Daybreak Asia: January 18, 2023

to talk with China is an effort at globalization. Jeeves Mayor on Bloomberg asks the world not to hesitate with help and rebuilding. I'm at Baxter with Global News. No Vak Djokovic dominates in his return to the Australian Open on Dan schwartzpen I'll have that story and Moore coming

up in Bloomberg's boards. That's all straight ahead on Bloomberg Daybreak Asia on Bloomberg eleven and three on New York, Bloomberg, Washington, d C, Bloomberg one O six one, Boston, Bloomberg nine sixties Princes Go Syrius ex Am one nineteen and around the world on Bloomberg Radio dot com and via the Bloomberg Business app. Good morning, and I'm Brian Curtiz. Here

are the stories were following today. Well, Goldman Sachs posted a bigger than expected increase in expenses than analysts expected, and we will get to that story in a few moments. One of the big stories of the day China's Vice Premier Leo hub saying the country's economy will likely rebound to its pre pandemic growth trend this year. This was in a speech to the World Economic Forum in Davos.

He said that life in China had been restored to normal following the lifting of the restrictions, and that a peak in infections has passed. Leo added that Beijing's focus this year will be on boosting domestic demand and that that will lead to a notable increase in imports. He also addressed an international concern that Beijing is turning away from globalization to focus on self sufficiency. China's fundamental national reality dictates that opening up to the world is a must.

We must open up wider and make it work better. We oppose unilateralism and protectionism. We also hope to strengthen international cooperation jointly maintain the stable development of the world economy and promote economic reglobalization. Separately, Leo, who is expected to meet US Treasury Secretary Janet Yellen in Switzerland this week, talked about confidence. The U. S. Treasury Department said that the two will exchange views on macro economic developments and

some other economic issues. Look at the back of Japan delivering a much awaited policy decision in a few hours. Most economists expecting no major change, but there are chances of a surprise. Let's have a look at all. This is a blue David ingless. Yes. Most economists expect to hold, but an unusually high number of observers say they cannot rule out changes the yield curve control policies. Last month, of Central Bank widened its target ban on the tenure

j GB to fifty basis points. Analysts say a further expansion to seventy five or even higher as possible. Even ditching the policy altogether could be considered. It depends on how the BOG reads the economy, prices, and financial markets. We'll get the decision later today, and traders are betting on a possible swing of get this two percent in dollar yen in Hong Kong. I'm David less Lumbrick Debrick Asia. Goldman Sachs posted a bigger increase in expenses than analysts

had expected. It said that fourth quarter of compensation costs of three point eight billion dollars, or sixteen percent, higher than in the same period last year. It indicates that the bank's leadership was too conservative with its set aside for pay in the first nine months of two The investment banking giant has also poured billions of dollars into its retail effort. Separately, Goldman reported fourth quarter revenue that fell short banialists estimates. Goldman Sacks CEO David Solomon says

that an industry wide slowdown has his clients worried. Deos and boards tell me they are cautious, particularly for the near term. They're rethinking business opportunities and would like to

see more stability before committing to longer term plans. Many firms have started preparing for tougher times, focusing on factors within their control, and the stock did trade down pretty sharply during the session, down six point four percent and looking at further losses there in some of the banking sector. But Morgan Stanley went to the other direction with some big games. Well, here we are Doug Chrisner and Brian

Curtis and Rashad Salama. So Doug, it's very interesting to look at the comments from Leo hu which we played for the audience a few moments ago. Leo is leaving the post in March when the new team comes in, but he's pretty close to China's president Hijin Ping. I think it's fair to say that in the figure to sense, he's not going anywhere. But the question is can Shine to really get back to pre pandemic levels, And there's at least a couple of big challenges even with the

pent up demand that we know is there. One of the big challenges is the global eco absolutely right about that, and he seemed to blame a lot of the Western banks right on their sharper interest rate increases. We're talking a lot on this program about the probability of a global recession that is very much going to factor into

the China recovery story. Kevin Rudd, the former Australian Prime Minister who will now be Australia's ambassador to the US was also speaking at Davos, and he said that China's recovery is going to be export challenged. So I think it's fair to say that if there is a strong, a robust recovery in China, it's very much going to depend on how well the rest of the world is is faring. Yeah, the other big challenge, I think we have to acknowledge his policy. I mean, will they stick

with this new direction? And I think some of the comments they're from Leo Jo would would have reassured investors because he said that, you know, we're not going back to a planned economy, that's impossible. He also said that common prosperity it's not to be taken in a literal sense.

It it doesn't mean in forcing strict equality. Uh. And he said, I think most importantly that it needs entrepreneurial effort and that could be a big thing too to the companies, particularly in China and also to investors looking at China. Well, that seems to dovetail with the relaxation that we're seeing in a lot of the regulatory crackdown. Put to your point, uh, in terms of the virus and where China is in the process. Next week it's the Lunar New Year, Brian. You know, well, I mean

a lot is going to depend on how well this goes. Yeah. Absolutely, It'll be a stress test for sure, particularly with aviation and travel. Now it's time for global news. Let's get to add Baxter in San Francisco. Ed relations between China and the United States appear to be getting colder. What's the latest, Well, colder and colder, Brian. You have the Pentagon says it's struggling now to get China to resume

military to military talks. China cut off talks in the military and climate change after then speaker to Anti Pelosi visited Taiwan. But this is also two months after President she and Biden met an Indonesian promise to work together. It is apparently not working out that way. German Chancellor Ala Schulz says that Germany believes in globalization and tells Bloomberg's John mickel Thwaite and an exclusive interview that China

is part of that. The right thing to do now is that we all together and also the business sector in all our countries are willing to um to have not just one supplier to look for others for for for going to too many regions in the world. In the Berlin interview, Schultz also said it is developing hydrogen gas is the gas of the future, and that a trade war with the US will not happen. Schulz says Germany will support Ukraine as long as there's an age.

Chancellor Schultz, in the exclusive interview with John says support with an eye on avoiding a war that involves NATO. We support the Ukraine as long as it is necessary, with all the means we can use, but also always avoiding that this war is escalating to a war not between Russia, which is the imperialistic aggressive, and Ukraine, who has all the reason for defending its own integrity now.

Shul says the only way the war will end is for Russia to polite troops, which will have to happen at some point, he says, and the mayor of Kiev, which has been undergoing more attacks in the past couple of days. But Alliklisko in Davos with Lumberg's David Weston says the fight to keep infrastructure is very intense. In this period of time. We have a lot of challenges.

We have to carry about the services electricity, water, hating, we have to give the public transportation, medical care and education. And that's why it's not easy time. It's a lot of challenges. And brother Vladimir says the major problem Ukraine has with the West hesitation. Hesitation costs destruction of our of our infrastructure and also losing our best man, woman, children, our future generation as well, and this hesitation is painful about.

Both brothers reiterated time and again how much they appreciate the help coming from the world, saying without it, Ukraine will not survive. And former U S Secretary of State Henry Kissinger is a reverse course on Ukraine and says now he believed Ukraine joining NATO could be an appropriate outcome. In San Francisco, I'm at Baxter. This is Bloomberg, right, Brian, thanks very much. Let's get to our guest, Cheryl Smith,

economist and portfolio manager at Trillion Asset Management. Cheryl, we had about three percent growth in China in the past year, the calendar year. Leo Hu, the economic chief, talking about almost double that this year. We had a guest on our show yesterday who is one of the most prominent strategists in China, how Hong saying that China would be

lucky to get three percent this year. Your thoughts on that, I think your prior guest tour or your commentator who was talking about the dependence that China has on growth in the rest of the world. There's a really interesting point. We've always thought about the growth in China dragging the rest of the world along with it, but the post

COVID situation has kind of flipped that. And with many of the developed countries looking at potential recession in this next year, or at the very least a distinct slow down,

I think China will have more difficulty starting things back up. Also, China has the problem of an aging population, the same thing that Japan has been dealing with for years, the same thing that many developed countries in Europe have been dealing with, and that really makes it categorically more difficult to grow at those rapid rates such as a six

percent growth rate. And you know, we had that population number, of course, reinforced by that big surprise in the data yesterday showing that actually in China's population actually shrank, and that's the first time that's happened in sixty years or thereabouts. And how does that change the game materially from an investment point of view, because it means that the structure of the economy is evolving, it's getting older and of

course getting smaller as well. Demographically. Yes, it changes the relative balance between consumption and investment, and it also changes the balance that of workers to the um older population that needs support social support. So China doesn't have the same social support structures like social security, Medicare, and so forth at the United States has. It's more of a

generational support. But each um. You know, if you have a one child policy through three generations, you have one grandchild supporting eight grandparents for parents, or one family to you to two people married supporting four and eight. That's a lot of people to be supporting. And with that being the case, you just don't have as much um devoted much available to devote to consumption or new growth or anything like that. It really makes it a very

difficult calculation of how to grow. That said, last year was a very very unusual year and people are not moving around, not doing things, very scared about losing their jobs. As the economy was shut down, we probably have to wait another year or two to see whether that's a trend uh that continues at least in the negative fashion. But I think that point that we talked about earlier with if the US and if Europe are in recession this year, then is growth higher levels of growth doomed

in China. So it begs the question do you think the US goes into recession this year and Europe as well? Our call is definitely that we will be going into recession. We do not see a soft landing as really possible given the degree of monetary tightening that's already happened in the United States and even more so sort of synchronized monetary tightening across the world with most of the major developed countries having done so that takes eighteen months to

hit the economy. So we just started that tightening in the United States in March. So everybody is saying, well, it's got to be a soft landing because we haven't had employment, right, unemployment rise yet. Well, it's not time yet for unemployment to rise. What the stage we're in now is going to be disappointing corporate profits. Those disappointing corporate profits, Um, whether it's Goldman Sachs or the first

bank starting to do it. You're going to see companies having a more and more difficult time making their earnings. We had economics blame the FED for it's not blaming the FED. It is a logical consequence of FED action. But the FED action is undertaken because you had everybody in the world screaming about inflation going on for too long.

So the FED was backed into a political corner, if you will, to the point where you know, they had to say, well, we already have employment at a high level, so we have to address that other dual component of our mandate, the inflation, and we are going to have to raise interest rates. Other central banks around the world is saying the same thing because the COVID supply chain induced inflation worldwide was a worldwide problem, so everybody is

applying the same policy solution. The difficulty in macroeconomics is that it's not like plumbing. You don't turn on the faucet and things start flowing, and you turn off the flawcet and things. Do you do preventive maintenance? Though, don't you know you do prevented maintenance. Didn't do the preventative maintenance. I would say that um, at the time when the FED UM. I mean that you're asking whether the FED

should have started raising rates much earlier. I don't think. Well, many people asked, yes, okay, many people are asking, you know, should the FED have started raising rates earlier. I don't think that that was actually a possibility, because we were still at you know, at fairly high levels of unemployment at the time when you would have had to have started raising rates to have choked off the inflation that later happened. It's a very thorny issue, and I think

it's really I would not blame the FED. I would say that the issue was in a h a structure of world production that required so much output in one country and input in another country, and depended on being able to ship it across borders easily costlessly, and we found that that wasn't the case when you had something like COVID show very quickly. I mean the bond market is actually a buy. Yeah. I think the bond market

is overly optimistic. I think that we'll still see further tightening on the shorter end, and the bond market isn't fully accounting for how long the set is going to be raising rates, and I think that the bond mark is anticipating that the rates are going to be cut sooner than I think they actually will be. I think we're still at these high short term rates through the rest of three. This is Bloomberg Daybreak Asia, your morning brief on the story is making news from Hong Kong

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Alexa lay Bloomberg eleven thirty plus. Listen coast to coast on the Bloomberg Business app, Sirius XM Channel one nineteen, the I Heart Radio app, and on Bloomberg dot Com. I'm Brian Curtis and I'm rachand Slam. Join us again tomorrow for all the news you need to start your day right here on Bloomberg Day raccastion