Speaker 1: This is Bloomberg Daybreak Asia for this Friday, June sixteenth
Speaker 1: in Hong Kong, Thursday June fifteenth in New York and
Speaker 1: coming up today.
Speaker 2: US equities rally, tech shares gain on exuberant surrounding artificial intelligence.
Speaker 1: The ECB hikes interest rates again in President Christine Legard
Speaker 1: says a July increase is also very likely.
Speaker 2: And the Bank of Japan is expected to leave its
Speaker 2: ultra loose monetary policy unchanged today.
Speaker 3: Kissinger says war between China and Taiwan probable without change
Speaker 3: in course blank and writing is for China trip NATO
Speaker 3: pledges more aid for Ukraine. You and Head calls fossil
Speaker 3: fuel companies planet wreckers. I'm at Baxter with Global News.
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 Apples, Spotify, the Bloomberg Business app,
Speaker 4: and everywhere you get your podcasts.
Speaker 2: Good morning, I'm Doug Krisner and I'm Brian Curtiz.
Speaker 1: Here are the stories we're following today. The Bank of
Speaker 1: Japan is widely expected to leave its ultra loose monetary
Speaker 1: policy unchanged today. Let's get the story from Bloomberg's Bonnie ow.
Speaker 5: Most economists in a Bloomberg survey predicted the boj's negative
Speaker 5: rate policy and youth curve control program will be kept
Speaker 5: the same. Some say one of the main reasons for
Speaker 5: the hold is the chance for an early election. Governor
Speaker 5: Kazuo Oweita has said that he expects inflation to fall
Speaker 5: below two percent towards the second half of this fiscal year,
Speaker 5: ending in March, but more than half of private sector
Speaker 5: economists disagree with that view. Over a third of economists
Speaker 5: say a policy shift could happen next month due to
Speaker 5: higher inflation in Hong Kong. I'm Bonnie Ol Bloomberg Daybreak Asia.
Speaker 2: Let's talk about the European Central Bank. As expected, we
Speaker 2: got a rate hike of twenty five basis points, so
Speaker 2: the policy rate now is at three and a half percent.
Speaker 2: That's the highest level in more than two decades. It
Speaker 2: is in line with what economists and traders were expecting.
Speaker 2: Now we had ECB President Christine Leguard saying the outlook
Speaker 2: for both economic growth and inflation remain highly uncertain, and
Speaker 2: she said the ECB still has ground to cover in
Speaker 2: its inflation fight.
Speaker 6: It is very likely the case that we will continue
Speaker 6: to increase rates in July, which probably doesn't come as
Speaker 6: a big surprise to you, but that's what I'm telling you.
Speaker 6: And this is so because we are determined to reach
Speaker 6: our target in a timely manner.
Speaker 2: That is ECB President Christine Leguard. Now we are told
Speaker 2: that officials at the ECB are expecting a tough debate
Speaker 2: next month on whether another rate hike will be necessary
Speaker 2: in September. Leguards seem to avoid giving any guidance today
Speaker 2: on what may happen beyond July.
Speaker 7: Bryan Well.
Speaker 1: The ECB's move came a day after the FED paused
Speaker 1: its rate hiking cycle, although the FED did signal that
Speaker 1: they would likely resume tightening at some point in the
Speaker 1: rest of this year. We heard today from former FED
Speaker 1: Vice chair Richard Clara. Clara is saying that he sees
Speaker 1: the fed's hiking campaign ending soon after it observes key
Speaker 1: economic data.
Speaker 8: The FED has inflation coming down more slowly than a
Speaker 8: lot of folks, and the FED also has a smaller
Speaker 8: rise in unemployment than a lot of people expect. And
Speaker 8: so I do think that if the data is closer
Speaker 8: to market expectations versus FED expectations that they could be
Speaker 8: done in July. So I really think, for the first
Speaker 8: time in a while, they really are data dependent.
Speaker 1: And there isn't all that much data to be dependent
Speaker 1: on or to sink your teeth into. The FED only
Speaker 1: has one more labor report and one consumer price index
Speaker 1: reading to analyze before that next policy decision, by the way,
Speaker 1: that comes up on July twenty fifth and twenty sixth.
Speaker 2: We were talking earlier about this exuberant surrounding artificial intelligence.
Speaker 2: After the bell, Adobe raised its full year outlooks for
Speaker 2: both revenue and profit. It seems the company is optimistic
Speaker 2: that generative AI features will be raising demand for its software.
Speaker 2: We have more from Bloomberg's Charlie Pellett.
Speaker 7: Adobe says sales will be about nineteen point three billion
Speaker 7: dollars in the fiscal year ending in November, compared with
Speaker 7: an earlier forecast of about nineteen point two billion. Adobe
Speaker 7: is the longtime top seller of software for creative professionals.
Speaker 7: It is adding generative AI features throughout its products. Last week,
Speaker 7: the company unveiled enterprise level subscriptions for the new tools,
Speaker 7: which include legal assurance against copyright claims in New York
Speaker 7: Charlie Pellett Bloomberg Daybreak Asia, while.
Speaker 1: The European Commission is taking a more aggressive stance on
Speaker 1: Shiny's tech companies, including Huawei. Bloomberg's Joan Wong has that
Speaker 1: story from Hong Kong.
Speaker 9: The EU has asked as member nations to stop using
Speaker 9: Huawei and z Tes advanced and mobile network equipment. The
Speaker 9: Commission has explicitly labeled the companies for the first time
Speaker 9: as high risk vendors. The latest call comes as EU
Speaker 9: nations face increasing pressure from the US to take a
Speaker 9: harder stance on China. So far, Germany and Spain have
Speaker 9: been relying on Chinese equipment makers. Sources say that EU
Speaker 9: finds the level of reliance unacceptable. Still, the EU has
Speaker 9: limited authority to force members to implement bands in the
Speaker 9: name of national security. In Hong Kong, Join Wang, Bloomberg
Speaker 9: day Brigaisia.
Speaker 1: This along with Doug Krisner Paul Allen will join us shortly,
Speaker 1: so Doug feels a little like a breakout here inequities,
Speaker 1: which will be a pain for the Bears. But there
Speaker 1: was this one from JP Morgan saying that given all
Speaker 1: the gains that we've seen inequity. This will be an
Speaker 1: issue for sovereign wealth and pension funds and they will
Speaker 1: have to rebalance to try to get their bond portfolio
Speaker 1: up to match what's happening in inequity. So I think
Speaker 1: JP Morgan's estimating you could see a five percent pullback
Speaker 1: pretty quickly because of that.
Speaker 2: Then, if you look at what's happening in the bond market,
Speaker 2: an interesting day as yields come in. I think the
Speaker 2: Fed maybe well trying to communicate something that the market
Speaker 2: really doesn't believe. Right now, the Fed speak begins in
Speaker 2: ernest tomorrow. We're going to hear from Governor Chris Waller.
Speaker 2: He has been very hawkish. The projection that we learned
Speaker 2: about yesterday is that another fifty basis points in tightening
Speaker 2: as being forecast. But I thought it very interesting today
Speaker 2: that the CIO of louthhold this is Doug Ramsey. He
Speaker 2: was saying his biggest concern by far is the lag
Speaker 2: impact of the last fifteen months of tightening.
Speaker 4: Yeah.
Speaker 1: Yeah, that's something that we just can't know. Can we
Speaker 1: exactly what the impact will be? I know you focused
Speaker 1: quite nicely on how there could be more in the
Speaker 1: regional banking sector that hits and Pal talked about that
Speaker 1: a little bit yesterday, and then, you know, not to
Speaker 1: change the subject completely, but we have another whole set
Speaker 1: of issues in China, and we do have this State
Speaker 1: Council meeting today that we're expecting to produce some new
Speaker 1: stimulus measures. Our story says this could include property and
Speaker 1: we also quoted from officials yesterday talking about some stimulus
Speaker 1: for autos, home appliances, catering industries. Those would be the
Speaker 1: continuation of the targeting. But then, as you mentioned on
Speaker 1: our call, the Wall Street Journal is talking about more
Speaker 1: infrastructure spending. We've certainly seen a lot of that in
Speaker 1: Chine over the years.
Speaker 2: And if you look at the data that we had yesterday,
Speaker 2: the activity data from May, growth and industrial outputs slowing
Speaker 2: to a rate of three and a half percent annually.
Speaker 2: Retail sales missed estimates at twelve point seven percent. So
Speaker 2: there obviously are signs of weakness and that was one
Speaker 2: of the reasons that the PBOC did what it did yesterday.
Speaker 1: Yeah, absolutely, cutting that MLF by ten basis points. All right,
Speaker 1: it's time now for Global news. I should mention we
Speaker 1: have Mark Jim Brony coming up head of US Equities
Speaker 1: at Barrow Hanley Global Investors. That'll be after we get
Speaker 1: to news with Ed Baxter in San Francisco. So Ed,
Speaker 1: the former US Secretary of State Henry Kissinger, who is
Speaker 1: very influential in terms of US China relations, is worried
Speaker 1: about Taiwan. China tell us more.
Speaker 3: Yeah, absolutely, He says military conflict between China and Taiwan
Speaker 3: potentially likely. Brian Kissinger says there needs to be a
Speaker 3: new direction and dialogue. In an exclusive interview with Bloomberg
Speaker 3: News editor in chief John Mitlithwaite, he says the trajectory
Speaker 3: of the talks needs to change.
Speaker 10: They have been signs on both sides of trying to
Speaker 10: end them. They have not yet actually engaged in the
Speaker 10: suit of dialogue. SI that I suggest it.
Speaker 3: So, he says if not, if they don't change, he
Speaker 3: feels military conflict is probable. Remember, Kissinger was a key architect,
Speaker 3: as Brian referenced on the Nixon administration of what is
Speaker 3: called the Opening of China and Ping Pong diplomacy. He
Speaker 3: also told John that if Ukraine prevails against a Russian invasion,
Speaker 3: Vladimir Putin will struggle to hold on to Power. For
Speaker 3: the full conversation, get the latest Bloomberg Talks podcast wherever
Speaker 3: you download, or you can watch it on Friday night,
Speaker 3: seven pm Wall Street Time on Bloomberg Television. Meanwhile, The
Speaker 3: Globe is on the cusp of US Secretary of State
Speaker 3: Anthony Blincoln's trip to Beijing.
Speaker 11: They're trying to kind of reestablish, you know, a line
Speaker 11: of communication, and I think there's ascentive on both sides
Speaker 11: to do that.
Speaker 3: Bloomberg's Dan Flatley says, Taiwan certainly on the table.
Speaker 11: Anytime that you talk to anyone from the Chinese government,
Speaker 11: you're going to be talking about Taiwan, because that is
Speaker 11: a core issue for them, as they call it, and
Speaker 11: it is a very important issue for the US as
Speaker 11: well for a variety of reasons. And so if Blincoln
Speaker 11: does meet with Chinese President Jijimping, I'm sure that will
Speaker 11: be a topic that they may touch upon, although I
Speaker 11: don't think it will be a primary topic of discussion.
Speaker 3: He says, try to keep forward momentum to talk about
Speaker 3: economic issues and climate change, among other things. Meanwhile, NATO
Speaker 3: and the US are meeting today about providing more aid
Speaker 3: and arms to Ukraine. US provided a three hundred and
Speaker 3: twenty five million dollar eight package this week.
Speaker 2: This is General Mark Millie. This package procures critical cap
Speaker 2: abilities including Patriot munitions, Hawk air defense systems, artillery, rock, communitions, maintenance, statement, sport,
Speaker 2: much more.
Speaker 3: And NATO Secretary General Jen Stottenberg says Ukraine's counteroffensive is
Speaker 3: going better.
Speaker 12: Ukrainians have launched their counter offensive. They're making making gains
Speaker 12: and of course this is due to the bravery of
Speaker 12: the skills of the Ukrainian forces. But the supporter from
Speaker 12: natan LAS is also of course critical.
Speaker 3: And he says could be more aid coming as the
Speaker 3: meetings continue. You and Secretary General Antonio Guteras today calling
Speaker 3: on the oil and gas industry to leave their products
Speaker 3: in the ground. He says the companies that operate now
Speaker 3: are planet Wreckers PGA. As we go live to the
Speaker 3: LA Live Us Open at the Los Angeles Country Club
Speaker 3: in California. Now they are in the clubhouse. The two
Speaker 3: leaders now and they're up by five strokes are Ricky
Speaker 3: Fowler and Xander Shuffley. They're shot a round of sixty two.
Speaker 3: So they're in the clubhouse at eight under and they're
Speaker 3: up on the leaderboard. Global New was fired by more
Speaker 3: than twenty seven hundred journalists and analysts in over one
Speaker 3: hundred and twenty countries in San Francisco. I'm Ed Baxter,
Speaker 3: and this is Bloomberg.
Speaker 1: I'm Brian Curtis here in Hong Kong, along with Paul
Speaker 1: Allen in Sydney, and our guest is Mark Gimbroni, who's
Speaker 1: head of US equities at Barrow Hanley Global Investors. Mark,
Speaker 1: great to have you on the program. Feels like a
Speaker 1: breakout in stocks here, especially with this broadening out. You
Speaker 1: had eight out of eleven sectors all eleven higher, but
Speaker 1: eight out of eleven up more than one percent, So
Speaker 1: as a real broadening out of the rally. The Fed
Speaker 1: might not like it, The Bears certainly won't like it,
Speaker 1: but you know, for the rest of us, it's kind
Speaker 1: of like a party on garth. Do you feel comfortable
Speaker 1: with this?
Speaker 13: Well, I will say that you're right. First of all,
Speaker 13: thank you for having me on. It is good to
Speaker 13: see the market breath so strong, and that gives us
Speaker 13: some confidence that, you know, the market can continue to
Speaker 13: have gains. We saw that again and the week or
Speaker 13: so Friday when we got the employment report, and that
Speaker 13: was also very positive. We saw good breath in the market,
Speaker 13: and what that's trying to telegraph is a soft landing
Speaker 13: in the economy. So clearly we have the thread raising rates,
Speaker 13: but the economy is still strong. We have equidity coming
Speaker 13: out of the system, but the consumer is still strong
Speaker 13: and employment is still strong. And if we can have
Speaker 13: those two things continue, we could see the market continue
Speaker 13: to have strength and broadening out. I think that's really
Speaker 13: important because the market's been too narrow for most of
Speaker 13: this year. In order for us to really have a
Speaker 13: sustained rally, we need to have more broadening out and
Speaker 13: the active stock, I mean, the average stock do better
Speaker 13: than the biggest stocks.
Speaker 14: Yeah, the theme of that broadening out. If you look
Speaker 14: at that ISMP rally and you strip out those big
Speaker 14: tech names, you strip out the AI rally, suddenly it's
Speaker 14: not looking quite so convincing. How convinced to you that
Speaker 14: we're going to see that broadening out.
Speaker 13: I think that at the moment, I'm a little bit
Speaker 13: more concerned about the rally continuing for the rest of
Speaker 13: the year than not. And there's kind of two reasons
Speaker 13: for that. One is the FED. It is the pulling
Speaker 13: of the liquidity there in rising rates, and the natural
Speaker 13: you know, roll through or lag of those effects. I
Speaker 13: think we're seeing that. I think the market's trying to grip,
Speaker 13: you know, with that or deal with it. And frankly,
Speaker 13: the market hasn't believed that the FED is going to
Speaker 13: be as strong as it has throughout the whole year.
Speaker 13: The second thing that worries me though, more than the FED,
Speaker 13: and so I think the market understands what the FED
Speaker 13: is doing. Economy is strong. I think we can climb
Speaker 13: that wall of worry. But the second piece to me
Speaker 13: is what happened in March in the US is real
Speaker 13: from a liquidity in a banking system perspective. And so
Speaker 13: while we're through kind of the fear or crisis of
Speaker 13: confidence for a few of the institutions now that are
Speaker 13: no longer around, what may be coming next is additional regulation.
Speaker 13: Certainly for the small and mid sized banks. We're seeing
Speaker 13: a focus on liquidity, and in doing so, we're seeing
Speaker 13: a tightening of underwriting standards. And when you get within
Speaker 13: a community, small and medium sized businesses have about seventy
Speaker 13: percent of their lending needs within the community in which
Speaker 13: they serve, and so as those banks pull back to
Speaker 13: focus on liquidity, that's going to have a ripple effect
Speaker 13: that I don't think the market is quite prepared for yet,
Speaker 13: nor do we really know how to project beyond what
Speaker 13: the Fed is doing. But it's going to be additive
Speaker 13: in terms of the impact on the economy, and that's
Speaker 13: what has me the most worried as we work through
Speaker 13: the rest of this year.
Speaker 1: And well, there's also there's also technical aspects like rebalancing.
Speaker 1: I mentioned JP Morgan is concerned about sovereign wealth and
Speaker 1: pension funds needing to probably reduce equity exposure and add
Speaker 1: to their fixed income exposure. However, I might add that
Speaker 1: they are an awful lot of people that got all
Speaker 1: excited about, you know, getting short term US treasuries with
Speaker 1: a four and a half percent yield, and they're kind
Speaker 1: of sweating bullets here, and all their friends are talking about,
Speaker 1: you know, twenty thirty percent gains in tech and such.
Speaker 1: So there might be some rebalancing from that as well.
Speaker 1: Does that neutralize a little?
Speaker 13: I think so. I think those are technical and more
Speaker 13: short term issues. That's not what the market is going
Speaker 13: to be focused on over a long period of time,
Speaker 13: or earnings or cash flows are going I do think
Speaker 13: for a while the market finally has some competition, right,
Speaker 13: meaning interest rates are attractive enough to get a risk
Speaker 13: free return. That is okay, right, But having said that,
Speaker 13: the mark is still the best place to be over
Speaker 13: a longer period of time, and there's been a lot
Speaker 13: of cash on the sidelines, and frankly, there's quite a
Speaker 13: bit of short interest still. So I think I wouldn't
Speaker 13: worry so much about the rebalancing. I think there are
Speaker 13: counters to that. It's more to focus on what's happening
Speaker 13: in my mind with cash flow and earnings, and that's
Speaker 13: what is going to lead to market one way or
Speaker 13: the other.
Speaker 14: Brian mentioned yields. There the Yeld curve of course remaining
Speaker 14: heavily inverted, and that is of course the recession indicated.
Speaker 14: But you mentioned earlier you've got a sense we are
Speaker 14: hitting for a soft landing. Is the runway now in view?
Speaker 13: Is the runway narrow in that view?
Speaker 2: I'm sorry, A good line.
Speaker 13: I think a soft landing is a Goldilock scenario. I
Speaker 13: think frankly it's starting to be priced in and so
Speaker 13: the likelihood of a FED mistake is high. It's not
Speaker 13: their fault, right, It's a difficult environment and they often
Speaker 13: make policy mistakes one way or the other, and more
Speaker 13: in this circumstance with significant inflation, partially because there were
Speaker 13: other mistakes made, and so as we look for a
Speaker 13: soft landing. While I think that'd be the best case
Speaker 13: scenario and what the market is currently focused on and
Speaker 13: why we're rallying, I think the probability is lower than
Speaker 13: of a mistake or a slowdown later in the year,
Speaker 13: or frankly just a continuation of inflation being too high
Speaker 13: and the set having to come back into the market.
Speaker 1: Now, we haven't talked too much about how you'd play
Speaker 1: this in terms of strategy. Yeah, I mentioned a lot
Speaker 1: over the past week or so that regional banks have
Speaker 1: rallied quite sharply over the past month, at one point
Speaker 1: up eighteen percent, just because of the past week, a
Speaker 1: little bit of a little bit of downward push. We're
Speaker 1: only up ten percent over the past month. But would
Speaker 1: you do that, would you go into some of the
Speaker 1: beaten down sectors or would you try to run with
Speaker 1: some of the high flyers like tech.
Speaker 13: I think that you know, one of the focuses is
Speaker 13: to be active, and being active means, you know, to
Speaker 13: be more selective the largest names at the moment are
Speaker 13: at the highest percentage of the market that they've been
Speaker 13: in a long time, and from a historical perspective extremely high.
Speaker 13: Seems to me those valuations have gotten ahead of themselves.
Speaker 13: So you don't have to go to the beaten up
Speaker 13: areas of the market necessary, like financials, but there are
Speaker 13: other places to find value. So again, if we talked
Speaker 13: about the consumer being very strong, consumer discretion area is
Speaker 13: an excellent and very diverse place to find unique opportunities
Speaker 13: in the market. If the economy is going to continue
Speaker 13: to be relatively strong, or even if we're going to
Speaker 13: see spending specifically for AI data centers, network's cloud, then
Speaker 13: you can find that within the industrial space. It doesn't
Speaker 13: have to be just tech, just the high flyers. I
Speaker 13: think that's where the most risk is. But I think,
Speaker 13: as you've suggested, the market on average has lagged, and
Speaker 13: because the market on an average has lagged, that gives
Speaker 13: opportunities to other sectors, not necessarily just the beaten down ones,
Speaker 13: although financials are clearly in that category. I would say
Speaker 13: we'd rather focus on things that we have more control
Speaker 13: over and less concern about. What a slowdown in the
Speaker 13: economy could really mean again to earning cash flow for
Speaker 13: those businesses.
Speaker 1: All right, Marky, I was just having a look at
Speaker 1: at RSP, which is the equal weight US equity ETF,
Speaker 1: and it's up about.
Speaker 2: Five percent over the past month.
Speaker 1: And that's basically just the whole S and P five
Speaker 1: hundred on an equaloid basis. Marik, thanks so much for
Speaker 1: joining us. Marky and Broni, head of US equities at
Speaker 1: Barrowhanley Global Investors. This is Bloomberg Daybreak Asia, your morning
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