Daybreak Asia: January 25, 2023

to Ukraine. Classified documents found at Mike Penn's home. W A show head says he's concerned about COVID and China. I'm at Baxter with Global News. The highest men seed remaining advances to the semis of the Australian Open. Dan Schwartzman, I'll have that story more coming up in Bloomberg Sports.

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 Sentrances Go Serious Exam one nineteen and around the world on Bloomberg Radio dot Com and via the Bloomberg Business app. Good Morning, I'm de prisoner and I'm Brian Curtis. Here are the stories we're following today. All right, Doug, let's take a closer look at Microsoft. Those earnings out second

quarter profit, topping analysts estimates. We get the details for Bloomberg's Charlie Pellet, the software giant was helped by strengthen its Azure cloud services business even as demands slump for personal computer and corporate software. In Microsoft's closely watched cloud computing business, sales gained thirty eight percent, compared with predictions for a thirty seven percent increase excluding the impact of currency fluctuations. Last week, Microsoft said it was firing ten

thousand workers in the past quarter. The software giants growth engines have faltered as corporate customers became warier of spending in an uneven economic environment. In New York, Charlie Pelt Bloomberg Daybreak Asia, Thank you, Charlie. Well Equity Strategies, saying the next few weeks could tell us whether corporate America remains strong or is beginning to slump. The chief investment

strategist over at City is Stephen Whiting. He's expecting to see earnings take a significant hit despite some rosy estimates it looks so much in the analyst earnings estimates, like the fourth quarter was the recession and here we are sitting in the recovery, and it actually looks a little

bit like that in financial markets. And it would be wonderful if that were really the truth, if we weren't just on the leading edge of the hit that we're going to have in profits um and of course how markets traded last year are not anticipating this to be, you know, some kind of profit Nravana. We don't have declines, uh, you know about something that is Cities Investment strategist Chief Investments Strategists Stephen Whiting. Now when it comes to US equities,

Whiting is overweight farmer suticals. And at the same time, if you look at the Asia Pacific region, City's head of Asia strategy is overweight Chinese equities and very bullish on the Yuan Brian. And we're seeing signs of strength dug in some developed markets. Data out of Europe, for instance, showing the private sector unexpectedly returning to growth. SMP Globals Flash Manufacturing Index arose to fifty point two in January. That's the first time the gauge has pointed to growth.

Since June. Eric Robertson, his chief strategist at Standard Chartered, we're seeing upside surprises in the data. This feared recession, that food and energy crisis which was so talked about last year, is just turning out to be less threatening than expected, and so I think there's a very good case for Europe to at least outperform from those really downbeat expectations. Robertson says the situation in Europe does look

better than he initially feared. At the same time, SMP Global says the region is quote not out of the woods yet well. Emerging market equities could be gearing up for a very strong run. That is the call from Morgan Stanley. We have more from Bloomberg's Tom Busby. Stocks and emerging markets are set to be this decade's winners. That's according to Morgan Stanley Investment Management's Deputy Chief investment

Officer Gentandra Kendari. She says developing equities are trading at attractive valuations and economies like India are set for better growth than the US. In fact, Kendari calls India one of the top trades at Morgan Stanley. So far this year, the m s c I Emerging Markets Index is up more than eight percent. Coodpared with a four and a half percent advance for the SMP five hundred In New York. I'm Tom Busby Bloomberg Daybreak Asia and now back to

a story out of the United States. Who've been telling you about this for the past twenty four hours or so, but now it's official. The US government is suing Google. We get the details from Bloomberg's and Kate's in Washington. The Justice Department in eight US states are suing alphabets Google. They say the company has an illegal monopoly on digital advertising and they want break up the business. It's the Biden administration's first major case challenging one of the largest

US tech companies. It's also one of the few times the Justice Department has called for the breakup of a major firm. The last time it dismantled the company was the Bell Telecom System In in Washington. I'm in Kate's Bloomberg Daybreak Asia. All right, and thank you, And we're seeing Google respond to those allegations from the US government. The company is saying the Justice Department is quote doubling

down on a flawed argument. Google is comparing these charges to a similar lawsuit brought by the state of Texas, which it calls unfounded and Brian, staying with a theme of Texas, can I pivot to Texas instruments. I mentioned earlier that the company reported of first it's first drop in sales since about and kind of with a tepid forecast for the current quarter week demand in all ends of the market for semiconductors. I thought this was curious

except automotive. Yeah, that has been an industry that has been on fire. Uh, and apparently it's still very good for for t I um that the I wanted to go back to Google just briefly. The stock did trade down two point one percent today, Doug, and that's because of the waitiness I suppose of this action. But all when you think about it, this could play out over many, many, many years, and yet investors still reacted. And I'm looking

at the Microsoft share price now really fluctuating. You know, from most of the period after the earnings came out, the stock was up about four percenters, so now it has moved down to just with a gain of about two I think some analysts take from this Doug is that this was more resilience by Microsoft than any new news that some thought it could be a lot worse. Yeah,

particularly where the cloud service business is concerned. That of course, asure we saw a weak demand for personal computer software and corporate software as well. And then, Brian, if you look at some of the cloud computing companies, UH names like Mango, dB, Data Dog, they are rally here in the late session. Yeah, and I wanted to mention Swatch.

It came out with its earnings. The stocks traded up about five percenters so in Europe, and Swatch had some positive comments about China, and that's very much in focus now as China is reopening. We'll be getting comments from CEOs of many, many companies over the coming days. It's time for global news. The U S and Germany are poised to break their negotiating deadlock over sending heavy tanks to Ukraine. Ed Baxter has Global News in the ND

sixty newsroom in San Francisco. Ed. Yeah, that's right, Brian. Both will offer tanks, sending Kieva powerful new weapon to counter Russian offensives. This is something the NATO Secretary General Yan Stoltenberg says is essential to the defense of Europe as a whole. We have no indication that Preston Putin has changed his goals. He wants to control Ukraine and

is planning new offensives. Biden administration expected to announce as soon as tomorrow it will offer Ukrainian forces the M one Abrams tank, dropping the criticism that it is too hard to operate. Germany then will send its powerful Leopard tanks. The move will give Ukrainian President Vladimer Zelenski's forces significant new capabilities as the war will shift to the east. New Zealand has a new Prime Minister. Just within the past half hour. Chris Hipkins has been sworn in, completing

the handover from Jacinda Ardern. He's expected to hold a news conference this morning. World Health Organization Panel will meet this week to discuss whether COVID nineteen still represents a global health emergency. Director General Tetris gabrius As says he's very concerned by the situation in many countries and the rising number of deaths. He says China's particular concern after its abandoning of COVID zero. The FDA is rolling out

procedures for annual COVID vaccines. The hope in some circles is to have one annual shot that would cover with COVID and influenza. Well, now, Dr She's Shaw earlier today on Balance of Power on Bloomberg. She is with Stanford Health Director of Infectious Diseases. She says, maybe not too fast. I think the first step is that we need to get to one shot that takes care of COVID for the whole year um, and that's the hope for the coming season. Dr Shaw says that this is the best

science at this point to protect against both diseases. Classified documents have been found in former US Vice President Mike Penns home in Indiana. Bloomberg Examrie Horndern reports she ordered he ordered lawyers to do a search and they found about a dozen classified documents. We were then put in boxes and driven to the National Archives. Right now we have the Department of Justice and the FBI looking into this.

Per this report. One thing is notable though, that the former Vice president Mike Pence has said that he did not have classified documents previously, and now they are showing up. Yeah, and the FBI and Justice apart but are investigating Meanwhile, law makers on both sides of the aisle would like to know more about the Biden classified documents. Republican Senator Lindsey Graham says, the whole system needs looking at. I think, uh clearly the way we handle classified information needs to

be uh improved upon. So I'm not going to pre judge what happened with Trump or Biden. I'm glad people outside of politics or looking at it. I have confidence in UH Attorney General Garland to do it fairly and approves of the Special Council in San Francisco. I'm at Baxter and this is Bloomberg. This is Bloomberg Debrik Asia, Brian Curtis here in Hong Kong, along with Rushad Salamat in Singapore, and our guest is Anna Han, equity strategist

at Wells Fargo Securities. And a plenty of time to talk about the really big picture, the big macro story and the FED in recession, all that, But let's get your take on the earnings so far from the banks at the outset to the tech results we saw today.

Your thoughts. Yeah, coming to earning season, you saw that banks, which tend to be the first group that report and kind of a bell weather banks for training up generally, which is usually not a great sign if you look historically, when banks outperformed coming into earnings, they tend to get faded pretty quickly. We're not seeing that too much, uh

this season. So it's been encouraging to see that those games, um, that these banks who were able to be earnings or even miss earnings are still able to get some rewards. And in fact, the most peculiar thing this earning season is to see how light the penalty has been for earnings misses. We'll see how that trends as we get further into the season. So ultimately, and well, why I guess investors being that I suppose forgiving in a way, and also you know when you look at banks, what's

actually then being priced into them? Right right? You have the exact word on my mind, which was forgiving. Uh. To be honest, it could be possibly that people had such negative sentiment coming into this season, and that's not really the most bright sunny picture I'm painting here, but it's true that a lot of people are expecting lower EPs for visions and with that at UM some really bad news this earning season. We also know that that inflation has been you know, gnawing away at those margins.

I think that the action that you're seeing here is a little bit of a relief. And in particular, you saw some big names report some positive news in there despite some of the bigger layoffs that we're hearing about. I think that's helping lighten the penalty for now um. And again it's that sentiment, that expectation coming into earning season, that low bar makes it a lot easier to hop over net interest margins. So pretty good for the banks, but then fears about recession. If you get a recession,

that wouldn't be good for the banks either. So let's talk about that. Do you see a recession coming? We've card back our view on the recession on how deep the recession is. I think we can, you know, sit here and go to it for tat on how exactly we're going to measure this recession. But the idea that

we have here it's going to be mild. We do think that consumer spending is going to contract, just looking at how people have been using their debt and credit lines, looking at that draw down of excess savings versus income. I do think that we're going to see consumers pull back. We will see earnings slow down, probably about a five

percent decline in large cap EPs growth. But we don't think it'll be so dire enough where we'll see something like the financial crisis, or we'll see anything, if anything, nothing close to what we saw when the pandemic first hit. Okay, well that's that's the case at the moment. But we look at what happened, you know, the deletion of depletion of those COVID, theators savings that's gone. We still have inventory overhangs. We also have, of course, the jobs market,

which remains resilient. Um. I mean, where would a really really deep recession, a recession come from, ultimately, because all the fundamental will seem apart from of course, even inflation is coming down. It seemed that perhaps the feed's job may well, and I'm saying this controversiy is done, bring up a good point. If the FED is done, I think what could happen here is if a sentiment really grabs hold. Right now, a lot of people are eyes sharp on labor data, on watching wages, and that's been

somewhat of the lynch pin here. If we see some sort of fear um that investors are so excuse me, that consumers are suddenly feeling that weight I don't have as much income coming in the door, or things could get really rough and they contract their spending suddenly. I think that's going to snowball effect into corporates who already you're seeing some corporate belt tightening. If that really starts to squeeze, that cycle can feed upon itself and there

you can see an aggressive contraction. But what we've seen is really peanuts compared to what would be needed to get the unemployment rate up to four and a half percent. And it seems that company still want to keep their employees because they don't think they can get them back once you start to see growth coming back. So my question is, if the job market doesn't crack, could we see the Fed stay in hiking mode for much of this year and then stay there for much longer. You know,

we would agree with that. Really, to get unemployment at a high level or what we expect to be a low four percent this year, we have to see, um, some weakening somewhere. Something has to crack, like you said, But what's particular about this, what's going on right now is you're not seeing that as much. Um So, if the FED stays on its path unlike which consensus expects cut starting in the summer, I think that's going to get pushed back and that could be a little rough

for equities as well. That's something to watch out for. This is Bloomberg Daybreak Asia, your morning brief on the story is making news from Hong Kong to Singapore and Wall Street. Look for us on your podcast feed every day, on Apple, Botify and anywhere else you get your podcast. You can also listen live each day on Bloomberg eleven three oh in New York, Bloomberg in Washington, Bloomberg one oh six one in Boston, and Bloomberg nine sixty in

San Francisco. Our flagship New York station is also available on your Amazon Alexa devices. Just say Alexa play Bloomberg eleven 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 Doug Chrisner. Join us again tomorrow for all the news you need to start your day right here on Bloomberg Daybreak Gaisia