This is Bloomberg day Break Asia for this Wednesday, May twenty fourth in Hong Kong, Tuesday May twenty third in New York and coming up today.
US stocks fall as negotiations over raising the debt ceiling remain at an impasse.
Apple signs a new multi billion dollar deal with Broadcom to get five G radio frequency components for its devices.
And Ali Baba's cloud division will cut its workforce by seven percent as it prepares for a spin off.
China's new ambassador to the US asks for open communication. China opposes US trade agreement. Mixed messages coming from debt ceiling talk same sticking point as where to play spending caps. I'm at Baxter with Global News.
That's all straight ahead on Bloomberg day Break Asia, The business news you need to start your day in just one fifteen minute podcast available on Apple, Spotify, the Bloomberg Business App, and everywhere you get your podcasts.
Good morning, I'm Doug Chrisner and I'm Brian Curtiz.
Here are the stories we're following today. Apple has signed a new multi year, multi billion dollar deal with Broadcom to get new components for its devices. These would be five G radio frequency components. The deal extends the sometimes contentious relationship between two of the world's biggest tech companies. Let's get more on the story from Bloomberg's Denise Pellgreening.
Apple says the collaboration will include wireless connectivity components, and those components will be designed and built in several US manufacturing hubs, including Fort Collins, Colorado, where Broadcom has a major facility. Apple says it already helps support more than one thousand jobs in Fort Collumns and the partnership will
enable Broadcom to continue to invest in automation projects. The Iphonemaker, as a matter of fact, is spending tens of billions of dollars to develop five G technology in the US, and these investments are all part of that commitment Apple made back in twenty twenty one to invest four hundred and thirty billion dollars in the US economy over the next five years. Denise Pelgreney, Bloomberg Day Brakesia.
As I mentioned earlier, WTI crude oil rose in New York to just under seventy three dollars a barrel as the market evaluated a warning from Saudi Arabia's top energy official to short sellers. Here's Saudi Energy Minister Prince Abdulaziz Ben Solomon speaking at the Cutter Economic Forum. Speculators like any think in any market.
They are there to say.
I keep advising them that they will be ouching.
They did ouch in Avrid.
That warning, by the way, comes as the market considers, or at least indicates that oil short sellers who initially fled in April or making a comeback. Crewde traders were surprised last month after OPEC Plus announced production cuts intended to scare off those speculators. Traders now will have their eyes on a meeting between opek Plus and its allies. They will review their production policy for the second half of the year June third and the fourth well.
By Dance's TikTok appears to be on track now to have all of its US user data hosted and overseen by the American company Oracle. TikTok CEO showed that Chew said that Oracle has begun a review of his company's source code, and he said that Oracle is now the default destination for the app's user data US user data now. This comes as by Dance struggles to win over critics that critics are worried about national security implications of TikTok.
She said that the video app will continue to make sure that its data is as safe as possible.
TikTok is not available in inland China today.
As we said many times, the Chinese government has actually never asked us for US user data and we will not provide even if asked.
Well, to address security concerns, TikTok said that it's US and EU projects will have their user information stored locally by a local company and it will be overseen by local staff. TikTok also said that it will continue to work with Oracle and the US government on data protection.
Ali Baba's Cloud division is said to be reducing its staff by seven percent as the company prepares for a spinoff. We have more from Bloomberg zvon Menn in Hong Kong.
The Cloud division is said to have begun offering severance paid to employees. Sources say it's either that or workers could be transferred to other parts of the Ali Baba group. The moves are intended to streamline the business. Ali Baba plans to carve out the cloud unit into a separate company within a year. It would then prepare for an IPO. Some analysts value the cloud business at upwards of thirty
billion dollars. Ali Baba Cloud is one of the biggest companies that will be created in a six way split of the parent in Hong Kong. I'm ivon Mann Bloomberg day Break Asia and.
Ali Baba has really struggled here over the past month or so, down around five percent or so, and in this latest session, even with this news, Baba created lower three point seven four percent with its usad rs. The Reserve Bank of New Zealand is expected to raise interest rates for the twelfth meeting in Row when it meets today. Bloomberg's Paul Allen has more from Sydney.
Eighteen of twenty one economists surveyed by Bloomberg see the Arbenz delivering another twenty five basis point rate increase at today's meeting that would take the cash rate to five and a half percent. The other three economists, well, they see an even bigger fifty basis point move rebuilding from a severe cyclone earlier this year, combined with the record inflows of migrants as boosting economic activity even as inflation
shows signs of slowing. The RBNZ will also release a new set of forecasts, and Governor Adrian Or will hold a press conference following today's rate decision. Many economists believe that even after today's anticipated twelfth consecutive rate increase, the RBNZ may still not be done tightening yet. Paul Allen Bloomberg day Break Asia and.
The Bank of Korea is set to hold its policy rate for a third straight meeting when it meets this Thursday, that's tomorrow here in Asia. I'm brand Curtis along with Doug Christmas. Doug, a little bit of frustration maybe seeping into market participants with these debt sealing negotiations.
Yes, even so, I think that where you're seeing most of the stress is obviously at the shorter end of the curve. Today we had the two year picking up around two basis points. We heard from Neil Kashkari again today, the head of the Minneapolis Fed. He was saying that if inflation were to become more entrenched, the Fed could keep rates elevated for a longer period of time. Now tomorrow here in the US, we're going to be getting
minutes from the last FED meeting. Maybe maybe we'll get some insight into whether or not the pause is going to happen at the June meeting. That seems to be what the market is counting on at this point.
Yeah, a little interesting that long term yields were lower while the short term was up. And I think you've got the one month, the three month, the six month, the one year, all over five percent. Yet the equity markets have hung in there today not so much. But we've talked a little bit about if and when the bear might change their stripes, and I was interested to hear Bank of America's Cevita Supermanian turned a little bit bullish. Years she's talking forty three hundred now for the S
and P five hundred. That's not a huge game. She made a couple of interesting points on surveillance, which is right before bedtime for me, but I thought it was kind of interesting. And one point is that big tech doesn't really have to crack from here if their duration risk is shortened. Now that needs a little unpacking. Perhaps you can get to that. And the second point is that the S and P five hundred equal weight can take up the slack going forward and can outperform through
the next many months. I found that quite.
Interesting, and I'm wondering when it comes to what's happening in the foreign exchange, when you begin to consider the revenue outlook for American companies, how much of that is predicated on the dollar kind of weakening just a bit and improving the fortunes the potential fortunes of US multinationals.
I thought it interesting today that Goldman Sachs was saying enough that the dollar has more room to strengthen from here, more so than the market is currently estimating, which kind of surprised me.
It is surprising. I think the market is a bit split on this whether or not if the FED really sticks to higher for longer and inflation stays up there, that probably means, you know, a firm dollar. But a lot of people think the reverse will happen, and they are betting that, especially if recession comes in, maybe yields moved down a little bit and the dollar would ease a little as well. It's all there, it's all there for us over the next many months, and thank goodness
we have these jobs. It's time now for global news. Well, China's new ambassador to the United States is asking for some cooperation from the White House to build relations at Baxter has Global News in the nine to sixty newsroom in San Francisco.
Yeah, exactly right. Ambassador Chiafang is a citing disputes over technology spying allegations and Taiwan at.
Presence signo, US relations is facing serious difficulties and challenges. We hope that the United States will work together with China to increase dialogue.
So is he. He is here now. His appointment is thought to try and normalize relations going forward. China says it's firmly opposed to the US Taiwan trade agreement. It's urging the US to honor the One China principle not to support Taiwan independence. Russian Prime Minister Mikhail Mitsubishi has kicked off a two day visit to China. This is Bosco seeking to deepen trade ties with Beijing. Russia has said the nation's farmers are ready to significantly increase agricultural
exports to China. While the staffs of the two sides and the dead ceiling talks in the US meet today, House Speaker Kevin McCarthy is sounding anything but optimistic. His tone today not optimistic at all saying things are not even close.
People spent too much money and the dim that want to even spend more than the new spent last year. That is not going to happen.
And he says things are far apart.
We could still finish this by June first.
In a timeline, Have McCarthy says Democrats are not showing any urgency, though disputed by White House spokes when Kareine Jean Pierre.
Republicans saying that the White House is not showing any urgency is a ridiculous question. Is a ridiculous statement for them to be making now.
On the negotiations, Bloomberg Michael Shepherd says, the sticking point seems to be where to set the spending cap.
Whether it's twenty twenty three or twenty twenty four levels, and how long they decided to keep these caps in place. Those seem to be the two key issues. Once they lock that down, the rest of the deal seems to be falling into place more quickly.
So that could be good news. But Republicans are also questioning how Treasury is figuring out the so called X State Congressman Steve Scalise, we'd like.
To see more transparency on how they come to that date. Pa Janet Yell and herself. She left the door open to delaying that in her tweets yesterday. The comments that she sent out yesterday implied that it's June first or later, giving some openness to the idea that June first may not be the so called XT stage.
So any transparency. Illinois Attorney General's Office has released results of the investigation of sexual abuse at the hands of clerics of the Catholic Church, ag Kawani Raul, saying that it comes from roughly six hundred interviews with survivors abuse between nineteen fifty and twenty nineteen.
This report reveals the names and detail informations information of four hundred and fifty one Catholic clerics and religious brothers who abuse at least one nine hundred and ninety seven children across all of the diocese in the state of Illinois.
Raoul says because of the Statute of limitations, many of the cases will never be prosecuted, but that decades of Catholic leaders have allowed abuses to hide in planes site and that the culture and that part of the church needs to be exposed. Global News powered by more than twenty seven hundred journalists and analysts in over one hundred twenty countries in San Francisco. I'm Ed Baxter, and this is Bloomberg.
Brian curtis here in Hong Kong along with Rishad Salamad, and our guest is Mary Manning, global portfolio manager at Alfinity Investment Management. So today, Mary, was a risk off day. It's today that many people probably showed a little bit of fear over COVID running through China, the inconsistency of the negotiations on the debt ceiling, and also fears about inflation and the Fed. Were you buying today or were you part of the gang that was lightening up?
Good morning?
Thank you very much for having me on the show. Actually last night we weren't doing anything. Affinity is a long term investor, and you know we don't invest or divest based on what's happening daily on the market. But you do raise a good point that we've had a very good run year to date, particularly in some of the larger caps, the megacap tech stocks, and yesterday was
definitely a down day. The other thing which happened yesterday was there is quite a significant sell off in some of the luxury stocks in Europe, which has been another sector that's been on a tear for you know, eighteen months, two years now. So we're definitely watching those developments very closely, but not changing the portfolio, you know, based on what's happening overnight.
So how are you at the moment, Then what's your trajectory if you will you know, because you're obviously passive yet active.
Yeah, so we're definitely active investors, but just taking a long term view. So I think the trajectory is at alfinity, we follow Earning's leadership, so that means we are investing in stocks that are in an Earning's upgrade cycle or you know, they're beating and raising every quarter or every half. And I think what we've seen for maybe the last year and a half is that there has been companies
have been in an earnings down grade cycle. So you saw the big tech companies, there was pressure on cloud, there was pressure in a lot of different aspects of the economy of the market. But then this last quarterly earnings were actually a little bit better than expected, and so we have made some changes in the portfolio around that earnings outlook. But two areas that I'll call out
for the trajectory going forward. One would be big tech, and you know, you saw over the last year a lot of these companies get into earnings downgrade cycles, whether it's Microsoft because of cloud or Amazon because of consumer Meta, had a lot of different things going on, and those companies have all turned the corner now or an earning's upgrade cycle. So we own more of those companies and
more of them than we did twelve months ago. And then the second thing which is developing is probably the US consumer and there was some news on that last night, particularly with lows coming out. You've seen a lot of downgrades from US consumer or maybe not downgrades, but negative commentary in the earnings releases, and that's something that we're watching very closely.
Let's talk a little bit about big tech. Many investors obviously last year worried about having long duration assets like that with interest rates as high as they were, and it seemed like coming into this year they were planning for a pivot on the FED. We still haven't got
that yet, but the stocks have run. The comment that I mentioned a few moments ago, if you heard the beginning of our program, you talked about Savita SUPERMANI and from Bank of America, who had been pretty bearish now turning a little more bullish and making the point that the big tech doesn't actually have to weaken a lot
if their duration risk you short. And I think what she means by that is, if you're not such a long duration asset, if you're starting to pay some dividends and return capital to shareholders and cut costs so that you're able to put forward better returns in the shorter term, that they can still hold onto those games. Do you see that happening in big tech?
Yeah, you've raised some really interesting points there. I don't necessarily think it's a duration factor, but I think there are some things that have changed in big tech which will result in earnings upgrades more in the near medium term, which is, you know, sort of consistent with a duration argument.
So a few things I'll call out.
One is AI AI or maybe at like peak AI in the media and talking about it, but for certain of the big tech stocks, it really is a game changer versus where we were maybe middle of last year. So Microsoft obviously with open AI and the implications for chat GPT that you'll be able to see that in their earnings in twenty twenty four, so that is sort of like a near and present opportunity, whereas before it
was maybe longer term. Similarly, for Google, Google had its Google Io day maybe two weeks ago, and I think the market really changed their view on what generative AI can do for Google's earnings in the near term. And then you very rightly point out that these big tech companies, for the first time since I can remember, have actually started focusing on costs, and that's really important. Meta is probably the best example there. The cost cutting the five
point five billion dollars is quite significant. And then also in other companies you've seen layoffs which don't make a huge impact on the bottom line, but it shows that these companies are actually focused on costs to the extent that they haven't been before. So I do agree with you know, the the thesis that big tech can continue to to continue to perform. Well, I will add one
other thing is about valuation. So you know, a lot of times when people think about the technology sector and duration, you know, those unprofitable tech companies where you have to use some sort of DCF or some sort of very extended valuation metric to justify the stock prices. That is not the case at all for the you know, the sort of feg Mans or the former fang Man's. Right now, Google is training at sixteen times pe a few weeks ago.
Now it's at twenty. But these are still very reasonable valuations where you don't need to fiddle with your whack to justify the share prices.
So tell me something here, Mary's, well, you know, you look at big tech and then you see, are they morphing now into becoming more like utilities in a funny sort of way.
No, I don't think so, because the growth is still there. So generally, you know, conceptually, I would consider something a utility where there's no growth and there's no more opportunities, so they just become sort of dividend.
They're highly regulated.
And they become you know, end payers, and I think we're far away from that sort of characterization for Big Tech. As I mentioned before, AI is a huge growth driver going forward. They still have high growth, and they're still actually you know, finding internal projects, and without internal projects, they're using that money to buy back shares that that's you know, better than paying dividends. So I would say no in terms of utility.
Okay, We've got to finish on this. We have this omicron variant XBB that's seemingly sweeping through China, and one of your picks is LVMH LVMH and Hermez and others got whacked pretty good. Are you concerned about the recovery in China? In say, forty seconds.
Yes, I am.
I think there's a lot of momentum baked into what's going to happen in China. And you know, particularly in Europe or for portfolio managers in Europe, they are very strongly positioned in those luxury stocks because there's no big tech in Europe and the China macro data has been quite mixed. So I'm actually going to China this weekend and I'm going to spend next week there getting an on the ground view. But for right now, I'm probably more concerned than I was three weeks ago.
Well, you better swing by Hong Kong and visit us then, Mary, Yes, that's very bleach. Thanks for being on the show. Mary Manning from Alfinity Investment Management. This is Bloomberg Daybreak Asia, your morning brief on the stories making news from Hong Kong to Singapore. And Wall Street.
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