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