This is Bloomberg day Break Asia for this Monday, May first here in Hong Kong, Sunday April thirtieth in New York and coming up today.
The FDIC formally accepts bids for First Republic Bank after the lenders stock plunged last week.
Traders look ahead to key central bank decisions from the FED and the ECB.
China's manufacturing activity unexpectedly contracts, but the country's tourism and consumer activities rise sharply over the holiday weekend.
Australia's Defense minister citing economic coercion as a reason for a revamp military Republicans calling for a White House meeting on death, ceiling and spending. Biden turns comedian of the correspondence dinner. 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 Brian Curtiz.
And I'm Doug Prisner. Here are the stories we're following today.
And the big one Doug us authorities stepping in after First Republic stock plunge last week, leaving it down ninety seven percent. This year, we hear the FDIC asked banks including JP Morgan, PNC Financial, and Citizens Financial to submit bids to take over the San Francisco based lender. If no agreement is reached, regulators would then have the option of taking control of First Republic. Democratic Representative Rocanna weighed in earlier on CBS's Faced the Nation.
I think that the FDIC needs to look at the lowest cost alternative. That's their mandate, and right now they may need to work with banks in private capital to save First Republic. I mean that is the state we're in.
That's Rocanna heard here on Bloomberg. A possible option for First Republic is for regulators to use a bid for a so called open market solution that have void's formally declaring First Republic of failure. The stocks drop, leaving the firm with a six hundred and fifty million dollar market value, has made such a takeover somewhat more feasible now than before.
Now.
At the same time, former US Treasury Secretary Larry Summers was saying he's surprised and disappointed that US regulators and banking giants don't have a solution for First Republic. He told us it's in their best interest to find one.
The big banks and the government both have a strong stake in this situation being contained and resolved. The big banks have deposits in First Republic Bank in significant quantity. They have a huge stake in the financial system staying stable.
Former Treasury Secretary Larry Summers there He went on to call on regulators essentially to make it clear that uninsured depas it's in First Republic are going to be okay. He warned of the danger of contagion to other banks.
Meantime, Federal Reserve policymakers meet this week, with another interest rate increase considered likely. Bloomberg's Larry Kofski has more on the story.
The Fed's steepest rate tightening campaign in decades is nearing an end. Officials will be considering how much more pain they need to inflict to restore price stability while trying not to send the economy off a cliff or pushing already creaking banking system into crisis. The fed's two day meeting begins Tuesday. Similar deliberations are likely as officials at the European Central Bank and the Bank of England meet over the next two weeks. I'm Larry Kovski Bloomberg day Break Asia.
Well, it will be a busy week for economic data along with a full plate of corporate earnings. We have a preview from Bloomberg's Charlie Pellett.
It has been a story of strong corporate results counteracting concerns over persistent inflationary pressures. Lindsey row Listener is portfolio manager at PGUM Fixed Income.
What we heard, I think resoundingly through the earnings that we've received, is that recession launch is going to have to happen next quarter. The guides so far from companies that we've heard are actually not terrible.
Apple will be closely watched on Thursday. Earlier in the week, it's Qualcomm and AMD. We'll also hear this week from automakers Ford and Ferrari, along with Uber, Marriott, Ffeizer, Starbucks, Young brands, and oil giants BP, Shell, Conico, Phillipson, Phillips sixty six in New York, Charlie Pellett Bloomberg Daybreak Asia.
And as Doug mentioned earlier, China's economy is sending mixed messages. Let's get the story from Bloomberg's Bonnie ou.
China's manufacturing activity unexpectedly contracted last month. The official PMI from from fifty one point nine to forty nine point two in March, and growth and services and constructions slowed more than expected. The non manufacturing PMI came in at fifty six point four, down from fifty eight point two. But as the five day Labor Day holiday begins, China's tourism and consumer activities roast shoply data showed major retail and catering company sales jumped twenty one percent from a
year ago. The conflicting data show is still unclear if the recovery can be sustained in Hong Kong. I'm Bonniel Bloomberg day Break Asia.
I'm Brian Curtis, along with Doug Prisner. Vonnie Quinn will join us in a few moments, SI, Doug First, Republic Bank really the story of the day today on this Sunday, and it's another one of these cases where you know, the banks hanging in the balance and regulators are hoping that a sale can be made because that's smooth. And then,
as we pointed out in our story. If that doesn't happen, the state regulators would would likely step in and close the bank, and then the FDIC would then be appointed receiver.
I was struck by the interview that Charlie Munger gave the Ft over the weekend. He we know, being the vice chairman of Berkshire Hathway, he's got his pulse on a lot of things, including many of the big banks.
He was saying that the storm is brewing basically in the commercial real estate property market, and he went on to say that American banks are full of bad loans given the drop that we've seen in property prices, and as we know, Brian, with what has been happening in the bond market, the value of many of those securities now at much much lower levels.
The question is does it impact earnings and thus the stocks fall significantly, or does it become such an issue that these banks are then in trouble. And we see that now with First Republic, and we actually saw the closure of banks before, and so that definitely is something to look out for. I wanted to talk a little bit about China because it very much was mixed, the services and manufacturing sectors coming in very different than expected.
Non manufacturing pretty decent at fifty six point four, albeit down from the previous month, But manufacturing contracting sends a bad signal, and then all of a sudden you get the beginning of the holiday where you have travel booking soring something like seven hundred percent and even getting stronger than what we had pre pandemic. So it's hard to figure. It'll be interesting to see how the markets interpret these numbers today.
Yeah, that PMI for China on the manufacturing side, definitely a disappointment and maybe a little bit discouraging. The question for today, though, Brian, is whether or not that trade data for South Korea will reinforce that notion.
Yeah, it's all up there. We won't get a lot of market action today, so it's not like we'll be getting strong signals, but we're certainly watching what we do get. It's time now for Global news. Australia's Defense Minister Richard Marles is citing economic coercion as a motivator for a revamped military at Baxter has Global News from the nine to sixty news room in San Francisco.
Yeah, that's right, Brian Marless flag potential intimidation and pressure on the global rules based order. Those are his words, he says, as At pursues sweeping changes to its military strategy amid China's rise. Maril's on ABC Australia says, the fear of not being invaded.
When you look at the way in which great power contest is playing out, and particularly in our region, you look at that military build up and you look at our exposure to that throughout a much greater economic connection to the world, we are much more vulnerable to coercion than we've ever been before.
And Mars says a nation has to be prepared as traded with China's increased in the recent past and is more and more reliant on fuel from Russia.
And what that means is we need a defense force which has a much greater power or ability to engage in projection because so much of what we need to do is beyond our.
Short Yeah, military has to be more focused on defense, he says. Ahead of President Ferdinand Marcos Philippines visit the United States, the State Department has put out a statement saying the US will defend free transit in the South China Sea. An armed attack on Philippine Armed Forces aircraft or naval vessels would trigger US defense commitments. Beijing has said that its maneuvers in the recent days they're professional
and restrained, and says the US must not interfere. Republicans in the US are calling on President Joe Biden to come to the table and talk about debt ceiling and spending. Congressman Steve Scalise on ABC says their budget package is just common sense.
We put in the bill are very basic common sense things like let's have some work requirements for able bodied people who want to get welfare benefits. Shouldn't they at least be looking.
For work now.
Scalise on ABC is heard here on Bloomberg Today, but Senator Chuck Schumer says it will not fly in the Senate.
Their plan means fewer jobs, higher costs for New York families. It would leave policemen, first responders, border patrol, grave veterans all hanging out to drive.
Yeah. Schumer says it weakens a fight against opioids, cuts childcare, clothes, social security offices, restricts healthcare, reduces efforts to bring jobs back to the US from China. And President Joe Biden at the White House Correspondence dinner last night, talking several serious issues like Fox, defamation, freedom the press, promised to work to secure the release of journalists and America national held by foreign governments. But then hold on, hold on, who is a new comic on the block?
I believe in the First Amendment, not just because my good friend Jimmy Madison wrote it.
And Ron de Santa, Where's.
Re election is?
Gonor?
He was asked if he had a man date, He said, hell.
No, I'm straight Trump.
Headline Biden's advanced days.
The big issue Trump's, however.
Is not and maybe the best for Lass saying, please enjoy yourselves tonight, but please take care if you find.
Yourself disoriented to confuse, it's either your drunk or Marjorie Taylor Green.
Global News powered by more than seven hundred journalists and and listen over one hundred and twenty countries in San Francisco. I'm d Baxter, and this is Bloomberg.
And I'm Brian Curtis along with Vonnie Quinn, Doug Krisner is looking at markets and at backstraw News. Let's get to our guest, the esteemed William Lee, chief economist at the Milken Institute. So Bill great to have you with us on the program. I know you want to you want the FED to stay vigilant here, and that would appear to be consensus, so we don't need to spend a lot of time sort of describing why you think
that should be the case. I am interested, though, in your response to this, that we did see growth fall pretty rapidly right at the end of the first quarter, hence the first quarter GDP plummeting down to one point one percent when it was looking like two and a half percent really just a few weeks before that. Does that rapid fall in growth eventually drag inflation lower? Or is this a big part of the quandary?
Brian? That is the question. But you know, is it it great that we finally start to see the economy slow down after all of the huge amount of increases that we've seen and the quantitative tightening and now some fears of credit contraction because of the banking issues that are popping up, but we are seeing as spalling. And the most important number that hasn't really been a report a lot is the last quarter we saw gross domestic
income actually fall turn negative. So that really means that the strong consumption that we've been seeing fueling the US growth may be slowing down because the fuel of income growth is something that is starting to be constrained. Even though the job market remains very strong and we have very low unemployment rate, income itself is the constraining factor on consumption.
It's the very very first signs of this though, right Billy, ECI still rose by one point two percent of the first quarter, which is more than forecast and up from the revised one point one percent.
Funny, there's no question inflation is still with us, and we're talking not just price inflation, but wage inflation. And right now, with the wages growing at above four percent, that's consistent with well above two percent inflation target. So we really do have to get that inflation down. But the fact that the slowdown is beginning is starting to at least bring some relief to so much. Former colleagues at the said that are wondering, gee, has the economy
turned such that it's become invulnerable to rate increases? Well, I think the answer is coming through. No, it's not invulnerable. It just took a little bit more time than they thought.
Obviously, the big story today Bill is first Republic Bank and what happens and why the rush on this Sunday? Does it matter if a deal doesn't get done? Why wouldn't a deal get done? Given the First Republic's market cap is now just a fraction of what it used to be. Do you see this as as something that's key that needs to be done today?
Absolutely not, Brian. I think we've talked ourselves into a tizzy about all this bank problems that we're having. We've discovered that among the over four thousand banks, it's a whole bunch of them are really badly managed, and a lot of them are pretty excised banks. Silicon Valley was the fourteenth argest bank, were sixteenthlargest bank, and First the Public is the forty sixteen one. You know, it's one of those numbers. So we're talking about fairly sizable banks.
But each of these banks that have failed started to specialize their their business models to cater to high net worth individuals who are very sensitive to their returns and they'll move their deposits on a dime if they find better investment opportunities, or we find them dealing with crypto based banks, or we're dealing with a bank that has specialized in providing venture capitals and Philici value firs.
But Billy, you heard Larry Summers. They're saying we're playing with fire here.
Yeah, you know we are. And what I'm asking myself is is Larry worried about a campfire getting out of control? Or is worried about a forest fire? And I think you know, when you look at the amount of bank lending in the United States, as far as financing goes, it's about twelve percent of all non financial corporate financing.
So most companies in the United States raise capital through equity markets, bond markets, and banks are really critical for one segment of the economy, small and medium sized businesses and the commercial real estate market. And yes, if the banks fail in this in this smaller bank area, then the most hard hit companies will be the small the medium sized businesses, who are, by the way, the most important set of businesses for employment. So what we'll see is WHI could see a big hit in the labor
market if these companies start to lay off people. But we haven't seen that yet. We've seen only Silicon Valley guys worried about their payrolls because they stufft all their money with one bank because they have sweetheart deals, and now we have first Republic who is catered to high networth individuals, and quite frankly, you know these guys have other assets. Not all of their money is in a bank deposit the way a lot of you know, poor people do.
It is true that minks would likely loan out a little bit less over the next six month, which will be a little bit of a buffer for the economy as well. What does that mean for how high the FED will have to go on how long it'll keep it there.
Ronnie, I think one of the answers to that question comes out of the basebook. They said, we've discovered in canvassing all of the banks in our various districts that the amount of lending will contract, but not because of supply. It's because the demand for lending has really eased off a bit because people are worried about the coming slowdown. They're not going to be investing in inventories that aren't going to be sold. They're not going to be expanded
the capacity if the economy is slowing down. So it's really the contraction of loans is coming from the lack of demand, not lack of supply. And that's really important thing to keep in mind.
Another big question in markets today will be the China recovery, whether or not as stumbling as suggested by the big drop in manufacturing. We had a contraction there and manufacturing in the previous month, but then the travel sales looking pretty solid. Here we had our old friend hung how from growing Esman say, China is a country of big numbers, but numbers as big as these still stun even old hands like me. So your take on China and how things I mean there, I have to say there definitely
are some caveats in the media review. Later I'll report that, yeah, we had one hundred and sixty five thousand Mainlanders come to Hong Kong in one day, but then one hundred and ten thousand left at night. They didn't stay in hotels, So there are caveats, but on balance it's looking pretty solid.
Your thoughts, Brian, I am so glad that China has proven to be as difficult to forecast as other large advanced economies. And you know the manufacturing sector has slowed down because we know the global economy is slowing down, manufacturing is blowing down. People aren't buying as much stuff as they were before. But the one thing we all expected was the opening up of the COVID restrictions would
cause the Chinese people to start spending like crazy. Well they started to do that, but then it seems as though the amount of spending may be petering out, unless, of course you thought about travel. So yes, there ourselves whole bunch of next picture coming through, and I think it's going to take a little bit of time to sort out where are the Chinese consumers spending and how
persistent will that spending be? Can they continue to spend strongly through the rest of the year and into next year if their income is uncertain because of the huge amount of use unemployment, and because the real estate market wealth is still tied up in a clagmire and they're not sure how much wealth they have. So yes, the big surge in spending took place, but will it persist? And that's been the big open question for China.
Bill, you're the chief economist at the Milican Institute. Channel has its big global conference this we have to ask you which of the panels you're most excited about. What question you want to answer? Given that there's everything from AI presenting potential regulation lags and risks to the health equity movement.
Well, I hate to trump in my own horn, but I must say my own panel, which is a private session on the FED and the consequences of the credit contraction for the US and global economy to me the key topic. But I must say my colleagues have put together a phenomenal program of AI and other things. And in fact, Mike Nolkin has told every one of the staff, each one of you has got to find out something
you didn't know before. Go to sessions that you would never gone to and learn something, because that's the whole point of this. We're attracting people from all over the world, expertsly different field and the whole point of this conference is to have people talk to people they wouldn't have talked normally.
This is Bloomberg Daybreak Asia, your morning brief on the stories making news from Hong Kong to Singapore and Wall Street.
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