IMF Warning and Divergent Fed Speak

to let Ukraine support Wayne. New York DA sus Jim Jordan to stop Trump case interference large US Philippine military drills. 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 Apple, Spotify, the Bloomberg Business App, and everywhere you get your podcasts. Good morning, I'm du Prisoner and I'm

Brian Curtis. Here are the stories we're following today. Two FED officials offering differing views on the Central Bank's next move. New York Fed President John Williams told Yahoo Finance that officials will still have more work to do here on inflation,

and that's despite the uncertainty in the banking sector. Williams said that the Fed's path will depend on incoming economic data, but he suggested that one more interest rate hike this year followed by a pause would be a reasonable starting place. In the meantime, though, Chicago FED President Austin Gulsby called for prudence and patients when assessing the economic impact of

these tighter credit conditions. Given how much uncertainty abounds when these financial headwinds are going, I guess I think we need to be cautious. We should gather further data, and we should be extra careful about raising rates too aggressively until we see how much work the headwinds are doing for us in getting inflation down. Markets are pricing in now a strong likelihood the FED will raise borrowing by a quarter percentage point. Fed officials will discuss monetary policy

at the next meeting. May Second mentioned the CPI data a little bit earlier eight to thirty am Wall Street time. That will be Wednesday morning US, and we have a preview from Bloomberg's Michael McKey. The FED is all about inflation these days, which puts a lot of focus on the consumer price Index. The problem for markets is it's not likely to provide the kind of definitive rate clues

investors want. Headline CPI is forecast to be cut in half, which will mean a big drop in the year over year rate, but core, which gets more attention from the Central Bank, isn't likely to budge and may actually rise year over year. Since the Fed doesn't meet again until May third, officials will have to look at all sorts of other data to divine where inflation will be then,

Michael McKey Bloomberg day Break Asia. The International Monetary Fund warned that it's too soon to sound the all clear from the turmoil that has shaken the world financial system. That's according to his statement in the semi annual Global Financial Stability Report the IMF, saying that financial markets remain fragile and stressed following bank collapses. The Stability Report was released shortly after the IMF published an update to its

World Economic Outlook. In the outlook, the IMF trimmed its projections for global growth. I AMF chief economist Pierre Olivier gore Inshaw has warned of high uncertainty going forward. This is reflecting basically the fact that we have advanced economies are reopening or moving ahead, China reopening, and at the same time we have the tightening of monetary policy is that is weighing in, plus a little bit of financial instability that could weigh down on bank lending points US.

So you put all of this in the mix, and that's where you have our baseline. Gorenshaw says there's maybe some lurking vulnerabilities still there in the financial system, and he said it's very important for financial supervisors as well as regulators and authorities to look carefully at these pockets of vulnerability that might still exist. At the same time, today, US Treasury Secretary Janet Yellen simply shrugged off the recent

turmoil that we've seen in the banking sector. She went on to say the American economy is in a better place than it was just six months ago. Here is Yellen speaking during a press conference earlier today in Washington. Prices of commodities like food and energy of stabilized supply chain pressures continued to ease, and global growth projections remain

higher than they were in the fall. Treasury Secretary Yellen there she went on to say she has yet to see evidence at this stage anyway of a contraction in credit,

but she does say that does remain a risk. Yellen's comments come despite last week's economic data, one data point indicating the US lending contracted by the most on record during the last two weeks of March, syndication of tighter credit conditions in the wake of several high profile bank collapses, and Yellen repeated the US banking system remains sound and with strong capital and liquidity positions. Meantime, China is planning to require a security review of generative AI services before

they're allowed to operate. We get that story from Bloomberg. Yvon Man. China Cyberspace Administration said AI service providers must ensure content is accurate and respects intellectual property. The content must not involve discrimination or endanger security. AI operators must also clearly label AI generated content. The review cast uncertainty over some of the chat GPT like bots introduced by China's big tech companies. Those firms include Ali Baba and Baidu.

After the announcement, Ali Baba shares gave up much of their initial gains on Tuesday, and bay Do shares also slid as much as seven percent in Hong Kong. I'm Van Man Bloomberg Day Brick Asia, and those shares continued to trundle a bit lower with their ADRs. In the United States, I'm Brian Curtis along with Doug Chrisner, and you gotta love a tussle in the exciting world of high finance. But John Williams on one side saying rate increases didn't cause the bank collapses, and then the IMF

begging to differ. That's what makes a market, right. I think that's a fair point. You know, we talked about the CPI print that we're expecting tomorrow. The other thing that's going to be happening tomorrow Brian minutes from the last FED meeting, and I think beyond that, arguably the more critical data that we're going to get this week bank earnings we'll have to wait until Friday, though. It's JP Morgan Chase, along with City Group and Wells Fargo.

Particularly given a lot of the turmoil that we have seen across the banking sector recently, the issue of forward guidance I think is going to be very critical where balance sheets are right now, liquidity issues very very important, I think, yeah, And we had a pretty good day for the financial spiders today, up nine tenths of a percent. It was another slightly unusual day. I mean, it looked like very weak performance broadly the SMP five hundred flatnel.

But we had another day of quite performance by industrials, materials, energy shares, the cyclicals, and we had I think the fifth day and six that we saw selling in tech. So I think most of this is really just churn as mentioned, and maybe mean reversion because tech got off to such a big start this year. One of the quick mention Buffett adding to his positions in Japanese trading houses. Maybe a cheap way to play energy maybe, But at the same time, I thought it was interesting too that

he's dialing back on Taiwan Semi. It was only over the weekend the Taiwan Semi reported that fifteen percent drop in revenue, But Buffett is highlighting a lot of geopolitical risk in kind of getting out of Taiwan Semi. I

thought that was an interesting little takeaway. It may also just have been some profit taking, but this add to these Japanese trading houses which do feature a lot of their profits from the energy has gained him four point five billion dollars since twenty twenty when he moved on these. So he tends to just always seem to get his timing right now. That's why they call him the Oracle

of Omaha. Absolutely, yeah, his timing is impeccable. Mark Chandler would join us in a few moments, Managing director at Bannockburn Global. It's time for Global news. Hungary has defied the EU by sealing economic deals with Moscow. It docks it with Global News in the nine sixty Newsman San Francisco head. Yeah, the geopolitical dynamics here are really strong, Brian. These are energy deals made and a rare visit by an EU member to Russia. It underscores it. Divide forming

over commitment to Ukraine. Quick response from Poland's Prime Minister Moroyatsk. If we do not defend Ukraine, we risk a global conflict, global crisis. Off difficult to imagine proportions and says Ukraine is just the beginning, and this made more difficult today as more and more information comes out of what is supposed to be the league. US Pentagon emails Bloomberg's Nick Wadhams on Bloomberg sound On says one and cage Ukraine will run out of ammunition and materials, but also have

air defense problems. It seems to be we're really peeling back the veneer a bit and getting into the real nitty gritty of just how worried US officials are about how Ukraine is going to be able to defend itself against Russia, and that cautions that need to be authenticated. But former US ambousnsador to Morocco Mark Ginsburg on Soundown

says it goes even further. This is an unmitigated disaster for the US government, and it's not only a painful week that is undermining US credibility, but it's also placing at risk the very military effort the United States has been engaged and to support Ukraine. Now, he says, there's grave concern at the Pentagon. The Pentagon says it's going to turn over every rock to get to the bottom of it. Brazilian President Lula going to travel to China, one stop in Shanghai at the Wildwi site. Lula says

he hopes for trade and peace. He calls it a goodwill tour. In what of being described as the largest combat exercise in decades across the South China see in Taiwan, straight US and forces from Philippines are carrying on those exercises. US Major General Eric Austin is leading the charge, approximately seventeen thousand, six hundred participants in total, demonstrating our commitment

to each other and to our Mutual Defense treaty. And this comes through right after China finish large scale exercises of course in the Strait and surrounding Taiwan. Manhattan District Attorney Alvin Bragg is suit House Judiciary Chairman Jim Jordan's seeking to keep him from interfering in any way with a case against Donald Trump. Jordan is subpoena a former

senior prosecutor to testify at the hearings. Bloomberg's Mario Parker says it is a very risky move already where that it was politically motivated, right, But at the same time, Republicans Jim Jordan, Donald Trump's biggest allies, they're playing tough. So what do you do in New York? You probably have a tree fight, right. Bragg is asking for emergency ordered to stop the subpoena. New York Governor Kathy says New York will fight back against the forces trying to

prior back healthcare for reproductive rights. Speaking a Planned Parenthood a Greater New York Digital news conference today, she pledge your support and last year the attacks were on abortion procedures. This year medication abortion. What's next contraception birth control? Governor Hokel says a state will stockpile one hundred and fifty thousand doses of the so called abortion pill and commit another twenty million dollars to providers if the Texas court

ruling stands. Global News powered by more than twenty seven hundred journalist and analysts in over one hundred and twenty countries. In San Francisco, I'm Ad Baxter, and this is Bloomberg. This is Bloomberg, Gabriek Asia. I'm Brian Curtis here in Hong Kong. Rashad Salonat is with this in Singapore, and our guest is Mark Chandler, Managing director at Bannockburn Global Market. Doesn't seem like there's a lot of fear in the market at the moment over this CPI print. Everybody's waiting

on it. It seems like people are kind of used to it in between five and six percent, and they know the Fed is getting close to the end of its tightening cycle. Or does it have the potential though to rock markets. Yeah, thanks Brian, it's a good question. I mean, everybody's been waiting for the CPI number, and in this economic cycle, it's where the CPI, it's the key release. But I think that might be like yesterday's story.

And here's why. I think that between the employment data and the inflation data, the market knows the Fed would like to raise interest rates further. You know, before the financial stress hit, Powell was talking about higher for longer and the market is tricing in five and three quarters FED funds rate. So now I think that the focus is really shifting. I think that someone said it in one of your previous shows about the importance of Thursday

and Friday Federal Reserve data. On Thursday, after the markets closed, the Federal Reserve tells us how much the banks are borrowing from it, and we're focusing on it. Of course, is the emergency borrowing from both the discount window and the FED facilities. And secondly, on Friday we get the numbers that tells us about the banks, about the bank lending and bank deposits, And that's really the concern to me is that C and I loans, So banks have

a lot of different types of loans. They were big sellers of mortgage backed securities, which in effect reduces their loan book. But the focus for the economy, I think auto beyond the commercial and industry loans. They have fallen in the past in the last two weeks of March by a record amount and sounds small. It's only two and a half percent of overall loans have fault have

been reduced. Typically in a recession we get to twenty to twenty five percent, but this is a big move for two weeks, and I suspect that when the FED

talks about economic data, this is really what they're talking about. Now, Mark, that is something we comes to the second detail something that Brian and I have been really talking about the credit conditions, But I just want to zoom in on the inflation side of it, and you know, with China at the moment, with some of the most inflation even deflation in some cases, this is something the FED surely

must be watching. Given that the idea was after reopening we would see China exporting inflation, we could see going reverting to exporting disinflation, and I know, you know, I think a lot of people thought like that, and I'm really suspicious. Here's why. You know, last year or two years ago, people are telling us that the PPI in China is somehow correly the USCPI, even though for China, exports to the US is primarily consumer goods, and from those consumer goods it gets to a port, say a

New Jersey port or Los Angeles port. By time I buy as a consumer, there are so many middlemen as we transport it marketed store. It ensure that I might be looking at a price twice when it comes into the into the US as secondly comes to CPI that O reserve has been I think the Power especially has been very good about pointing us in the direction of services X housing, X shelter. These are these kind of prices service goods, core service goods excluding food, energy, and shelter.

These are domestic, home grown issues. So I kind of think that we think that China is going to hurt us to help us. But in the US, I think most of our challenges are really homegrown shelter costs, medical costs, other services. These are what's rising. And you know, when we look at the CPI, it's not just that last year's high numbers drop off, but you look at what's happening.

And if you look at the first quarter and I think the median forecast in the Bloomberg surveys for air two tenths rides in the headline rate, that turns into a four point four percent annualized rate in Q one. In Q four was three point two percent. So inflation is accelerating in the wrong direction, and tomorrow we might see that core rate pick up. So the bias, I think on the inflation fence point of view is it's

too high and they need to take more action. Yeah, so are you estimating just one more or you think more aggressive than that? Well, you know, when when the financial stress hit, the issue is how much is that financial tightening doing some of the fed's heavy lifting. And of course the market triced it in like there was going to be an OA trisis again and began pricing in not only would be FED be done, but they'd be cutting rates by a hundred basis points this year.

And so the pendulum has swung back a bit, and the market now says the mayhike and that's it, and I think there might be one after that. I just I think that the economy is proving the self fairly resilient. And you know, it's also like you take a look at like the Atlanta Feds GDP tracker, and they're talking about two point two percent. It doesn't sound like a lot, but two point two percent from the fence point of view,

is above the speed limit. And the speed limit you get from this the summary of economic projections with their long term forecast day not an inflationary growth is seen on one point seven percent, and here's gonna be another quarter where the economy grows faster than that. So you're in the yelling camp that everything's pretty rosy out there. No, I mean, I think that we should be watching those

financial conditions and especially those loans. But I think that right now, the federal reserves attitude, there's something like this, interest rates are important to guide the overall economy. They have other tools to address the financial stress, which does seem to be easy. I mean, I was just looking at the KBW Bank Index. It's up for the third day in a road today one percent one point three

percent on most in the US. And that's like I want to say, it's like eight or nine days out of the last three weeks it's up, which is so I think bank chers are recovering as the loans that's the real issue now. Yeah, so month brings me nice in to what we're going to talk about earlier and what you also alluded to earlier too, and that is how concerned are you about underlying issues of base liquidity? Yeah? So base liquidity, it's like one of these measures like

real interest rates. Everybody has their own definition of it. Is a concern to me that M two is actually contracting. That's the broad measure of money supplies actually not just growing slowly but actually fall it. So I'm worried that we're aheaded through recession. But it sort of like one of those Astop stables about about the fox from the scorpion. Both sides have to do what they have to do.

The Federal Reserve, I think, slow to begin raising rates in the cycle, slow to begin the papering, and so I think that the risk is that it has to overdo it this time on the tightening decide to demonstrate its resolve. Yeah, yeah, it's an interesting point. Just finally, maybe thirty seconds or so, do you like Warren Buffett's move into Japan adding to his positions in those trading houses. You know, it's very interesting because we're seeing this among

our clients as well. You know, when you look at on a page Bloomberg has WCRSS, you can get the OECDS measure of purchasing power parity, and typically the OECD currencies don't move more than twenty percent away from the fair value purchasing power parity by the OECDS model. But as we sit here today, the euro is over fifty

percent undervalued, the yen is forty percent undervalue. So I think for a dollar based investors buying those assets in Japan or Europe, you get the currency even if it takes a couple of years to normaliz, and that's a good that's an interesting call. I even given that the dollar has weekend since last October. Anyway, we've got to go, Mark, Thanks so much. Mark Chandler, Managing director at Bannockburn Global.

This is Bloomberg. This is Bloomberg Day Break 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, and anywhere else you get your podcasts. You can also us and live each day on Bloomberg eleven three zero in New York, Bloomberg ninety nine one in Washington, Bloomberg one oh sixty one in Boston, and Bloomberg nine sixty in San Francisco.

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