Daybreak Asia: January 31, 2023

electric vehicle price cuts. I met Baxter with Global News at American soccer star Moose from Italy to England on Dan Schwartzmann. 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 n Washington, d C, Bloomberg one, O six one, Boston, Bloomberg nine sixties, San Francisco, Sirius x M one nineteen and around the world on Bloomberg Radio dot Com and via the Bloomberg

Business Actor. Good morning, I'm do Prisoner and I'm Brian Curtis. Here are the stories we're following today. The White House is considering cutting off Huawei technologies from all of its American suppliers. Four years ago, the Trump administration limited sales by US companies when Huawei was added to the US Entity List out of national security concerns, but now officials in the Biden administration are calling for an outright ban. It's not clear how soon the administration would act on

this kind of policy change. We're told that the discussions are still at an early stage. Officials said that timing could coincide with the anniversary of Huawei's addition to the Entity list in May. There was no comment today from either the National Security Council or the Commerce Department. Well, on Wednesday, two pm Wall Street time, we will have

a FED rate decision. The goals seems to be dialing back on the nature of how a rest with the FED has been in its fight against inflation, without signaling a readiness to stop entirely. Now, despite the rates that we have seen last year, the rate hikes, I should say, financial conditions are at the weakest level that they have been in about eleven months. Somewhat hard to believe. And now the f O m C seems to be worried that markets maybe missing the message. Paul Krugman is Nobel Laureate.

We spoke with him earlier. I'm a little worried that the markets may be getting ahead of themselves. I mean, I'm I'm a big inflation dove. I'm still basically I believe that that inflation is going to come down. But the degree of certainty uh that we're seeing in the market is the degree of certainty I'm seeing in financial newsletters that inflation is behind us. That makes me nervous.

That is economist Paul Krugman. By the way, the market is expecting the Fed to raise rates by a quarter point, so we would have the target for the Fed Funds and Arrange of four and a half to four and three quarter percent. And as you know, Brian, last month we were up a half point following four consecutive seventy five basis point rate hikes. So it's a little difficult to know exactly where we are there and also in China,

but listen to this. Boeing is set to add a fourth assembly line for its seven thirty seven Max in a move to capitalize on growing demand for narrow body jets. The work will come satisfactory in Everett, Washington, and it's expected to start in the second half of four The decision comes on the heels of an optimistic outlook for China travel, as reopening propels passengers back to the skies.

According to Boeing's vice president of Commercial Marketing Darren Holst, air travel worldwide was back to seventy seven percent of twenty nineteen levels in December. Those numbers are expected to rise to by the end of June as China's travelers returned. Holst reiterated the playmakers expectations that airlines will need roughly aircraft over the next twenty years to meet demand and replace aging planes, and he says that China will be

a major driver of orders. Malaysia State owned Investment Fund one MDB was supposed to promote economic development, but instead it spurred a global multibillion dollars scandal, and now Malaysian Prime Minister on War Ebram is calling out Goldman Sacks to honor the settlement for its role in this ordeal.

I think Woldman's sex to come out clean and and and deal with militia and don't don't think that you can, you know, dismiss this as something um small that you can just use your strength to dictate your terms now. An agreement reached back in July called for Goldman to pay two and a half billion dollars in exchange for Malaysia to drop its charges. Goldman was also asked to return one point four billion dollars of one MDB assets

that were seized by authorities around the globe. Now. According to of filing from Goldman last year, the current issue remains over an August two payment deadline. At that time for the filing, Goldman stated the party has had three months to resolve this dispute. The matter will now head to arbitration if no resolution is reached. Briefly, copper prices lower as investors reassess the outlook for demand in China.

More from Bloomberg's Anibal Jewelers. Bloomberg's index of early Chinese economic indicators shows a slight uptick, but copper has been constrained as China's home sales during the holiday period fell four from a year earlier. Sentiment has now turned more cautious as investors trying to gauge the health of the recovery a note from gin Ray Futures said China's economic recovery will continue, but Kappa has already priced in some

of the more recent macro bullishness. It's trading a relatively high levels, which increases the risk of a pullback in Hong Kong. I'm Annibal Rulers Bloomberg Daybreak Asian coming up on Global News. Final preparations are being put on high level US China talks later this week at Baxter with more from the Bloomberg Newsroom in San Francisco. Eddie, Yeah, exactly right. Douglas U s Secretary of State, and today Blincoln is traveling to Beijang. It's been billboarded as a

major conversation. Asia Society Institute Vice President Wendy Cutler on Bloomberg's Balance of power today, says, very important first step going forward. What's the most disturbing is how little engagement there has been between officials. And when there's little engagement, then there's little prospects for cooperation in those areas where either we need to cooperate because it's in the public good, or it's in our interest to avoid a military conflict

or a military incident. Cutler says in the benefit of both sides to talk, but at the same time, we should not expect that a major breakthroughs Again, that's the end of the week, within the week. Blincoln meanwhile, as an Israel today, saying the US commitment to Israel has never wavered, but peace in the region will only come with a two state commitment. We continue to believe the best way to achieve it is through preserving and then

realizing division of two states. Yeah, Israeli Prime Minister Benjamin that Yahoo mean, while says on the top of the list and cooperation, is it wrong? I think there's a common consensus that this regime must not acquire nuclear weapons, and that Yaho says it has to be stopped at all costs. Meanwhile, a drone hit in an Iranian advanced weapons production facility today Wall Street Journal reporting it was

an Israeli drone. Beijing has reacted angrily after reports that the check President elect Peter Pavo called Taiwanese President Sim Wang over the weekend to discuss their shared values of democracy and human rights. China says it is considering blacklisting Check made products and making them largely unable to clear Chinese customs. Meanwhile, China's warning how speaker Kevin McCarthy not

to repeat Nancy Pelosi's visit to Taiwan. Well, we're starting to see signs of an accelerating electric vehicle price war in the US. TESTA went first and Forward is cutting forty dollars off it's Mocke Mustang version. But Bloomberg's Ed Ludlow says, as you move up the scale, the most significant cuts are at the higher end. The GT Extended range has a price trim of fifty dollars, and so that actually starts to indicate that this might be more about getting those vehicles in line with the i ra

A requirements for seventy federal credit or discount. It also says you could have to do with the fact that the chip supply is better now, so the supply demand ratio for consumers may tip more to the buyer for it also has at a discounted financing and an effort to boost sales. White House are our US House speaker Kevin McCarthy is going to the White House on Wednesday, he says, to talk about the debt ceiling. But Bloomberg's Jennie Schanzeno says, the White House has been firm on

its position on the debt ceiling. They keep to their point that they are not going to negotiate on the debt ceiling. I think what they'd really like to do on the debt ceiling is have the Republicans come forward with where they want to cut spending. McArthur has said that he's open to talks about raising the death ceiling, but that he wants guaranteed caps on spending. So we'll see how this plays out. On Wednesday in San Francisco, I'm at Baxter. This is Bloomberg. This is Bloomberg day

Break Asia. I'm Brian Curtis along with Rashad Salama, and our guest is on Witty Bahoganah, head of multi assets strategy at Columbia thread Needle Investments. And what we just heard those comments from Paul Krugman, which are all the more interesting since he is at Dove. But as a counter to that, HSBC is predicting that the Fed will will change course this year and will cut quite significantly, cutting as soon as recession uh you know, is apparent.

HSPC is looking for a full percentage point in in cuts and that's double the market Right now, the swaps market sees just fifty basis points of a cut. Your thoughts on that. How do you see the FED moving? Hey, Brian, thank you for having me in a very happy new year. Lots of debate in the market about production and really um you specified just now with the market is expecting.

You know, I suspect the FED stays on hold this year if the soft landing scenario um comes through and the other scenario, which is recession, would actually be very much in line with what HSDC is thinking. If there is inter pocession, they're likely to cut and quite aggressively, not just fifty basis points. Well, yeah, that's quite a cool actually, but you know when did that happen? And you know we've got three central banks. You know, we've got the Bank of England and then then the ECB

and the FED. As we've been talking about what other separate narratives here, So which that's an excellent question. I would say that, you know, market grappling with three different narratives when it comes to growth and inflation going forward. We just talked about of this the session scenario and the soft landing where we have, you know, inflation come

coming down without a mass of it to growth. And the other scenario out there is the scenario where growth actually re accelerate and or that inflation re accelerates, and that's what Yeah, that's what Kuipman was saying. But you know, out of the last thirteen FED hiking cycles, the average time in between the last hike and the first cut is five months five months, and in six of the

thirteen cycles the time was two months or less. So I think that investors would be wise to think about that before pillering the bond market for suggesting a cut later this year. And indeed HSBC is full one percentage

point exactly. And I think if you think about the fact that market bond markets are sort of reflecting probabilities, then the part of the market it doesn't expect any cuts would would you know, would expect things to stay flat, whereas the HSBC sort of scenarios would expect the cut and are finding probabilities that waited to have, which is actually what the swop curves are reflecting. All right, so let's have a look at what all this really played

it plays out on markets. I mean, we've had so much euphoria at the start of this year equity wise, you know, we know the risks to all of that becoming a damp squibt I eat a real recession of course, also a geopolitics, but would actually turn around for the dollar and strength for the dollar also be a big, big how can I say a headwind absolutely, I mean that was the scenario all of last year. The shot.

You're absolutely right. If the dollar, you know, takes off again like it did, most of that would be a growth dampener globally. It's seen that happened again and again in the past, and in the last three months or so we've had dollar correct about ten percent. I'm talking to d X y here um, which has really helped

the sentiment globally. We've seen the rally in the developed market x US and E M far supart s apart any of the enthusiasm you've seen in the US markets and always been a huge factor in that M So we'll get the jobs data this week now. If we get a negative print on jobs seems unlikely, but it's possible. I'm sure it would embarrass the Fed right after a hike, But how do you think the market would respond that's

a very interesting question, Brian. I think I would say that the bond market would you know, the treasury and the sort of safer parts of the bone market would rarely hard because that would price out any more hikes, because a recession seems more likely. You know, the soft data has been calling for that, but we haven't seen it any of the hard data. Um. The equity picture

is a little bit mixed, you know. Um, so far the correlation has been that both equities and bonds have moved quite together, and in this is the one scenario where when we see growth downgrades, I think equities might

not do quite as well as the bonds. Right, So this brings us nice and you ready to talk about whether you think that this momentum faquities can continue now and if so, is it time to be loading up on risk or is it time to probably take stock part of the punk so I, you know, our positioning is actually sort of what I would call barbelled. We we love taking risk in emerging markets at this point. Um, that's one area where we see quite a scope for

growth recovery. So e M has done quite well Richard in the last two three months already, But Most of it has been sort of multiple expansion in anticipation for better earnings growth and better um economic growth. And if that does come through, then I would say there is more room in e M markets for more repricing of a better growth scenario. The other side of it is they also own a lot of treasuries because I think

the recession risk is real. Also, it's interesting how you read China, so you can give me that because you're on year and you're to date kind of squishy, but last week pretty good. Yeah. You know, I've never seen our China analyst as bullish as of late. And you know, really the new year is starting UM policy wise quite nicely. There there is some impact finally, of all the property developed measures they had taken last year, some of them are bearing fruit now. UM and monetary policy and credit

policy is all supposed to be very supportive. At the same time, the draconian COVID policy have all been put aside, So we are quite bullish in China. 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 Spotify,

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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 day Break Asia