbell strategy that we've talked

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Speaker 11: to you about before, and that's play in defense through

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Speaker 11: healthcare and some consumer staples on that front, but also

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Speaker 11: having some exposure to the likes of industrials and energy

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Speaker 11: that would benefit from the reopening of China and some

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Speaker 11: of the strength that we're seeing a little bit in

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Speaker 11: overseas markets despite a kind of a recessionary outlook here

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Speaker 11: in the US. That would be our preferred play right now.

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