This is Bloomberg day Break Asia for this Monday, May twenty second in Hong Kong, Sunday May twenty first in New York. Coming up today, markets brace for volatility as the US struggles to clinch a deal on raising the debt ceiling. Treasury Secretary Yellen says the US is unlikely to reach mid June and still be able to pay its bills, and China tells tech companies to stop using chips from Micron Technology in a move that further escalates tensions with the US.
After death ceiling talks breakdown, Biden McCarthy agree to me tomorrow. G seven countries agree on training on F sixteen jets for Ukraine. Taiwan's president to focus on China and chips in our last year in office. I met Baxter with Global News.
Brooks Kapka holds off the field to win his third PGA championship.
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 Apple, Spotify, the Bloomberg Business App, and everywhere you get your podcasts.
Good morning, I'm Richard Salama.
And I'm Doug Krisner. Here are the stories we're following today.
Let's get to what Treasury Secretory Janet Yellen has been saying, because she's been expressing doubts about the United States being able to pay its bills next month. All of this coming is the White House urgently tries to reach a deal with Republicans to raise the debt limit. Here here is Yellen speaking on NBC's Meet the Press.
There's always uncertainty about a tax, receipts and spending, and so it's hard to be absolutely certain about this. But my assessment is that the odds of reaching June fifteenth while being able to pay all of our bills is quite low.
That is Janet Yellen heard here on Bloomberg Get The Treasury secretor years previously said that the US could lose its ability to pay all its bills as soon as the first of June. Now, this would put the country at risk of a catastrophic default. Excepting Goldman Sax economists estimated that the Treasury Department will see its cash levels drop below the thirty billion dollar mark by June the eighth or ninth, and that's the bare minimum for meeting
federal obligations falling June. Yellen is expected to update Congress this week on how long the US does have before it risks running out of cash to pay its bills. President Biden House Speaker Kevin McCarthy are also expected to meet Monday well.
The head of the Minneapolis Fed, Neil cash Carry, is saying he may support holding interest rates at current levels at the Fed's next meeting in June. In an interview with Dow Jones, cash Carry said this would allow the FED a little more time to assess the impact of higher interest rates than those that have been done recently, along with the outlook for inflation. It was on Friday that Fed sha J. Powell signaled an openness to pausing
rate hikes next month. Here is Powell speaking at a conference in Washington.
Is limited to identifying the factors will be monitoring as we assess the extent to which additional policy firming may be appropriate to return inflation to two percent over time.
As I noted at.
The last press conference, that assessment will be an ongoing one as we move ahead, meeting by meeting. Having come this far, we can afford to look at the data and the evolving outlook and make careful assessments.
That is fed shir J. Powell. He went on to say that rates may not need to rise as high as originally thought because of tighter credit conditions partially caused by problems among the regional banks were shot.
Yeah, we're looking into an earning season now which is winding down, but there are plenty of companies schedule to report in the next few days. Let's get details now from Bloomberg's Charlie Pennett.
Retailers will be front and stead of this week, including Costco, wholesale Lows, and Dollar Tree. Results have been coming in better than fear, but there are concerns about growth and valuation. Laurie Calvasina's head of US equity strategy at RBC Capital Markets, multiples are.
About where they deserve to be. I think there's still some uncertainty in their earnings outlook. You know, we've had a very very good reporting season, but there is still a lot of questions that investors have about the outlook for financials.
Earnings in particular, we will be hearing from a number of tech names this week, including Analog Devices, into It, in Vidia, Palo Alto Networks, and Snowflake in New York Charlie Pellett Bloomberg Daybreak Asia.
China is banning purchases of chips made by Micron Technology, with Beijing saying these chips represent a security risk. The story from Bloomberg's Denise Pellegrini.
The Cyberspace Administration of China is telling operators of key infrastructure not to purchase the Micron chips because of what it calls relatively serious cybersecurity risks. The regulator says that components cause significant security risks to China's critical infrastructure supply chain, which would impact national security privately, though some Chinese officials said it's part of an increase in pro retaliation voices in Beijing after Washington intensified its effort to contain China's
technological development. Mike crowd only gets about ten percent of its revenue from China. It's much more for its US competitors. Denise Pelgriny, Bloomberg Day Breck Asia.
Right G seven leaders have agreed on the need for governance in the field of generative artificial intelligence. Details not come from Bloomberg's Joanna Woll.
G seven leaders that their governments are now set to hold cabinet level discussions on AI. They're calling it the Hiroshima process. This comes after G seven leaders expressed concern at their summit over the potential of AI to cause rapid disruption. Leaders have been calling for greater regulation since Open ais Chat GPT set off a raise among companies to develop the technology more quickly. The fear is that the advancements, if allowed to progress and checked, could be
a powerful tool for disinformation and political disruption. Separately, the World Health Organization warrant that adopting AI too quickly runs the risk of medical errors, which may erode trust and the technology and delay its adoption. In Hong Kong and join Wan Bloomberg Day Brigasia.
Well, if you think the debate over artificial intelligence is complicated, just wait until AI meets quantum computing. Now we know that the University of Chicago will be partnering with IBM and Google on the development of quantum computing. This deal, involving the three parties, will total as much as one hundred and fifty million dollars.
Now.
IBM will develop blueprints with the University of Chicago and the University of Tokyo over ten years in a plan that's valued it around one hundred million dollars, and then Google, as a partner with these universities, will be investing as much as fifty million toward accelerating the creation of a fault tolerant quantum computer. Google's participation will also help develop a quantum workforce over ten years. Day Break Asia and
an update on Global News is next. Negotiations over the US debt ceiling hit a wall over the weekend, but now House Speaker Kevin McCarthy and President Biden have agreed to talk tomorrow at Baxter has Global News from the Bloomberg nine to sixty. Userm in San Francisco ed.
Yeah, Doug, exactly. Right after wrapping up his time at the G seven, President Biden got on the phone with Speaker McCarthy and had what both describe as a positive call. McCarthy right now, this is where we're at.
We want to get this done.
We've got to come to an agreement, but we also legislatively have to pass it, and so we want to try to find those barriers.
Yeah, and says to two. We'll walk their negotiators through what they want and have them work today and then the two principals meeting tomorrow. Biden earlier in the day, by the way, took a very hard line.
Now it's time for the other side to move from their extreme positions because much of what they've already proposed is simply quite frankly unacceptable.
Yeah, so no agreement, but at least work back on and meeting tomorrow. G seven UK Prime Minister Rishisunac says that the UK will begin training Ukrainian pilots on using F sixteen fighters. It feeds the narrative.
And we've made a real breakthrough at this summit thanks to President Biden's support for an international coalition to provide F sixteen jets.
And the President Biden saying a total G seven resolve on the issue.
G seven reaffirmed are shared and unwavering. Let me say it again, our shared and unwavering commitment to stand with the brave people of Ukraine as they defend themselves against Russell's brutal war of aggression and the war crimes being committed.
And Ukraine's President of Vladimir Zlenski says Ukraine will win the war, but says the current battle in bak mood.
The pictures of ruined Hiroshima really remind me, totally remind me Bachmont and other similar settlements and towns just the same, nothing alive left, all of the buildings have been ruined.
And their conflicting reports of what's really happening there. Zelenski said Russian forces have been driven out. Russia is saying its forces with a mercenary Wagner group of encircled back moot as well as they say liberated. Taiwan's president Sayang Wayan is putting China, phrasing it as across straight security as well as chip power center stage. In her final year in office. She says war with China is not an option. She says differences can be resolved through dialogue
and by promoting orderly exchanges. Four person crew include two from Saudi Arabia for the first time due to Doc Tomorrow, SpaceX up three and uh way.
Its full power.
He left the Falcon.
Nine Go Actio from.
Again. The crew including two from Saudi Arabia for the first time due to Doc.
Tomorrow, Godspeed AX two.
And Falcon nine successfully landed at Cape Canaveral PGA scoreboard. Today. We're in final round and Brooks Koepka is holding on now ten under par Wow so he is on whole sixteen. Victor Hobland at six under Scotty Scheffler at six under Global News powered by more than twenty seven hundred journalist and analyst in over one hundred and twenty countries. In San Francisco, I'm at Baxter and this is Bloomberg.
Let's get to our guests. Walter Todd is with us. He is president, also the chief investment officer and managing director at Greenwood Capital. On the line from South Carolina, Walter, thanks for being with us. It appears, though this point in time, that the FED is inclined maybe to hit the pause button come June. This notion of a hawkish pause kind of implies that they would be ready to hike again if necessary. Is that the way you see things right now?
Yes?
And no.
I mean I think that the FED will potentially have to cut as we move through the back half of this year because everything seems to be most things seem to be pointing to a slow down and or recession. But I think the market perhaps is wrong and what the implications of those rate cuts are because the playbook for a decade has then when the FED cuts rates,
it's risk gone. I don't think that's the case this time, given the recessionary setup that we have here and the reason that the FED would be cutting rates in the back half of this year. Of course, they're not willing to admit that yet. They're saying they're going to hold it five and a quarter. But if you look at where the two year is almost one hundred basis points below that bed fund rate, that's what we're watching.
Well, have they overdone it? I mean, been going from probably one of the most steep increases percentage wise on the US cost of borrowing in recent memory. And you know, you got to ask yourself. You even you know, Povolka stopped raising rates two months before they had he saw peak inflation.
Yeah, we we do believe that they've definitely done enough, possibly gone too far. I think the you know, the stress and the banking system that we witnessed over the past several months, or an indication that something finally broke.
And again, looking at the structure of the yield curve today and the steep inversion that we have across the curve as well as where the two year is relative to the FED fund right, as I said earlier, I think that's the indication that they're overly tight and they need to eventually catch down to the two year yield. That's what has happened in the past. That has been the leader of the FED on the upside and the downside, and that's why we're paying such close attention to it.
So a very important number will not happen until Friday, when we get to personal consumption expenditures. And I'm wondering whether or not, as if Bloomberg Economics is right and we do see through this data elevated inflation in the month of April, we know this is the Fed's preferred metric. I'm wondering if the story on the fourth quarter of this year, maybe perhaps as soon as the third is is stagflation in the US. Is that possible?
It is, But I mean, if you look at all the indicators, kind of out forward looking indicators of prices,
they are coming down rapidly. If you look at commodity prices, if you look at the price components of these FED surveys that we've gotten recently from Empire in Philly, and we think as we get more of those we'll see this prices, prey prices received are really collapsing, so we think looking at inflation, are being concerned that in place is really looking in the rearview mirror and prices are coming down. We think in placement is going to have a three handle on it by the end of the year.
So I hope the Fed does not overreact to perhaps a hot number in April.
Yeah, I mean, but you could also argue that the Fed Reserve needs to get some bullets into the chamber before the next time there is actually a recession because they don't have any.
Now oh well they no, they have. I would disagree with that. I think they have plenty of bullets in the chamber because they've gone from zero to five and a quarter in a little over twelve months, so they can they could turn around the balance sheet. They could obviously cut rates quickly to try to deal with a drop in economic growth. So I think there's plenty of room for them to maneuver in a recessionary environment. I think they're just unwilling to admit yet that we are
heading into a recession. But again, a lot of those indicators are pointing us in that direction. At this point.
Walter Rish and I were talking a short while ago about this incredible rally that we have seen in Japanese equities. Are you attempted to put money to work offshore maybe in Japan?
Yeah, So we do have exposure in our ETF portfolios, which have exposure to overseas markets, into the Japanese market. It has been very strong, a lot of people saying from just a pure technical perspective, we could actually challenge those old highs from nineteen eighty nine on the NIK. So structurally, the Japanese market does look like one of the better markets. And I know you guys were discussing buffets investments there over the past several years, so that's
another tailwind for that market. So yeah, we do have exposure there and we like it right now.
So Toby, what else are you looking at Walter to invest in.
Yeah, So within our equity portfolios that are focused domestically, we're kind of in that Barbell strategy that we've talked to you about before, and that's play in defense through healthcare and some consumer staples on that front, but also having some exposure to the likes of industrials and energy that would benefit from the reopening of China and some of the strength that we're seeing a little bit in overseas markets despite a kind of a recessionary outlook here
in the US. That would be our preferred play right now.
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