Speaker 1: This is Bloomberg day Break Asia for this Monday, May
Speaker 1: twenty second in Hong Kong, Sunday May twenty first in
Speaker 1: New York. Coming up today, markets brace for volatility as
Speaker 1: the US struggles to clinch a deal on raising the
Speaker 1: debt ceiling. Treasury Secretary Yellen says the US is unlikely
Speaker 1: to reach mid June and still be able to pay
Speaker 1: its bills, and China tells tech companies to stop using
Speaker 1: chips from Micron Technology in a move that further escalates
Speaker 1: tensions with the US.
Speaker 2: After death ceiling talks breakdown, Biden McCarthy agree to me tomorrow.
Speaker 2: G seven countries agree on training on F sixteen jets
Speaker 2: for Ukraine. Taiwan's president to focus on China and chips
Speaker 2: in our last year in office. I met Baxter with
Speaker 2: Global News.
Speaker 3: Brooks Kapka holds off the field to win his third
Speaker 3: PGA championship.
Speaker 4: That's all straight Ahead on Bloomberg Daybreak Asia, the business
Speaker 4: news you need to start your day in just one
Speaker 4: fifteen minute podcast, available on Apple, Spotify, the Bloomberg Business App,
Speaker 4: and everywhere you get your podcasts.
Speaker 5: Good morning, I'm Richard Salama.
Speaker 1: And I'm Doug Krisner. Here are the stories we're following today.
Speaker 5: Let's get to what Treasury Secretory Janet Yellen has been saying,
Speaker 5: because she's been expressing doubts about the United States being
Speaker 5: able to pay its bills next month. All of this
Speaker 5: coming is the White House urgently tries to reach a
Speaker 5: deal with Republicans to raise the debt limit. Here here
Speaker 5: is Yellen speaking on NBC's Meet the Press.
Speaker 6: There's always uncertainty about a tax, receipts and spending, and
Speaker 6: so it's hard to be absolutely certain about this. But
Speaker 6: my assessment is that the odds of reaching June fifteenth
Speaker 6: while being able to pay all of our bills is
Speaker 6: quite low.
Speaker 5: That is Janet Yellen heard here on Bloomberg Get The
Speaker 5: Treasury secretor years previously said that the US could lose
Speaker 5: its ability to pay all its bills as soon as
Speaker 5: the first of June. Now, this would put the country
Speaker 5: at risk of a catastrophic default. Excepting Goldman Sax economists
Speaker 5: estimated that the Treasury Department will see its cash levels
Speaker 5: drop below the thirty billion dollar mark by June the
Speaker 5: eighth or ninth, and that's the bare minimum for meeting
Speaker 5: federal obligations falling June. Yellen is expected to update Congress
Speaker 5: this week on how long the US does have before
Speaker 5: it risks running out of cash to pay its bills.
Speaker 5: President Biden House Speaker Kevin McCarthy are also expected to
Speaker 5: meet Monday well.
Speaker 1: The head of the Minneapolis Fed, Neil cash Carry, is
Speaker 1: saying he may support holding interest rates at current levels
Speaker 1: at the Fed's next meeting in June. In an interview
Speaker 1: with Dow Jones, cash Carry said this would allow the
Speaker 1: FED a little more time to assess the impact of
Speaker 1: higher interest rates than those that have been done recently,
Speaker 1: along with the outlook for inflation. It was on Friday
Speaker 1: that Fed sha J. Powell signaled an openness to pausing
Speaker 1: rate hikes next month. Here is Powell speaking at a
Speaker 1: conference in Washington.
Speaker 7: Is limited to identifying the factors will be monitoring as
Speaker 7: we assess the extent to which additional policy firming may
Speaker 7: be appropriate to return inflation to two percent over time.
Speaker 3: As I noted at.
Speaker 7: The last press conference, that assessment will be an ongoing
Speaker 7: one as we move ahead, meeting by meeting. Having come
Speaker 7: this far, we can afford to look at the data
Speaker 7: and the evolving outlook and make careful assessments.
Speaker 1: That is fed shir J. Powell. He went on to
Speaker 1: say that rates may not need to rise as high
Speaker 1: as originally thought because of tighter credit conditions partially caused
Speaker 1: by problems among the regional banks were shot.
Speaker 5: Yeah, we're looking into an earning season now which is
Speaker 5: winding down, but there are plenty of companies schedule to
Speaker 5: report in the next few days. Let's get details now
Speaker 5: from Bloomberg's Charlie Pennett.
Speaker 3: Retailers will be front and stead of this week, including Costco,
Speaker 3: wholesale Lows, and Dollar Tree. Results have been coming in
Speaker 3: better than fear, but there are concerns about growth and valuation.
Speaker 3: Laurie Calvasina's head of US equity strategy at RBC Capital Markets,
Speaker 3: multiples are.
Speaker 8: About where they deserve to be. I think there's still
Speaker 8: some uncertainty in their earnings outlook. You know, we've had
Speaker 8: a very very good reporting season, but there is still
Speaker 8: a lot of questions that investors have about the outlook
Speaker 8: for financials.
Speaker 3: Earnings in particular, we will be hearing from a number
Speaker 3: of tech names this week, including Analog Devices, into It,
Speaker 3: in Vidia, Palo Alto Networks, and Snowflake in New York
Speaker 3: Charlie Pellett Bloomberg Daybreak Asia.
Speaker 1: China is banning purchases of chips made by Micron Technology,
Speaker 1: with Beijing saying these chips represent a security risk. The
Speaker 1: story from Bloomberg's Denise Pellegrini.
Speaker 9: The Cyberspace Administration of China is telling operators of key
Speaker 9: infrastructure not to purchase the Micron chips because of what
Speaker 9: it calls relatively serious cybersecurity risks. The regulator says that
Speaker 9: components cause significant security risks to China's critical infrastructure supply chain,
Speaker 9: which would impact national security privately, though some Chinese officials
Speaker 9: said it's part of an increase in pro retaliation voices
Speaker 9: in Beijing after Washington intensified its effort to contain China's
Speaker 9: technological development. Mike crowd only gets about ten percent of
Speaker 9: its revenue from China. It's much more for its US competitors.
Speaker 9: Denise Pelgriny, Bloomberg Day Breck Asia.
Speaker 5: Right G seven leaders have agreed on the need for
Speaker 5: governance in the field of generative artificial intelligence. Details not
Speaker 5: come from Bloomberg's Joanna Woll.
Speaker 10: G seven leaders that their governments are now set to
Speaker 10: hold cabinet level discussions on AI. They're calling it the
Speaker 10: Hiroshima process. This comes after G seven leaders expressed concern
Speaker 10: at their summit over the potential of AI to cause
Speaker 10: rapid disruption. Leaders have been calling for greater regulation since
Speaker 10: Open ais Chat GPT set off a raise among companies
Speaker 10: to develop the technology more quickly. The fear is that
Speaker 10: the advancements, if allowed to progress and checked, could be
Speaker 10: a powerful tool for disinformation and political disruption. Separately, the
Speaker 10: World Health Organization warrant that adopting AI too quickly runs
Speaker 10: the risk of medical errors, which may erode trust and
Speaker 10: the technology and delay its adoption. In Hong Kong and
Speaker 10: join Wan Bloomberg Day Brigasia.
Speaker 1: Well, if you think the debate over artificial intelligence is complicated,
Speaker 1: just wait until AI meets quantum computing. Now we know
Speaker 1: that the University of Chicago will be partnering with IBM
Speaker 1: and Google on the development of quantum computing. This deal,
Speaker 1: involving the three parties, will total as much as one
Speaker 1: hundred and fifty million dollars.
Speaker 11: Now.
Speaker 1: IBM will develop blueprints with the University of Chicago and
Speaker 1: the University of Tokyo over ten years in a plan
Speaker 1: that's valued it around one hundred million dollars, and then Google,
Speaker 1: as a partner with these universities, will be investing as
Speaker 1: much as fifty million toward accelerating the creation of a
Speaker 1: fault tolerant quantum computer. Google's participation will also help develop
Speaker 1: a quantum workforce over ten years. Day Break Asia and
Speaker 1: an update on Global News is next. Negotiations over the
Speaker 1: US debt ceiling hit a wall over the weekend, but
Speaker 1: now House Speaker Kevin McCarthy and President Biden have agreed
Speaker 1: to talk tomorrow at Baxter has Global News from the
Speaker 1: Bloomberg nine to sixty. Userm in San Francisco ed.
Speaker 2: Yeah, Doug, exactly. Right after wrapping up his time at
Speaker 2: the G seven, President Biden got on the phone with
Speaker 2: Speaker McCarthy and had what both describe as a positive call.
Speaker 2: McCarthy right now, this is where we're at.
Speaker 4: We want to get this done.
Speaker 6: We've got to come to an agreement, but we also
Speaker 6: legislatively have to pass it, and so we want to
Speaker 6: try to find those barriers.
Speaker 2: Yeah, and says to two. We'll walk their negotiators through
Speaker 2: what they want and have them work today and then
Speaker 2: the two principals meeting tomorrow. Biden earlier in the day,
Speaker 2: by the way, took a very hard line.
Speaker 12: Now it's time for the other side to move from
Speaker 12: their extreme positions because much of what they've already proposed
Speaker 12: is simply quite frankly unacceptable.
Speaker 2: Yeah, so no agreement, but at least work back on
Speaker 2: and meeting tomorrow. G seven UK Prime Minister Rishisunac says
Speaker 2: that the UK will begin training Ukrainian pilots on using
Speaker 2: F sixteen fighters. It feeds the narrative.
Speaker 5: And we've made a real breakthrough at this summit thanks
Speaker 5: to President Biden's support for an international coalition to provide
Speaker 5: F sixteen jets.
Speaker 2: And the President Biden saying a total G seven resolve
Speaker 2: on the issue.
Speaker 12: G seven reaffirmed are shared and unwavering. Let me say
Speaker 12: it again, our shared and unwavering commitment to stand with
Speaker 12: the brave people of Ukraine as they defend themselves against
Speaker 12: Russell's brutal war of aggression and the war crimes being committed.
Speaker 2: And Ukraine's President of Vladimir Zlenski says Ukraine will win
Speaker 2: the war, but says the current battle in bak mood.
Speaker 13: The pictures of ruined Hiroshima really remind me, totally remind
Speaker 13: me Bachmont and other similar settlements and towns just the same,
Speaker 13: nothing alive left, all of the buildings have been ruined.
Speaker 2: And their conflicting reports of what's really happening there. Zelenski
Speaker 2: said Russian forces have been driven out. Russia is saying
Speaker 2: its forces with a mercenary Wagner group of encircled back
Speaker 2: moot as well as they say liberated. Taiwan's president Sayang
Speaker 2: Wayan is putting China, phrasing it as across straight security
Speaker 2: as well as chip power center stage. In her final
Speaker 2: year in office. She says war with China is not
Speaker 2: an option. She says differences can be resolved through dialogue
Speaker 2: and by promoting orderly exchanges. Four person crew include two
Speaker 2: from Saudi Arabia for the first time due to Doc Tomorrow,
Speaker 2: SpaceX up three and uh way.
Speaker 13: Its full power.
Speaker 11: He left the Falcon.
Speaker 13: Nine Go Actio from.
Speaker 2: Again. The crew including two from Saudi Arabia for the
Speaker 2: first time due to Doc.
Speaker 13: Tomorrow, Godspeed AX two.
Speaker 2: And Falcon nine successfully landed at Cape Canaveral PGA scoreboard. Today.
Speaker 2: We're in final round and Brooks Koepka is holding on
Speaker 2: now ten under par Wow so he is on whole sixteen.
Speaker 2: Victor Hobland at six under Scotty Scheffler at six under
Speaker 2: Global News powered by more than twenty seven hundred journalist
Speaker 2: and analyst in over one hundred and twenty countries. In
Speaker 2: San Francisco, I'm at Baxter and this is Bloomberg.
Speaker 1: Let's get to our guests. Walter Todd is with us.
Speaker 1: He is president, also the chief investment officer and managing
Speaker 1: director at Greenwood Capital. On the line from South Carolina, Walter,
Speaker 1: thanks for being with us. It appears, though this point
Speaker 1: in time, that the FED is inclined maybe to hit
Speaker 1: the pause button come June. This notion of a hawkish
Speaker 1: pause kind of implies that they would be ready to
Speaker 1: hike again if necessary. Is that the way you see
Speaker 1: things right now?
Speaker 13: Yes?
Speaker 5: And no.
Speaker 11: I mean I think that the FED will potentially have
Speaker 11: to cut as we move through the back half of
Speaker 11: this year because everything seems to be most things seem
Speaker 11: to be pointing to a slow down and or recession.
Speaker 11: But I think the market perhaps is wrong and what
Speaker 11: the implications of those rate cuts are because the playbook
Speaker 11: for a decade has then when the FED cuts rates,
Speaker 11: it's risk gone. I don't think that's the case this time,
Speaker 11: given the recessionary setup that we have here and the
Speaker 11: reason that the FED would be cutting rates in the
Speaker 11: back half of this year. Of course, they're not willing
Speaker 11: to admit that yet. They're saying they're going to hold
Speaker 11: it five and a quarter. But if you look at
Speaker 11: where the two year is almost one hundred basis points
Speaker 11: below that bed fund rate, that's what we're watching.
Speaker 5: Well, have they overdone it? I mean, been going from
Speaker 5: probably one of the most steep increases percentage wise on
Speaker 5: the US cost of borrowing in recent memory. And you know,
Speaker 5: you got to ask yourself. You even you know, Povolka
Speaker 5: stopped raising rates two months before they had he saw
Speaker 5: peak inflation.
Speaker 11: Yeah, we we do believe that they've definitely done enough,
Speaker 11: possibly gone too far. I think the you know, the
Speaker 11: stress and the banking system that we witnessed over the
Speaker 11: past several months, or an indication that something finally broke.
Speaker 11: And again, looking at the structure of the yield curve
Speaker 11: today and the steep inversion that we have across the
Speaker 11: curve as well as where the two year is relative
Speaker 11: to the FED fund right, as I said earlier, I
Speaker 11: think that's the indication that they're overly tight and they
Speaker 11: need to eventually catch down to the two year yield.
Speaker 11: That's what has happened in the past. That has been
Speaker 11: the leader of the FED on the upside and the downside,
Speaker 11: and that's why we're paying such close attention to it.
Speaker 1: So a very important number will not happen until Friday,
Speaker 1: when we get to personal consumption expenditures. And I'm wondering
Speaker 1: whether or not, as if Bloomberg Economics is right and
Speaker 1: we do see through this data elevated inflation in the
Speaker 1: month of April, we know this is the Fed's preferred metric.
Speaker 1: I'm wondering if the story on the fourth quarter of
Speaker 1: this year, maybe perhaps as soon as the third is
Speaker 1: is stagflation in the US. Is that possible?
Speaker 11: It is, But I mean, if you look at all
Speaker 11: the indicators, kind of out forward looking indicators of prices,
Speaker 11: they are coming down rapidly. If you look at commodity prices,
Speaker 11: if you look at the price components of these FED
Speaker 11: surveys that we've gotten recently from Empire in Philly, and
Speaker 11: we think as we get more of those we'll see
Speaker 11: this prices, prey prices received are really collapsing, so we
Speaker 11: think looking at inflation, are being concerned that in place
Speaker 11: is really looking in the rearview mirror and prices are
Speaker 11: coming down. We think in placement is going to have
Speaker 11: a three handle on it by the end of the year.
Speaker 11: So I hope the Fed does not overreact to perhaps
Speaker 11: a hot number in April.
Speaker 5: Yeah, I mean, but you could also argue that the
Speaker 5: Fed Reserve needs to get some bullets into the chamber
Speaker 5: before the next time there is actually a recession because
Speaker 5: they don't have any.
Speaker 11: Now oh well they no, they have. I would disagree
Speaker 11: with that. I think they have plenty of bullets in
Speaker 11: the chamber because they've gone from zero to five and
Speaker 11: a quarter in a little over twelve months, so they
Speaker 11: can they could turn around the balance sheet. They could
Speaker 11: obviously cut rates quickly to try to deal with a
Speaker 11: drop in economic growth. So I think there's plenty of
Speaker 11: room for them to maneuver in a recessionary environment. I
Speaker 11: think they're just unwilling to admit yet that we are
Speaker 11: heading into a recession. But again, a lot of those
Speaker 11: indicators are pointing us in that direction. At this point.
Speaker 1: Walter Rish and I were talking a short while ago
Speaker 1: about this incredible rally that we have seen in Japanese equities.
Speaker 1: Are you attempted to put money to work offshore maybe
Speaker 1: in Japan?
Speaker 11: Yeah, So we do have exposure in our ETF portfolios,
Speaker 11: which have exposure to overseas markets, into the Japanese market.
Speaker 11: It has been very strong, a lot of people saying
Speaker 11: from just a pure technical perspective, we could actually challenge
Speaker 11: those old highs from nineteen eighty nine on the NIK.
Speaker 11: So structurally, the Japanese market does look like one of
Speaker 11: the better markets. And I know you guys were discussing
Speaker 11: buffets investments there over the past several years, so that's
Speaker 11: another tailwind for that market. So yeah, we do have
Speaker 11: exposure there and we like it right now.
Speaker 5: So Toby, what else are you looking at Walter to
Speaker 5: invest in.
Speaker 11: Yeah, So within our equity portfolios that are focused domestically,
Speaker 11: we're kind of in that Barbell strategy that we've talked
Speaker 11: to you about before, and that's play in defense through
Speaker 11: healthcare and some consumer staples on that front, but also
Speaker 11: having some exposure to the likes of industrials and energy
Speaker 11: that would benefit from the reopening of China and some
Speaker 11: of the strength that we're seeing a little bit in
Speaker 11: overseas markets despite a kind of a recessionary outlook here
Speaker 11: in the US. That would be our preferred play right now.
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