This is Bloomberg Daybreak Asia.
For it's Wednesday, April nineteenth in Hong Kong, Tuesday April eighteenth in New York and coming up today.
Two Fed officials offer divergent views on future rate hikes.
Goldman Sachs traders failed to capitalize on Wall Street's fixed income boom.
Netflix reports both subscriber growth and earnings below street expectations.
Fox News decides to settle the dominion just before opening arguments. Parking garage collapse in Lower Manhattan. Senate subcommittee doubles down on COVID Wuhan lab leak origin theory. 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 deg Krisner and I'm Brian Curtiz.
Here are the stories we're following today. Netflix got off to a slow start to the year, adding about one point seventy five million customers in the first quarter. Investors were expecting a figure more like two point four million customers. Netflix also predicted it will generate lower sales and profit in the current quarter than what.
Analysts said forecast.
We heard from John Erlickman, anchor of BNN Bloomberg's The Open but it.
Is really shifting to be a business that in many ways has already told us they are transitioning. There are cost controls right now. Shutting down their DVD by mail business is one example of cost controls. Password sharing crackdowns is another. I mean, arguably that could bring in more subscribers, but even looking at Bloomberg's breakdown in markets like Latin America, maybe that's the kind of development that loses you.
A little bit.
More on that comment there from mister Erlickman that Netflix will begin cracking down this quarter on US viewers who share someone else's account, and we saw the overall numbers improve actually in Canada after a little bit of a rough start to that. Separately, Netflix added just one hundred thousand customers in the US and Canada after losing about a million customers last year. The Asia Pacific region continues
to be Netflix's biggest source of new customers. The service added one point four to six million customers there in the first quarter. And that is thanks to lowering prices in India. We have a very big movement in Netflix shares in after hours. Doug came out around twelve percent down and at the moment trading off just about one percent or so, rather big recovery later in the session.
A curious move. Meantime, we have two Fed officials offering divergent views on the future interest rate hikes. On one side, the head of the Atlanta Fed, Rafael Bostik, is favoring just one more twenty five basis point rate hike. Then he wants the Fed to pause and hold the Fed funds rate just above five percent.
There's still more work to be done, and I'm ready to do it. I think that after the next move, if the data come in as I expect, we will be able to hold there for quite some time.
The Atlanta Fed president Raphael Bostik there speaking with CNBC. Separately, today we heard from the head of the Saint Louis Fed, Jim Bullard. He is arguing for two more rate hikes. Bullard told Reuters he's favoring getting rates. This would be the Fed funds rate to arrange between five and a half percent to five and three quarter percent. He also said fears of recession are simply overblown, which Bostick, by
the way, said it wasn't his baseline either. Neither Bostick nor Bullard votes though on monetary policy.
This year, Goldman Sachs Trader is failing to capitalize on the fixed income bonanza that we've seen the rest of Wall Street enjoy over the last quarter. Goldman reported fixed income trading revenue that declined seventeen percent in the first quarter. However, it was said to be the third biggest in the past decade. The bank all so offloaded a chunk of its roughly four billion dollars Marcus loanbook, which led to
a four hundred and forty million dollar reserve release. Goldman's profit was higher than what analysts had expected, but earnings were still down nineteen percent from a year earlier. Even so, on an earnings call, CEO David Solomon said, it appears the worst of the volatility is behind us.
Well, it's impossible for the exact form of market stress will take, and we won't always execute perfectly. Our risk management culture, strong liquidity, and robust capital position have allowed us to navigate a complex environment while also continuing to actively support our clients.
Shares of Goldman SAX slumps as much as four percent after the results were announced.
Bank of America reported first quarter profit above estimates, primarily driven by revenue from fixed income along with currency and commodities trading. Overall revenue unexpectedly up nearly thirty percent to a total of three point four billion. Meantime, deposits were down much less than expected as customers moved funds to be of a following the collapse of those three smaller regional banks. Here's Bank of america CEO Brian Moynihan's speaking to analyst on the conference call.
As you think through all the tightening actions of the FED, the flowsed alternative yielding assets, investments in the destruction of past quarter ore depausites continued to perform well and in the court of one point nine one trillion dollars, if you think about it, that's about the same balance as we had in mid October of twenty twenty two. So we've seen these balances stabilize and remain thirty four percent above they were in prior.
To the pandemic.
Brian moynihan, there the chief executive of Bank of America b of A, saying the first quarter saw positive returns in credit markets overall and that the bank's business was firing on all cylinders. Today, b OFA shares were up just about six tens to one percent, so.
Apples shares straight up about three quarters of a percent in this session to one sixty six forty seven. Apple is doing whatever it can, you'd drum up excitement and sale of its upcoming mixed reality headset. Bloombergs Tom Busby has more on that.
Apple now racing the boost interest in its mixed reality headset, which will blend virtual and augmented reality. Forecast to make its debut at Apples Developers Conference in June and go on sale later this year. It's Apple's first all new tech product since the Apple Watch debuted eight years ago.
It's expected to retail for upwards of three thousand dollars, so the iPhone maker is now building a whole bunch of software for the unit, including gaming, fitness, wellness and meditation apps, as well as new versions of existing features found on the Apple iPad, and a news service for watching sports. Tom Busby, Bloomberg Daybreak Asia.
I'm Brian Curtis along with Doug chris Ner. Rashad Salama will join us in a few moments. So we had the earnings, the bank earnings. We've gotten through quite a few now, and I suppose we can say that the earnings seemed to show that nothing's really broken. But do we need to add the word yet.
It's very interesting you should say say that because it was a curious day in the bond market, and we had some mixed economic news here in the US. The New York Bank FED Bank Survey of Business Activity was down in the month of April, but less than the market was expecting. Housing starts, though for single family homes up in the month of March by two point seven percent,
so a little bit of cross currents. But then you look at the Atlanta Fed's GDP now index reading, it suggests Brian that GDP growth in Q one may come in at around two point four to eight percent. That's still pretty good, wouldn't you say?
Yeah, it's just really interesting that it doesn't seem like we're seeing any signs of recession.
Now.
However, we have this long running inversion in the yield curve which sort of screams out that there is trouble ahead, so it's it's sort of like, you know, waiting. I don't know if waiting or if we're just you know, kind of hoping that things resolve themselves before we get there. Let's talk a little bit about Netflix, because that was a much awaited earnings. Really the company seems to be struggling a little bit here.
It has.
We mentioned that it avoided a big collapse, so they apparently liked what they heard on the call, but there's still a number of challenges there. You know, you've got the crackdown on the shared passwords. That's something that may eventually play out in their favor, but it's a difficult road to go down in the initial stages. You've got heavy competition in streaming, and it's still difficult to attract new subscribers.
Yeah, and Netflix saying today it's going to ship the last of those red DVD envelopes in September. That's twenty five years of mailing shows through the US Postal service that's going to come to an end in September.
I'll probably show you my innocence. I didn't even realize they were still doing that. I've lived abroad for such a long time. I'm amazed that they were still actually doing that anyway, It's time for Global News. There's been a tragic parking garage collapse in Lower Manhattan. Ed Baxter has the story from the San Francisco nine sixty newsroom.
In Yeah, Brian, and they're still developing. Rescue crews are working on getting people out from a parking structure that collapsed in Laura, Maha and this on Ann Street near NASA on Ner Pace University. There is at least one person dad, at least five injured, one missing. Authority say at least six parking garage workers have been rescued so far. The upper level of the three story building collapse, sending the cars inside crashing down. I'm just watching a video
link on it. They're using robots to actually go in to take a look at the structure itself and to see if it can find anybody who may still be within the structure. Fox News has agreed to settle the Dominion defamation lawsuit. The agreement reached just after the jury was selected and before opening arguments. Dominion has claimed that it was to fame by airing bogus claims that it rigged the twenty twenty election against Donald Trump. Dominion CEO is John Polus.
Fox has admitted to telling lies about Dominion that caused enormous damage to my company, our employees, and the customers that we serve.
Nothing can ever make up for.
That, and do Menion attorney Justin Nelson says, a point coming out.
For our democracy to endure for another two hundred and fifty years and hopefully much longer, we must share a commitment to fax.
How the settlement for seven hundred and eighty seven million dollars. But Bloomberg's Wendy Benjaminson says, for Fox, that avoids a long, embarrassing trial and for Dominion.
And maybe they just didn't want to go through the expense of a long and highly public trial. You're absolutely right that it is totally in Fox's interest to settle rather than get their best known stars on the stand where everyone would be glued to their sets watching everywhere they say.
Yeah, so you want see Tucker Carlson, John Hannity or Rupert Murdock on the stand. Says it'll be interesting to see how Fox does address news going forward. Fox has issued a statement saying the settlement reflects it's continued commitment to the highest journalistic standards. New Senate Health Committee report is doubling down on the theory that a China lab leak is the origin of COVID. Republicans very strongly saying
there is a total lack of transparency. The chair of the Select Committee on the Pandemic, Senator Brad Wintrip.
While the specific origin of COVID nineteen may not be one hundred percent clear, there's mounting evidence suggesting a research or lab related.
Incident, Winstrup saying China dodges and ducks every legitimate attempt to investigate the question. Hong Kong has fallen behind rival Singapore in the ranking of the world's wealthiest cities. The number of millionaires in the region dropped twenty seven percent over ten years, while the city state grew forty percent. The US is top China, with ten of the richest cities in the world Top ten New York, Tokyo, San Francisco Bay Area, London, Singapore, Los Angeles, Hong Kong, Beijing, Shanghai,
and Sydney. Now this is not on percentage of population, it should be noted, it is just based on raw numbers. Global News powered by more than twenty seven hundred journalists and analysts in over one hundred and twenty countries. In San Francisco, I'm Ed Baxter, and this is Bloomberg.
This is Bloomberg Daybreak Asia, Brian Curtis and Richard Salama. Joining us now is Michael Kajino, President and portfolio manager at the Permanent Portfolio family of funds. Michael, we've been kind of treading water here a little bit, waiting on something. What are we waiting on?
Good morning, guys. This is a tightrope. I mean, for every bullish scenario, there's a bears scenario, and I think the markets reflecting that. You know, I'm not sure what we're waiting on. More information, I guess would be probably the broad answer that we can then further figure out a directional trend, and I just don't think that's available right now.
Well, yeah, so the thing is, you know, we've got to of course, I have a bus Atlanta Fed presidents suggesting that we're going to have well one more rate hike them and I'm going to get into a poolse that I think that's been pricing already. Would you need agree to them? I guess people bulls and bads want something more.
I do believe that most of the market believes that we're pretty close, if not already there, in terms of interest rate hikes. I think the momentum and inflation numbers is downward, so they're probably roughly at neutral, whether it's one rate hike or two. At twenty five, they're roughly at neutral right now. Then it becomes a question of how much they want to step on the gas to raise rates and get us down to that two percent, and how quickly. And I think you know there's an
issue there. Depending on how aggressive they want to get to two percent, that's where the recession risk probably goes up. I would argue that they're probably close to just sitting pat for the moment, seeing how the economy adjusts to all this. I don't think you can have a real deep recession without employment falling off a cliff, and that
hasn't happened yet. Corborate earnings to date have not reflected falling off a cliff either, So the economy is adjusting to this higher cost of capital at some level at the moment. But I would stress at the moment, there are broader factors out there tightening of the Fed's balance sheet, how quickly savings numbers are coming down and people are spending savings, whether growth and employment continues or starts to contract. So those would be things to watch going forward well.
And also a reacceleration of inflation, I mean, doesn't seem that likely. It seems like the more likely scenario would be just this slow grind lower that doesn't really please anybody, but it's kind of moving in the right direction. But is there a chance, at least a wildcard chance that inflation could reaccelerate core inflation?
Yep. We've been saying for a while we don't know the answer to this, but our concern was that we would. You know, you had a tsunami of money that washed over the economy over the last several years in the trillions, and that wave hit, it flooded everything, and now it's receding,
and that would be expected. What we have done, though, is we've increased whether it's spending or the budget bill in December, the Inflation Reduction Act, climate spending, etc. You've created an additional potential wave of stimulative impact that hasn't really hit the economy yet, and so that could basically slow the reduction of inflation. So you have this scenario where all the things being equal, inflation would probably continue
to trend down. But because you've got new spending, and I would say that neither the full effect of the interest rate hikes have been felt in the economy, nor any potential stimulus effects of stimulus programs having been felt in the economy. You have this scenario where you're in the middle and you don't really know what direction it's going to go. And I think the market is there.
I think trading reflects it. There's not a lot of volatility because I think there's not evidence of a full blown recession, nor is there evidence of a full blown growth track. You know out there and Netflix today was a rather interesting report. It wasn't necessarily it was not a growth story. It wasn't a bad report, but it was not a growth story, and it was not indicative of a company that's trading at a pe of thirty.
You would expect better earnings results and revenue results and forecasts for a company trading at that pe in this environment, and that wasn't there. So you know, a lot of uncertainty right now, Michael.
You know one thing is credit as well. You know, the thing is this is an emerging story. I mean it's already hit the banks who've seen that already. But it's sort of cool. My I was a Wells Fargo ishing what three and three quarter a billion dollars worth of eleven year bonds earlier. Now it's paying one hundred and eighty bases points over treasuries. Okay, Westwogger's arguably the big the week is the Big four in terms of
capital ratios. You know, the question one has to wonder is how much you will smaller banks have to say I have to pay? And what will that tell us about loan spreads ahead?
Well, there's a lot packed into that comment. I mean, you know, if it's willing to go out ten years, then they must feel like, you know, the interest rates are reasonable in the circumstances. If you're issuing debt instead of equity, it's not as diluted, so and maybe they feel like it's a good time, it's stable, so that they can raise some additional capital if they need it.
I'm not sure what we don't own, well, so I can't specifically speak to their circumstances, but capital raises in general, I think we could see more of them in financial services, just as a precaution. If you have a stable cost of capital, you know, times get good later on, you can always pay it down quicker.
And so it sounds like it sounds like from your vision of the world, Michael, that you'd be pretty comfortable being diversified between stocks and bonds here and just allow some time to go buy and collect your four and a half percent coupons.
We've been very comfortable doing very little actually, I mean for us, an active decision sometimes is to not do much of anything, and so we haven't been big buyers of equities into strength. We haven't bought a huge amount when they've sold off. We've kind of We're happy with our allocations with nibbled at energy, some financial services on down days. But we you know, we have exposure to equities.
We like companies with that can control pricing power and can control their cost structure, and we like macro stories like energy and commodities for the long term because we are we do think out multiple years in our portfolio. We also have a healthy dollop of gold. Given the uncertainty the financial system of the market, of the Fed possibly being done, maybe cutting, maybe not. I think gold is reflecting the move of where we are right now
and could go a lot higher. And then on the bond side, we are still relatively short duration in investment grade corporates and treasury, so we're we're about three years and in so we you know, we're we're getting income, but we're not going too far on the duration curve.
Sounds about right, Michael Kagino, Thanks very much for joining us. 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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