WEBVTT - Debt Ceiling Talks, Micron Risk in China

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<v Speaker 1>This is Bloomberg day Break Asia for this Monday, May

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<v Speaker 1>twenty second in Hong Kong, Sunday May twenty first in

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<v Speaker 1>New York. Coming up today, markets brace for volatility as

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<v Speaker 1>the US struggles to clinch a deal on raising the

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<v Speaker 1>debt ceiling. Treasury Secretary Yellen says the US is unlikely

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<v Speaker 1>to reach mid June and still be able to pay

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<v Speaker 1>its bills, and China tells tech companies to stop using

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<v Speaker 1>chips from Micron Technology in a move that further escalates

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<v Speaker 1>tensions with the US.

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<v Speaker 2>After death ceiling talks breakdown, Biden McCarthy agree to me tomorrow.

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<v Speaker 2>G seven countries agree on training on F sixteen jets

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<v Speaker 2>for Ukraine. Taiwan's president to focus on China and chips

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<v Speaker 2>in our last year in office. I met Baxter with

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<v Speaker 2>Global News.

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<v Speaker 3>Brooks Kapka holds off the field to win his third

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<v Speaker 3>PGA championship.

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<v Speaker 4>That's all straight Ahead on Bloomberg Daybreak Asia, the business

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<v Speaker 4>news you need to start your day in just one

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<v Speaker 4>fifteen minute podcast, available on Apple, Spotify, the Bloomberg Business App,

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<v Speaker 4>and everywhere you get your podcasts.

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<v Speaker 5>Good morning, I'm Richard Salama.

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

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

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<v Speaker 5>because she's been expressing doubts about the United States being

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<v Speaker 5>able to pay its bills next month. All of this

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<v Speaker 5>coming is the White House urgently tries to reach a

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<v Speaker 5>deal with Republicans to raise the debt limit. Here here

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<v Speaker 5>is Yellen speaking on NBC's Meet the Press.

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<v Speaker 6>There's always uncertainty about a tax, receipts and spending, and

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<v Speaker 6>so it's hard to be absolutely certain about this. But

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<v Speaker 6>my assessment is that the odds of reaching June fifteenth

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<v Speaker 6>while being able to pay all of our bills is

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<v Speaker 6>quite low.

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<v Speaker 5>That is Janet Yellen heard here on Bloomberg Get The

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<v Speaker 5>Treasury secretor years previously said that the US could lose

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<v Speaker 5>its ability to pay all its bills as soon as

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<v Speaker 5>the first of June. Now, this would put the country

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<v Speaker 5>at risk of a catastrophic default. Excepting Goldman Sax economists

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<v Speaker 5>estimated that the Treasury Department will see its cash levels

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<v Speaker 5>drop below the thirty billion dollar mark by June the

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<v Speaker 5>eighth or ninth, and that's the bare minimum for meeting

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<v Speaker 5>federal obligations falling June. Yellen is expected to update Congress

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<v Speaker 5>this week on how long the US does have before

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<v Speaker 5>it risks running out of cash to pay its bills.

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<v Speaker 5>President Biden House Speaker Kevin McCarthy are also expected to

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<v Speaker 5>meet Monday well.

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<v Speaker 1>The head of the Minneapolis Fed, Neil cash Carry, is

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<v Speaker 1>saying he may support holding interest rates at current levels

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<v Speaker 1>at the Fed's next meeting in June. In an interview

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<v Speaker 1>with Dow Jones, cash Carry said this would allow the

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<v Speaker 1>FED a little more time to assess the impact of

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<v Speaker 1>higher interest rates than those that have been done recently,

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<v Speaker 1>along with the outlook for inflation. It was on Friday

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<v Speaker 1>that Fed sha J. Powell signaled an openness to pausing

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<v Speaker 1>rate hikes next month. Here is Powell speaking at a

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<v Speaker 1>conference in Washington.

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<v Speaker 7>Is limited to identifying the factors will be monitoring as

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<v Speaker 7>we assess the extent to which additional policy firming may

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<v Speaker 7>be appropriate to return inflation to two percent over time.

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<v Speaker 3>As I noted at.

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<v Speaker 7>The last press conference, that assessment will be an ongoing

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<v Speaker 7>one as we move ahead, meeting by meeting. Having come

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<v Speaker 7>this far, we can afford to look at the data

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<v Speaker 7>and the evolving outlook and make careful assessments.

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<v Speaker 1>That is fed shir J. Powell. He went on to

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<v Speaker 1>say that rates may not need to rise as high

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<v Speaker 1>as originally thought because of tighter credit conditions partially caused

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<v Speaker 1>by problems among the regional banks were shot.

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<v Speaker 5>Yeah, we're looking into an earning season now which is

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<v Speaker 5>winding down, but there are plenty of companies schedule to

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<v Speaker 5>report in the next few days. Let's get details now

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<v Speaker 5>from Bloomberg's Charlie Pennett.

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<v Speaker 3>Retailers will be front and stead of this week, including Costco,

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<v Speaker 3>wholesale Lows, and Dollar Tree. Results have been coming in

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<v Speaker 3>better than fear, but there are concerns about growth and valuation.

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

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<v Speaker 3>multiples are.

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<v Speaker 8>About where they deserve to be. I think there's still

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

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<v Speaker 8>a very very good reporting season, but there is still

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<v Speaker 8>a lot of questions that investors have about the outlook

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<v Speaker 8>for financials.

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<v Speaker 3>Earnings in particular, we will be hearing from a number

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<v Speaker 3>of tech names this week, including Analog Devices, into It,

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<v Speaker 3>in Vidia, Palo Alto Networks, and Snowflake in New York

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<v Speaker 3>Charlie Pellett Bloomberg Daybreak Asia.

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<v Speaker 1>China is banning purchases of chips made by Micron Technology,

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<v Speaker 1>with Beijing saying these chips represent a security risk. The

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<v Speaker 1>story from Bloomberg's Denise Pellegrini.

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<v Speaker 9>The Cyberspace Administration of China is telling operators of key

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<v Speaker 9>infrastructure not to purchase the Micron chips because of what

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<v Speaker 9>it calls relatively serious cybersecurity risks. The regulator says that

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

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<v Speaker 9>which would impact national security privately, though some Chinese officials

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<v Speaker 9>said it's part of an increase in pro retaliation voices

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<v Speaker 9>in Beijing after Washington intensified its effort to contain China's

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<v Speaker 9>technological development. Mike crowd only gets about ten percent of

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<v Speaker 9>its revenue from China. It's much more for its US competitors.

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<v Speaker 9>Denise Pelgriny, Bloomberg Day Breck Asia.

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<v Speaker 5>Right G seven leaders have agreed on the need for

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<v Speaker 5>governance in the field of generative artificial intelligence. Details not

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<v Speaker 5>come from Bloomberg's Joanna Woll.

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<v Speaker 10>G seven leaders that their governments are now set to

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<v Speaker 10>hold cabinet level discussions on AI. They're calling it the

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<v Speaker 10>Hiroshima process. This comes after G seven leaders expressed concern

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<v Speaker 10>at their summit over the potential of AI to cause

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<v Speaker 10>rapid disruption. Leaders have been calling for greater regulation since

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<v Speaker 10>Open ais Chat GPT set off a raise among companies

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<v Speaker 10>to develop the technology more quickly. The fear is that

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<v Speaker 10>the advancements, if allowed to progress and checked, could be

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<v Speaker 10>a powerful tool for disinformation and political disruption. Separately, the

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<v Speaker 10>World Health Organization warrant that adopting AI too quickly runs

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<v Speaker 10>the risk of medical errors, which may erode trust and

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<v Speaker 10>the technology and delay its adoption. In Hong Kong and

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<v Speaker 10>join Wan Bloomberg Day Brigasia.

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<v Speaker 1>Well, if you think the debate over artificial intelligence is complicated,

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<v Speaker 1>just wait until AI meets quantum computing. Now we know

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<v Speaker 1>that the University of Chicago will be partnering with IBM

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<v Speaker 1>and Google on the development of quantum computing. This deal,

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<v Speaker 1>involving the three parties, will total as much as one

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<v Speaker 1>hundred and fifty million dollars.

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<v Speaker 11>Now.

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<v Speaker 1>IBM will develop blueprints with the University of Chicago and

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<v Speaker 1>the University of Tokyo over ten years in a plan

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

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<v Speaker 1>as a partner with these universities, will be investing as

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<v Speaker 1>much as fifty million toward accelerating the creation of a

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<v Speaker 1>fault tolerant quantum computer. Google's participation will also help develop

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<v Speaker 1>a quantum workforce over ten years. Day Break Asia and

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<v Speaker 1>an update on Global News is next. Negotiations over the

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<v Speaker 1>US debt ceiling hit a wall over the weekend, but

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<v Speaker 1>now House Speaker Kevin McCarthy and President Biden have agreed

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<v Speaker 1>to talk tomorrow at Baxter has Global News from the

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<v Speaker 1>Bloomberg nine to sixty. Userm in San Francisco ed.

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<v Speaker 2>Yeah, Doug, exactly. Right after wrapping up his time at

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<v Speaker 2>the G seven, President Biden got on the phone with

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<v Speaker 2>Speaker McCarthy and had what both describe as a positive call.

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<v Speaker 2>McCarthy right now, this is where we're at.

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<v Speaker 4>We want to get this done.

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<v Speaker 6>We've got to come to an agreement, but we also

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<v Speaker 6>legislatively have to pass it, and so we want to

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<v Speaker 6>try to find those barriers.

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

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<v Speaker 2>what they want and have them work today and then

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<v Speaker 2>the two principals meeting tomorrow. Biden earlier in the day,

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<v Speaker 2>by the way, took a very hard line.

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<v Speaker 12>Now it's time for the other side to move from

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<v Speaker 12>their extreme positions because much of what they've already proposed

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<v Speaker 12>is simply quite frankly unacceptable.

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<v Speaker 2>Yeah, so no agreement, but at least work back on

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<v Speaker 2>and meeting tomorrow. G seven UK Prime Minister Rishisunac says

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<v Speaker 2>that the UK will begin training Ukrainian pilots on using

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<v Speaker 2>F sixteen fighters. It feeds the narrative.

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<v Speaker 5>And we've made a real breakthrough at this summit thanks

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<v Speaker 5>to President Biden's support for an international coalition to provide

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<v Speaker 5>F sixteen jets.

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<v Speaker 2>And the President Biden saying a total G seven resolve

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<v Speaker 2>on the issue.

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<v Speaker 12>G seven reaffirmed are shared and unwavering. Let me say

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<v Speaker 12>it again, our shared and unwavering commitment to stand with

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<v Speaker 12>the brave people of Ukraine as they defend themselves against

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<v Speaker 12>Russell's brutal war of aggression and the war crimes being committed.

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<v Speaker 2>And Ukraine's President of Vladimir Zlenski says Ukraine will win

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<v Speaker 2>the war, but says the current battle in bak mood.

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<v Speaker 13>The pictures of ruined Hiroshima really remind me, totally remind

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<v Speaker 13>me Bachmont and other similar settlements and towns just the same,

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<v Speaker 13>nothing alive left, all of the buildings have been ruined.

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<v Speaker 2>And their conflicting reports of what's really happening there. Zelenski

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<v Speaker 2>said Russian forces have been driven out. Russia is saying

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<v Speaker 2>its forces with a mercenary Wagner group of encircled back

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<v Speaker 2>moot as well as they say liberated. Taiwan's president Sayang

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<v Speaker 2>Wayan is putting China, phrasing it as across straight security

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<v Speaker 2>as well as chip power center stage. In her final

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<v Speaker 2>year in office. She says war with China is not

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<v Speaker 2>an option. She says differences can be resolved through dialogue

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<v Speaker 2>and by promoting orderly exchanges. Four person crew include two

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<v Speaker 2>from Saudi Arabia for the first time due to Doc Tomorrow,

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<v Speaker 2>SpaceX up three and uh way.

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<v Speaker 13>Its full power.

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<v Speaker 11>He left the Falcon.

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<v Speaker 13>Nine Go Actio from.

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<v Speaker 2>Again. The crew including two from Saudi Arabia for the

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<v Speaker 2>first time due to Doc.

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<v Speaker 13>Tomorrow, Godspeed AX two.

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<v Speaker 2>And Falcon nine successfully landed at Cape Canaveral PGA scoreboard. Today.

0:09:58.679 --> 0:10:02.160
<v Speaker 2>We're in final round and Brooks Koepka is holding on

0:10:02.280 --> 0:10:08.120
<v Speaker 2>now ten under par Wow so he is on whole sixteen.

0:10:08.880 --> 0:10:13.640
<v Speaker 2>Victor Hobland at six under Scotty Scheffler at six under

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<v Speaker 2>Global News powered by more than twenty seven hundred journalist

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<v Speaker 2>and analyst in over one hundred and twenty countries. In

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<v Speaker 2>San Francisco, I'm at Baxter and this is Bloomberg.

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<v Speaker 1>Let's get to our guests. Walter Todd is with us.

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<v Speaker 1>He is president, also the chief investment officer and managing

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<v Speaker 1>director at Greenwood Capital. On the line from South Carolina, Walter,

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<v Speaker 1>thanks for being with us. It appears, though this point

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<v Speaker 1>in time, that the FED is inclined maybe to hit

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<v Speaker 1>the pause button come June. This notion of a hawkish

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<v Speaker 1>pause kind of implies that they would be ready to

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<v Speaker 1>hike again if necessary. Is that the way you see

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<v Speaker 1>things right now?

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<v Speaker 13>Yes?

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<v Speaker 5>And no.

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<v Speaker 11>I mean I think that the FED will potentially have

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<v Speaker 11>to cut as we move through the back half of

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<v Speaker 11>this year because everything seems to be most things seem

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<v Speaker 11>to be pointing to a slow down and or recession.

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<v Speaker 11>But I think the market perhaps is wrong and what

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<v Speaker 11>the implications of those rate cuts are because the playbook

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<v Speaker 11>for a decade has then when the FED cuts rates,

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

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<v Speaker 11>given the recessionary setup that we have here and the

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<v Speaker 11>reason that the FED would be cutting rates in the

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

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<v Speaker 11>to admit that yet. They're saying they're going to hold

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<v Speaker 11>it five and a quarter. But if you look at

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<v Speaker 11>where the two year is almost one hundred basis points

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<v Speaker 11>below that bed fund rate, that's what we're watching.

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<v Speaker 5>Well, have they overdone it? I mean, been going from

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<v Speaker 5>probably one of the most steep increases percentage wise on

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<v Speaker 5>the US cost of borrowing in recent memory. And you know,

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<v Speaker 5>you got to ask yourself. You even you know, Povolka

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<v Speaker 5>stopped raising rates two months before they had he saw

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<v Speaker 5>peak inflation.

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<v Speaker 11>Yeah, we we do believe that they've definitely done enough,

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<v Speaker 11>possibly gone too far. I think the you know, the

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<v Speaker 11>stress and the banking system that we witnessed over the

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<v Speaker 11>past several months, or an indication that something finally broke.

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<v Speaker 11>And again, looking at the structure of the yield curve

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<v Speaker 11>today and the steep inversion that we have across the

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<v Speaker 11>curve as well as where the two year is relative

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<v Speaker 11>to the FED fund right, as I said earlier, I

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<v Speaker 11>think that's the indication that they're overly tight and they

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<v Speaker 11>need to eventually catch down to the two year yield.

0:12:21.880 --> 0:12:24.240
<v Speaker 11>That's what has happened in the past. That has been

0:12:24.280 --> 0:12:27.240
<v Speaker 11>the leader of the FED on the upside and the downside,

0:12:27.480 --> 0:12:29.520
<v Speaker 11>and that's why we're paying such close attention to it.

0:12:29.640 --> 0:12:32.760
<v Speaker 1>So a very important number will not happen until Friday,

0:12:32.760 --> 0:12:36.000
<v Speaker 1>when we get to personal consumption expenditures. And I'm wondering

0:12:36.000 --> 0:12:39.200
<v Speaker 1>whether or not, as if Bloomberg Economics is right and

0:12:39.280 --> 0:12:44.080
<v Speaker 1>we do see through this data elevated inflation in the

0:12:44.120 --> 0:12:47.600
<v Speaker 1>month of April, we know this is the Fed's preferred metric.

0:12:47.960 --> 0:12:50.400
<v Speaker 1>I'm wondering if the story on the fourth quarter of

0:12:50.400 --> 0:12:53.520
<v Speaker 1>this year, maybe perhaps as soon as the third is

0:12:53.520 --> 0:12:56.120
<v Speaker 1>is stagflation in the US. Is that possible?

0:12:58.559 --> 0:13:00.080
<v Speaker 11>It is, But I mean, if you look at all

0:13:00.080 --> 0:13:04.280
<v Speaker 11>the indicators, kind of out forward looking indicators of prices,

0:13:04.320 --> 0:13:07.120
<v Speaker 11>they are coming down rapidly. If you look at commodity prices,

0:13:07.160 --> 0:13:09.240
<v Speaker 11>if you look at the price components of these FED

0:13:09.280 --> 0:13:12.720
<v Speaker 11>surveys that we've gotten recently from Empire in Philly, and

0:13:12.800 --> 0:13:14.400
<v Speaker 11>we think as we get more of those we'll see

0:13:14.400 --> 0:13:18.600
<v Speaker 11>this prices, prey prices received are really collapsing, so we

0:13:18.720 --> 0:13:21.240
<v Speaker 11>think looking at inflation, are being concerned that in place

0:13:21.480 --> 0:13:24.000
<v Speaker 11>is really looking in the rearview mirror and prices are

0:13:24.040 --> 0:13:25.599
<v Speaker 11>coming down. We think in placement is going to have

0:13:25.640 --> 0:13:27.400
<v Speaker 11>a three handle on it by the end of the year.

0:13:27.840 --> 0:13:31.559
<v Speaker 11>So I hope the Fed does not overreact to perhaps

0:13:31.600 --> 0:13:32.880
<v Speaker 11>a hot number in April.

0:13:34.000 --> 0:13:35.920
<v Speaker 5>Yeah, I mean, but you could also argue that the

0:13:36.320 --> 0:13:40.199
<v Speaker 5>Fed Reserve needs to get some bullets into the chamber

0:13:40.200 --> 0:13:43.400
<v Speaker 5>before the next time there is actually a recession because

0:13:43.600 --> 0:13:44.520
<v Speaker 5>they don't have any.

0:13:44.360 --> 0:13:48.480
<v Speaker 11>Now oh well they no, they have. I would disagree

0:13:48.480 --> 0:13:50.760
<v Speaker 11>with that. I think they have plenty of bullets in

0:13:50.760 --> 0:13:53.120
<v Speaker 11>the chamber because they've gone from zero to five and

0:13:53.160 --> 0:13:56.000
<v Speaker 11>a quarter in a little over twelve months, so they

0:13:56.000 --> 0:13:58.480
<v Speaker 11>can they could turn around the balance sheet. They could

0:13:58.559 --> 0:14:02.280
<v Speaker 11>obviously cut rates quickly to try to deal with a

0:14:02.400 --> 0:14:04.880
<v Speaker 11>drop in economic growth. So I think there's plenty of

0:14:04.920 --> 0:14:08.319
<v Speaker 11>room for them to maneuver in a recessionary environment. I

0:14:08.360 --> 0:14:11.640
<v Speaker 11>think they're just unwilling to admit yet that we are

0:14:11.679 --> 0:14:14.040
<v Speaker 11>heading into a recession. But again, a lot of those

0:14:14.040 --> 0:14:17.200
<v Speaker 11>indicators are pointing us in that direction. At this point.

0:14:17.360 --> 0:14:19.960
<v Speaker 1>Walter Rish and I were talking a short while ago

0:14:20.040 --> 0:14:23.240
<v Speaker 1>about this incredible rally that we have seen in Japanese equities.

0:14:23.280 --> 0:14:26.480
<v Speaker 1>Are you attempted to put money to work offshore maybe

0:14:26.520 --> 0:14:27.040
<v Speaker 1>in Japan?

0:14:28.640 --> 0:14:32.600
<v Speaker 11>Yeah, So we do have exposure in our ETF portfolios,

0:14:32.640 --> 0:14:36.680
<v Speaker 11>which have exposure to overseas markets, into the Japanese market.

0:14:37.040 --> 0:14:39.400
<v Speaker 11>It has been very strong, a lot of people saying

0:14:39.400 --> 0:14:42.120
<v Speaker 11>from just a pure technical perspective, we could actually challenge

0:14:42.160 --> 0:14:45.000
<v Speaker 11>those old highs from nineteen eighty nine on the NIK.

0:14:45.920 --> 0:14:48.560
<v Speaker 11>So structurally, the Japanese market does look like one of

0:14:48.600 --> 0:14:50.520
<v Speaker 11>the better markets. And I know you guys were discussing

0:14:50.560 --> 0:14:54.400
<v Speaker 11>buffets investments there over the past several years, so that's

0:14:54.400 --> 0:14:56.840
<v Speaker 11>another tailwind for that market. So yeah, we do have

0:14:56.920 --> 0:14:59.240
<v Speaker 11>exposure there and we like it right now.

0:15:00.360 --> 0:15:03.600
<v Speaker 5>So Toby, what else are you looking at Walter to

0:15:03.680 --> 0:15:04.200
<v Speaker 5>invest in.

0:15:06.080 --> 0:15:09.720
<v Speaker 11>Yeah, So within our equity portfolios that are focused domestically,

0:15:09.880 --> 0:15:12.760
<v Speaker 11>we're kind of in that Barbell strategy that we've talked

0:15:12.760 --> 0:15:15.560
<v Speaker 11>to you about before, and that's play in defense through

0:15:15.560 --> 0:15:18.520
<v Speaker 11>healthcare and some consumer staples on that front, but also

0:15:18.600 --> 0:15:22.120
<v Speaker 11>having some exposure to the likes of industrials and energy

0:15:22.160 --> 0:15:25.040
<v Speaker 11>that would benefit from the reopening of China and some

0:15:25.120 --> 0:15:27.560
<v Speaker 11>of the strength that we're seeing a little bit in

0:15:27.680 --> 0:15:30.640
<v Speaker 11>overseas markets despite a kind of a recessionary outlook here

0:15:30.640 --> 0:15:35.800
<v Speaker 11>in the US. That would be our preferred play right now.

0:15:36.000 --> 0:15:38.480
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