This is Bloomberg Daybreak Asia for this Friday, May twelfth in Hong Kong, Thursday May eleventh in New York and coming up today.
US inflation data suggests the FEDS tightening campaign may be finally having an effect.
The FDIIC says larger banks will face billions of extra fees to replenish the agency's insurance fund.
And JD dot Com CEO exits after the Chinese internet retailer reports its slowest pace of growth on record.
Big five debt ceiling summit moved the next week. Both sides say a good sign. Top officials from China and the US have met in Vienna Immigration Goodbye, Title forty two, Hello Title eight. 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 shares of big banks were weak today and the FDIC said that larger lenders will face billions of extra fees to replenish the agency's insurance fund. The agency said that the institutions with more than fifty billion in assets would pay ninety five percent of the fees, and those with less than five
billion wouldn't have to pay at all. This comes after the FDIC made the decision back in March to backstop uninsured depositors at the failed Silicon Valley Bank and Signature Bank JP Morgan Chase CEO Jamie Diamond says it's time for the regulators to help put an end to the turmoil in the banking industry.
We've had uncertain policy on mergers.
Is first horizon deal.
I think we have to assume they'll be a little bit more so, you know, whatever the FDIC, the occ the Fellow Reserve, you know, whatever they need to do to.
Make it better, they should do.
Be thoughtful, be very forward looking, surprised constantly because some of these things have been known about for quite a while.
Diamond said that regulators are likely to overreact in their response to the regional bank turmoil with more rules and more requirements, but he also advocated for a probe into the short selling of bank stocks. Diamond said that those involved should be punished to the fullest extent of the law.
Well, in the US, today's economic news was a bit on the soft side. We begin with first time jobless claims reaching the highest level since October twenty twenty one, and at the same time today producer prices in the month of March dropping by the most since the beginning of the pandemic. Now, these data points suggest the Fed's policy tightening campaign may be having an effect on inflation. Even so, the head of the Minneapolis Fed, Neil Kashkari,
is saying price pressures remain too hot. Inflation has come down, but it's still well above our two percent target.
We have seen some softening in wage growth nationally, but it's very.
Mixed, that is Neil Cashkari. He went on to say he sees no evidence yet of slowing on the services side of the American economy, and he thinks that tight monetary policy may be needed for an extended time.
Brian and Doug we talked earlier about the rebound in Chinese shares listed in New York. The National Golden Dragon China Index is up three point eight percent, and part of the reason was this one JD dot Com CEO is leaving the company after only about a year in the post. Bloomberg's Bonnie Ao has the story from Hong Kong.
CEO Schule will hand over the rings to CFO Sandy Shou next month. Schule had been at the company for more than a decade, but only took over the CEO job in April of last year. The management reshuffle was announced after JD reported its latest results. Revenue grew one point four percent to thirty five billion dollars that beat projections, but it was the slowest ever pace of expansion. The firm has been struggling with competition from Pindordor and byte Dance.
Analysts say the personnel change suggests a shift and focus towards profitability. Jd'sadrs in New York row seven two percent. In Hong Kong, I'm Bonny out Bloomberg day Break Asia.
And today in the States, the Nasdaq Golden Dragon China Index was up about three point eight percent on the day. We move next to soft Bank, the company has lost money in its vision fund again, despite that rebound that we've been seeing lately in tech stocks. Bloomberg's Joan Wong has more from Hong Kong.
The Vision Fund unit lost two hundred and ninety seven and a half billion yen or two billion dollars in the three months ending March. A year ago, it suffered an even bigger loss of two point two trillion yen. The Investment Fund lost the record four point three trillion yen for the full fiscal year. To many, the results may seem surprising. That's because technology evaluations around the world
have largely rebounded this year. CFO Yoshimihsugoto acknowledged the past year has been rough, reflecting that SoftBank was forced to mark down the valuations of almost three hundred and fifty companies in Hong Kong. I'm Joanne one Bloomberg Day brig Asia.
The Bank of England raised benchmark lending rate to the highest level since two thousand and eight. Governor Andrew Bailey said further increases may be needed to stay the course in the fight to slow inflation.
And it's our job to get it all the way down to the two percent target and have it stay there. And this is why today we've increased bank rate by zero point twenty five percentage points to four and a half percent. Low and stable inflation is the foundation of a healthy economy, and we have to stay the course to make sure inflation falls all the way back to the two percent target.
Officials led by Bailey, also delivered the biggest upgrade to growth projection since the BOE gained independence back in nineteen ninety seven. The BOE said that the real economy will be two point twenty five percent bigger by the middle of twenty twenty six. The Central Bank also no longer sees a recession in the forecast. I'm Brian Curtis along
with Doug Christner and Rashad Salamat. He will join us in a few moments, So, Doug, I'll tell you from the bear standpoint, some might think that the jumps market has finally begun to crack. It's probably too early to really make that call, but it did appear to dent optimism from the slight drop in inflation that we had earlier.
Yes, you're absolutely right about that, and Bloomberg Economics was analyzing those warn notices. They've done so going back to the early part of the year, and now we're beginning to see a correlation with where the large number of layoffs occurred and the rise in the first time jobless claim. So I think you're right, Brian, we may be finally
seeing some kind of softening in the labor market. And to the point about FED policy, maybe it would give a little bit more flexibility in terms of pausing and just kind of holding steady for a while longer.
Yeah.
And from the bears standpoint, you know, they see this market leadership as really narrow. And another example today the Nasdaq was up and just about everything else was down, and the bears would say, if you strip out the top ten company as well, the performance, you know, has been weak. But of course the bulls would say, if you strip out the banks all the performance would look much better. But the reality is you can't strip things out.
Yeah.
And Jamie Diamond, the head of JP Morgan Chase, was telling us today that it's time really to get this banking problem solved, and he does expect that we could see a little bit more stress building in some of these regionals. He pointed to the problem in the commercial real estate market and basically speculated that we could see a couple of more failures.
Yeah, and it was a tough day actually for regional banks. You mentioned PacWest and the basic general performance. The Regional Bank ETFKRE was down two and a half percent on a day when you know the tape wasn't all that bad. The S and P five hundred, there's only down two tenths of one percent. Now it's time for global news. Well, the US debt ceiling summit set for tomorrow has been moved to next week. So is that good news or
bad news? Well, let's turn to Ed Baxter, who's in the nine to sixty newsmen in San Francisco.
D Yeah, so that is the question. You're right, Brian, actually being seen as a positive sign. Bloomberg's Kaylee Lyons saying the first statement seem to align early.
Next week for the Big Five, the President and these four congressional leaders. They're not going to sit down in a room together again for several days. That is what has been delayed. However, their staffs are going to continue to talk as they have been over the last two days. And Speaker McCarthy saying that postponing does not mean that these talks have fallen apart. In fact, he said that they all agreed it would be more productive.
Yeah. Senate majority of Leader Chuck Schumer is saying that some progress has been made, and Bloomberg's Wendy Benjaminson says the staffs can work through issues without what the Big Five feel they need to spin the.
Most promising thing we've seen today. And you were referring to spin earlier. But if all sides agree on the spin that it actually might be true, you know we might be able to hold our breath just a little less tight and know that this might be coming.
To an end now.
Both sides also agree that there will be no temporary fix so early now next week for the Big Five. By the way, Donald Trump was asked about the ceiling debate last night on CNN. Their congressman Senators, if they don't give you massive cuts, you're going to.
Have to do a default.
Democrats are responding to the interview last night, saying Trump is not even a serious candidate. Senator Josh Holly has thrown China into the mix and the debt ceiling debate, saying China's a main driver in the US debt.
We ought to impose tariffs on China until we get our trade into balance and we give our manufacturers and our workers and even plaving field.
He says it's time to get serious. China cheats on trade, he says without end, says they shouldn't be allowed to do that. Top officials from China and the US have met in Vienna over the past two days, Foreign Minister Wange and US National Security Advisor Jake Sullivan with what the White House calls substinative and constructive meetings in what could be a sign that the sides are working to
ease some strain. US Homeland Security a secretary says that it is prepared for the end of Title forty two immigration controls at the end of the day, Secretary Alejandro Majorca saying there'll be new policy. It is called Title eight.
The new rule, finalized yesterday, presumes that those who do not use lawful pathways to enter the United States are ineligible for asylum. It allows US the United States to remove individuals who do not establish a reasonable fear of persecution.
Maorca says even a bit tougher than Title forty two, but House Speaker Kevin McCarthy says damage has already been done.
Eleven thousand people came across yesterday, set a new record. Four point five million have come across since President Biden has taken office when he's lifted the actions of the last administration, an administration before that.
Now, Homeland Security says that issue will be enforced and taken care of Global News powered by more than twenty seven hundred journalist and analysts and one one hundred and twenty countries. In San Francisco, I'm Ed Baxter, and this is Bloomberg.
This is Bloomberg Daybreak Asia. I'm Brian Curtis in Hong Kong along with Rashad Salamad, and we say good morning to our guest, Francis Stacey, director of strategy at Optimal Capital Advisors with us in our New York studios. So, Francis, is this is this a sign that the job market is about to crack?
Wait, ask me that question again.
Yeah, okay, is the job market cracking? Yes?
I think the job market is cracking. I think the internals would point to that. And you know, sometimes when we're seeing a lot of these guy these jobs added, and of course we had those revisions lower it's because some of the gig economy has to be added now as employees, and there's some internal things like that. But no, I do see it cracking, and you know, even the continuing claims, although they haven't skyrocketed yet, they are you know, forty five percent off of the low absolutely frosts.
And what we did see in the jobs were pool was the main beneficiaries of job creation were healthcare and education. Now these are not cyclical, so one should really look at the rest of the jobs market, and you could see it sewing and also of course added to the revisions you just mentioned.
Yeah, I mean, it's slowing very very slowly, but you're seeing people take on secondary jobs. You're seeing you know, people start to have to take on you know, the temporary jobs are sort of falling apart in the background and things like that. So you're starting to see these very very early indicators that it is actually softening.
Yeah. I said earlier when I was chatting with Doug that, well, you know, you don't get to strip things out, but of course you do when you're in the stock market. You can make your targets and make your picks. So if you were long tech for the first part of this year and short at the banking sector, you'd be smiling all the way to the bank.
Yes, Indeed, it's really interesting because with the Fed conversation. You know, tech has Tech was hit very heavily because it was the rates and it was the tightening cycle conversation. And obviously that doesn't help TECH. And now it's rolling over into an economic situation. And what's fascinating is to look at tech as sort of a flight to safety
because of balance sheet strength. I don't think it's going to, you know, continue to be elevated because I think there's a lot of demand destruction going on in the background that is not yet visible, and I think that that's going to be a tendant to the credit cycle, which is going to affect demand drastically, and we don't see
that in the background yet. But it is just really interesting that now that we've had a lot of tightening with interest rates, we now see tightening in consumer credit and really credit across the board, and we haven't had that next shoe drop, so we just see these strong balance sheets.
So where do you see that demand destruction if not in retail sales or some of the obvious places.
Well, what I see is that this is mechanically what occurs with every one of these credit events. And you take the yield curve inversion and that always with the exception of once leads to recession. And the reason is
is because it preempts this credit situation. Because what happens is when you have an expansionary period, and of course historically expansionary like what occurred with both fiscal and monetary policy during COVID, and then you start to drain liquidity out of the system, which the FED is very committed to doing. You can you can get rid of the liquidity, but you cannot get rid of the debt. And what happens is then the yield curve starts to resteep in.
At the time that it starts to re steep in is when you have credit spreads widen, and then of course you have an attendant credit situation, and you know, it's anyone's guess. We're overlevered so in so many areas. But commercial real estate is going to be a big problem, Corporate debt's going to be a big problem, and so we're just sort of in this calm before the storm. Labor is such a lagging indicator, but of course that's going to be affected too by this absolutely.
And you know, regional banks would be hit by that. Moved down for commercial real estate but the FED keeps telling markets to take it's tough talk seriously. And you know, but we've got many investors and pricing stocks as if it returned to the good old days of easy money just around around the corner.
Now.
They seem to be convinced that there's going to be a pivot by the US economy very soon. In other words, investors just what their bubble back.
Yes, of course.
And the funny thing is is that I think, you know, when you just look at the history of Powell, when Yellen started the previous iteration of tightening, and they carried on until you know, the markets sold off at Christmas time and the money market funds had a bit of a crunch. You know, he stopped raising rates at that point.
He continued to drain the balance sheet through nineteen until the third quarter when you had the spike in the overnight markets in rates because you know, I'm assuming that corporate uh you know, stocks were not stock trates were not being settled for corporate tax paid. But there was some issue where the liquidity in the system was not enough, and he quickly threw half a trillion dollars of q back into the system even before COVID, and so that's
the Powell history. So I think markets it's funny because you say, just don't fight the Fed, But I think markets are expecting that if too many things break all at once, that he is going to pivot, and he's going to pivot hard remains to be seen.
Well, that's right, because investors are perhaps looking at their previous call and they underestimated essentially inflation. The question is are they underestimating a recession?
Yes, yes, you know, we have a bifurcated economy. The upper forty percent that owns assets, the lower sixty percent can't grab five hundred dollars in savings. They're living paycheck to paycheck. Even if they have big paychecks, they're living paycheck to paycheck. There's a record amount of leverage in credit cards. Every time we you know, high creates that debt service becomes more onerous, and you've got a try
effecta of things coming. You've got one point eight trillion in real estate, those loans rolling over, and those loans were issued I don't know, three and a half four percent, and now they're going to be reissued at six and a half or seven percent. And then you've got the debt sealing discussion coming, and then I don't know if the student loan forgiveness thing is going to make it
through the Supreme Court. And if it doesn't, then you've got a huge portion of the population that now adds a quote unquote three hundred dollars payment per month onto that with cumulative interest, right, And what happens is that lower sixty percent when they're pushed to the threshold and they can't get credit anymore and they can no longer paper over their own personal situations. You're starting to see it. You're starting to see it in the one month delinquencies,
well one month delinquencies. We don't know what percentage end up being defaults eventually, but they start with that.
It's quite a bearish mosaic that you have, friends, So let's talk. Let's talk about how do we make that work in portfolios? So what are the couple of steps that you would take or that you know you could advise people to take to sort of hunker down here.
Yeah, So quint Essentially, when you have growth and inflation decelerating at the same time, you go back to sort of some of these old faithfuls and gold works very well in that environment. You've got relatively speaking, staples that work very well. Utilities work very well. Looking watching defense obviously with what's happening geopolitically, and also healthcare works very well as defensives. But it's it's kind of more of a bonds and gold conversation, bonds and gold bonds and
gold bonds and gold. And I do think that the FED is taken investors by surprise because I think myself included, we didn't think he was going to be able to
tighten this far this fast. About more than you know, the bank's breaking down, okay, And I think that that's because the upper forty percent is so flush and they're now getting these ERC payments and they're getting these refunds, and so we went from stimulating the lower half of the economy to now stimulating the upper half of the economy, and these people are still buying.
And you're also likely to get some stimulus from AI.
Now.
I know this is probably red meat to you, but in terms of turning back the argument, but some in the market think that AI has the potential to really reduce the markets.
I think if it really has that potential stably, it's going to happen over a very long period of time. Just funnily enough, I happened through an AI conference yesterday and they were just talking about how some of the answers that pop out of these things are incredibly intelligent, and some of them are incredibly stupid. So you still have to have a human that's kind of driving that bus.
And the best analogy I heard was the Captain Sully analogy when you had to land the plane in the Hudson because they used to have five people in the cockpit. They now only have two people in the cockpit because they have computers, but you still need somebody running those computers.
That's a very nice image to draw. Francis, Thank you. Francis Stacy, Director's Strategy at Optimal Capital Advisors. This is Bloomberg Daybreak Asia, your morning brief on the story's making news from Hong Kong to Singapore and Wall Street.
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