Good morning.
I'm Bonnie Quinn and I'm Doug Krisner. Here are the stories we're following today.
SoftBank owned ARM Holdings made quite the splash in its Wall Street debut. Shares of the UK based chip designer jumped to get this twenty five percent. ARM raised more than four point eight billion dollars in the biggest initial public offering this year. CEO Renee has told us what the current artificial intelligence boom means for the company.
AI is everywhere, and if it's your edge device like the Assistant or the Alexa, or your autonomous vehicle, that's all AI. And now we're seeing it in the cloud, in the data center, and all the growth of Nvidia in Vida announcing one of their newest products, grace Hopper, that is based on ARM. So ARM is everywhere relative to AI that.
Was ARM at CEO rene has. ARM shares opened at fifty six dollars and ten cents and closed in the regular session at sixty three dollars and fifty nine cents.
We're hearing Walt Disney has held exploratory talks about selling the ABC network and the ABC TV stations to Nextstar Media Group. Now these discussions apparently are preliminary, and sources telling us Nextstar would only be interested at the right price. Here's Bloomberg's Chris Palmery.
Rumors about a deal like this have been going on quite a while. You know. The difference is, you know, we saw in July Bob Biker coming out and saying, hey, you know, this is probably a business we don't want to be in long term. The legacy media networks, we know, they've basically been up for sale.
That is a Bloomberg'schris palm Mary. By the way, Disney saying today no decision has been made on selling ABC and it's open to options. And separately, we're hearing that Disney is cutting it's target for subscribers for the Disney Plus streaming service for twenty twenty four. The company is expecting I basically a shortfall by tens of millions of subscribers. You know, Disney Plus has been loose using customers, largely because of some hefty price increases, and it's also been
impacting or impacted by collapsing demand in India. That's after the company failed to win cricket streaming rights.
Funny United Auto Workers president Sean fein Doug is preparing to hit all three Detroit carmakers with targeted walkouts at strategic locations in several states. Now, a workstopage could still be avoided, but the UAW and General Motors Ford and Stillantas are approaching a deadline to agree on a new contract. Let's get more from Bloomberg's David Welsh.
The vibe coming out of the union right now is the president is itching destroyed. He says he's not, but he's making plans. The writer has still really strong against the car companies, against rich executives, all that stuff, so he's getting people riled up. He says they're far apart. It doesn't sound like they are if you look at the numbers. So I think they will, and look, it
could go on for a while. I don't think it'll be something like three months, but I could see strake going on for weeks, and it could vary by car company too.
That's Bloomberg's David Welsh. If no agreement is reached, this could be the first time the union takes action against all three companies. At the same time, UAW President Sean Fain will be holding a news conference at ten pm wool Street time.
We go to China next, where the PBOC cut its bank reserve requirements for the second time this year. We have more from Bloomberg's Yvonne Men.
In Hong Kong, the People's Bank of China has lowered the triple R for most banks by twenty five basis points. The way that average triple R for banks will be seven point four percent after the reduction, and knafas say a triple R cut was expected because the large amount of special bond supply is said to hit the market this month. The central Bank said the cut will help
maintain reasonably ample liquidity in the banking system. Economs estimate that the production could free up fifty five to sixty nine billion dollars. Bloomberg Economics say the PAOC could still trim its policy rate by ten basis points later on today. For the consensus is for a hold at two and a half percent. In Hong Kong. I'm yvon Mann Bloomberg Radio.
Well GOP lawmakers have been pressing the Biden administration to completely cut off Huawei Technologies and the Chinese chip makers MICK from their American suppliers. Now this comes after Huawei launched a new phone. It uses highly advanced technology that the US has been trying to keep out of China's hands. This phone is or utilizes, i should say, a Chinese
made seven nanimeter chip. It appears to rely on US technology and it's really stoked a lot of debate in Washington over the effectiveness of US attempts to curtail China's technological and military prowess. Daybreak Asia and an update on Global News is next. As we have been reporting, we shall find out a lot more tonight about the uaw's plans for its labor dispute, how this may play out. It will unfold at ten o'clock Eastern time in the US.
At Baxter has been covering this story also with an eye to what we may get out of the White House.
And yeah, that's right, Doug. Question a major question today will can President Joe Biden get involved in the UAW auto industry labor dispute. Well Bloomber's Gabriel Coppola says he has imaged himself as a friend of the middle class and organized later labor.
But I think that you know, he's limited in what he can do. You know, both legally and you know, but I think he can. He can't. You know, he needs the success of the automakers just as much, right because if the automakers don't have a deal that's sustainable, then they're not going to support these jobs of the future.
And a sad reality. Ford CEO Jim Farley has just come out with an interview saying that things, you know, whatever is being said in public are just not moving.
What the UAW is offering us is a choice between going out of business and bankruptcy.
Again, the workers are set to target strike at midnight unless there is an eleventh hour agreement of some kind. House Speaker Kevin McCarthy today sending a clear message to the right wing of his party, no government shut down.
I told my conference, I know tomorrow is the Jewish holiday, will be out of session, but when we come back, we're not going to leave.
Meanwhile, House Minority Leader how Came Jeffrey says the threat is still there.
House Republicans have made clear that they are determined to shut down the government and try to jam the extreme right wing ideology down the throats of the American people.
So first there'll be a showdown between McCarthy and the right wing of his party.
Threats don't matter, and sometimes people do those things because of personal things, and that's all fine.
Oh yeah, and then he'll have to fight with the Democrats. After a deal broke down earlier this summer, a plea deal. Hunter Biden has been indicted on federal charges. Bloomberg's Nancy Lyons has the very latest.
Hunter Biden is charged with three counts related to the as of a cult revolver in twenty eighteen. He allegedly lied on the form that's required to buy the gun that he was not using drugs, but that was a period when the younger Biden had acknowledged struggling with an addiction to crack cocaine following his divorce and the death of his brother. The felonies carry maximum sentences between five
and ten years in prison. A special council is still investigating Hunter Biden and could file additional tax charges in Washington. Nancy Lyons Bloomberg Radio.
All Right, Nancy, thank you. At Hong Kong has kicked off a campaign to stimulate its nightlife. Life is official seek to bolster the city's attractiveness and revive an economy battered by years of pandemic isolation. The promotion, called Night Vibes Hong Kong, will feature three evening bazaars at waterfront locations next to Victoria Harbor. All right on a jet and going global news powered by more than twenty seven hundred journalists and analysts in over one hundred twenty countries.
In San Francisco, Baxter in This is Bloomberg Now.
You can get the latest news whenever you want it with Bloomberg News Now. It's the top stories from our global team of reporters at the click of a button. Get Bloomberg News Now on the Bloomberg Business app or at Bloomberg dot com or anywhere you get your podcast Daybreak Asia. And our special guest it is a former head of the Dallas Fedbank, Rob Kaplan, is with us. Rob's also CEO and president of the Draper Richards Kaplan's Foundation. It's a pleasure to see you once again.
Thank you so much.
We've got this FED meeting coming up next week. I'm less concerned about what you think may or may not happen, and I'm more interested in getting your perspective on how difficult it is it is when you get to the end of a tightening cycle to kind of engineer this and allow markets to kind of adjust, but not to become overly enthusiastic that we're necessarily done with tightening.
Well, every cycle is different, and this one is different. And here's how it's different. A lot of the key drivers of what we're seeing right now are happening away from the FED. What do I mean by that? Government spending unspent ARPA money, which is in the hundreds of billions of dollars at the local level, the Infrastructure Act money, Inflation Reduction Act money is all being spent in significant size in the US economy that is helping to stabilize and give resiliency to the US economy.
In my view.
Without those three sources of spending, my guess is the FED would have stopped raising rates maybe a couple of moves ago, might be at four and a half and four and three quarters, and we might even be in a downturn right now. So that's significant. And the second thing that's significant is because of the energy transition that
we're executing here and around the world world. We're limiting fossil fuel production in the United States, We're undersupplied globally, and oil prices are very significant elements of inflation directly and indirectly. And so the challenge for the FED now is if you'd told people a year ago they'd get to five and a quarter five and a half, you'd say, oh my god, we may not need to go that far, and the economy would be very slow. It's instead very
resilient and inflation is still sticky. But I would argue there are structural drivers away from the FED. So the decision for the FED is how do you end this cycle when you have this amount of stimulus fiscally and should you talk about it right now? They've chosen not to talk about it, thinking it's out of their lane. But without it, they're going to need to keep their options open that they may still need to do more. Even though I don't think they'll do anything in this septem meeting.
How many more times will they need to go? The situation sounds a little more dire when you put it the way you just put it.
I don't know the answer to that. I do know that anything interest rates sensitive right now is very weak. If you're a small mid sized business, it is very difficult to get a loan if you're in the goods sector. Business is very weak. So there's number of sectors of the economy that are affected by the FED funds rate
feel like they're in a recession right now. Then you've got this counterforce I just talked about of government spending that's going into construction and is really going into services, Meaning if you have workers that are working at these new projects, they spend money in restaurants and they fly and all that other. And so the truth is, if I were at the FED right now, I wouldn't act
in the September meeting. I'd probably be inclined to be more more patient than even November before I acted, but I would certainly leave open the option that I might have to act. The thing that would bother me is I'm not raising rates because the organic strength in the economy. I'm raising rates because of the artificial extra stimulus being
created by government spending. And the thing that would scare me and worry me is when the government spending starts to dry up, not in twenty three or twenty four, but into twenty five, we may have a lot more fundamental weakness than I would like. But that's the reality I'm dealing with if I'm at the FED, so.
Many things to talk about too. The balance sheet roll off seems to have been done pretty well so far. I mean, it hasn't created too much disruption in markets near as I can tell, although in March we had a lot of stress building in the regional banking complex, a couple of bank failures. Some people were pointing the finger at the FED saying, this is the consequence of
aggressive tightening. We can put that aside right now. But in the interim or intervening period, there have been calls from a lot more capital on the part of banks, a lot of the regulators saying, hey, you need to put more aside in the event that there is some stress that continues to build. Jamie Diamond, for one, is pushed back against this. How do you see the overall banking system right now?
So or rough estimate would be if the FED balance sheet went from four to nine trillion pre COVID to after COVID, it's now running it down to closer to eight. The best estimate I've seen is half that increase went into bank deposits. As the FED is running down the balance sheet, as you note, it puts more pressure on bank deposits, plus bank deposits are repricing to a higher level. Plus the backup and longer term yields have eroded bank capital. So most banks I talk to right now are are
very concerned, quietly concerned about further bank deposits. They're very worried about their earnings being weak, and they need to show good earnings for the regulators and for the depositors. And they're being extremely careful about loans to small and mid sized businesses, and they are. And the requirements for more capital, meaning there are two ways to fit into new higher capital requirements. One is to raise more money. The other is to shrink your loan book. And what
I've seen is they're doing a little bit. They're shrinking their loan book and being very disciplined on loans. The thing I don't love about the requirement to raise more bank capital. The issue we had in March was not about bank capital. It was a supervisory lapse hiding in plain sight, where the banks took asset liability risk. It was well known to the FED and to the regulators, but they didn't act to get banks to clean it up.
In response, the response has been you need to raise more capital, and we're going to be tougher from a regulatory point of view. But I think a lot of banks I talked to are frustrated. They think it was a supervisory issue, not a bank capital issue. And I think that's what you hear Jamie diamond saying this bank capital is not going to help, and it isn't what
the issue was in March. The last comment I'd make about the FED balance sheet, there is one sort of low fever symptom of the balance sheet runoff and all this government spending, and that's the backup in the ten year. So we don't talk about as much as we should, but the tenure treasury has backed up a good fifty basis points. That is a very significant move, and I'm not sure it's over yet. And so is there some
symptom of the bank of the runoff. We don't have as many natural buyers for treasuries used to be FED was one. Banks we know were one, but they're not going to buy anymore because it created the problems in March, and so I would be watching, and I do watch very carefully. Right now, two things, where are the ten years trading? And what's the price of oil, and those are two factors away from the FED that are concerning.
Well, WTI is above a ninety dollars barrel, as you well know today, Rob. It sounds like you're describing a scenario where the transmission mechanism sort of works through small businesses and next year we might get a slow down. Will there be a drop off and employment that will cause a recession?
So I don't think. I don't know, of course, but I would guess there will not be a recession this year or next year. And the reason is the amount of government spending for the rest of this year and next year. And by the way, you notice that that you know, if you ask me six months ago, I think the best estimate on the deficit for this year was a trillion and a quarter. It's now two trillion dollars. Okay, we're running a very high, high pre recession.
Deficittion my election here though, Does that make a.
Difference, Well, I'll leave that to others. I think the point of this is this amount of spending that's a meaningful percentage of GDP is the main reason I think that we've got stability. We don't have slower GDP growth. It also means that the employment rate is going to stay unemployment rate very low. There's substantial demand from every one of these projects for jobs. There aren't enough workers to do these jobs, and there's a lot of job
switching to fill these jobs. I think this is a reason why the Fed, I hope they don't, may need to do more and we'll need to keep rates higher for longer. And that's the trade. And you may see the tenure backup.
For so we're at four twenty eight right now. Can you see a tenure at let's say four to seventy five and other fifty basis points.
So I'll take you here's how I'd look at it. People are saying, gee, when the Fed starts to cut rates somewhere in the future in twenty twenty four, maybe the tenure will lease off. I think the bond market has already looked through that, and it's said if inflation stays sticky, price of oil might be one of the reasons.
And the Fed is able to get the Fed funds rate down to say three, for example, three percent at one hundred and fifty basis point term premium that gets you to four to fifty on the tenure This is why a lot of intelligent people are saying, you know, I know there's a been backup in rates, but I'm not sure we're at fair value now. And that's why I'm watching this very carefully, because it could create a further tightening in financial conditions, assuming the Fed.
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I'm Vonnie Quinn and I'm Doug Krisner. Join us again tomorrow for all the news you need to start your day right here on Bloomberg Daybreak Asia