Recession Risk Rising Amid Banking Turmoil

as an ally. Taiwan's President Tide to visit the US this week. Singapore President lad of Asit China. I'm Ed 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 Curtis and I'm Doug Prisoner. Here

are the stories we're following today. Minneapolis Fed President Neil Kashkari saying the recent bank turmoil has increased the risk of a US recession. Is Kashkari speaking on CBS Face the Nation program right now. What's unclear for US is how much of these banking stresses are leading to a widespread credit crunch, and then that credit crunch would then slow down the economy. This is something we are monitoring very very closely. That's Neil Kashkari heard right here on Bloomberg.

Kashkari said that the US banking system is sound and banks have strong capital positions and a lot of liquidity, but he added that he will take some time for the current problems to fully work themselves out. Kashkari also thinks it's too soon to judge what the bank crisis means for the economy and for monetary policy. The Fed will meet next on the second of May. Meantime, we are hearing US authorities are making moves to help all banks.

This would include First Republic. That story from Bloomberg Susanna Palmer Our sources authorities are considering expanding an emergency lending facility for banks in ways that would give First Republic Bank more time to shore up its balance sheet. Officials have yet to decide on what support they could provide. First Republic if any, and an expansion of the Federal

reserves offering is one of several options under consideration. Even short of that step, watchdogs see First Republic is stable enough to operate without any immediate intervention as the company and its advisers try to work out a deal to shore up the balance sheet. Representatives for the Fed, FDIC and First Republic decline to comment. Susanna Palmer Bloomberg Daybreak Asia.

Former Treasury Secretary Larry Summers wants US regulators to pledge that they'll back uninsured deposits in any banks that fail. Summer has said that this would provide very substantial confidence

to the banking system. They can do that within their existing authorities simply by being clear that in the event of failures, given the highly fevered environment with respect to contagion right now, they are prepared to use systemic risk exemptions to allow the FDIC to pay off depositors with assurance that those funds will come from the banking industry.

Summers also said that officials should recognize that regulation now needs to take account of the digital banking and high interest rates that exist, because he says that's a condition where deposits can shift much faster than in the past. We are hearing two banks are both vying for what's left of Silicon Valley Bank. They are Valley National Bank Corp. And First Citizens Bank Shares. SVB collapsed earlier this month

and then was seized by the FDIC. We are told these two regional banks submit that separate bids before a deadline last Friday. Now, the FDIC has been seeking to sell SVB for about two weeks. Now, a winner could be chosen before the end of the weekend. No final decision has been made, and the FDIC could decide to hold onto SVB or sell it to someone else Bran

and to another troubled bank. Credit Swiss may face a probe and disciplinary action over how the bank was running the lead up to its collapse and its eventual takeover by UBS. That story from Bloomberg. Jevon Mehn, the Swiss banking regulator FIMMAH, told the Swiss German newspaper that Credit Suisse has a cultural problem. That problem translated into a lack of accountability. FIA president Marlene Amstead said it is not clear who is responsible for what policies and that

led to a negligent handling of risks. She said disciplinary proceedings remain an open question. FIMMA has been accused of failing to act early enough, and said it denied that, saying, quote, we intervened early and intensively in Hong Kong. I'm von Mann, Bloomberg Daybreak Asia. I'm Brian Curtis, along with Doug Krisner. Doug, you know, there's a pretty big gap between what the equity markets are doing with the newsflow that appears to

be screaming at us. We're taught to respect the price action, but it may be odd to some that the SNP five hundred was actually up last week. It's slightly up for the year, and it's still right in the middle of a range of thirty eight hundred to forty two hundred that we've been in for about ten months. And I would argue as well that the ten year treasury is also at about the same level that it was

in September. So even though I mean, the real volatility is at the short end of the curve, and that's as investors try to price out this terminal rate, and that one has been moving and we have seen a lot of strength, I think I'll agree with this, Brian, in the tech space a big beneficiary, kind of a haven bit, I would argue, especially when you consider that some of these companies have very strong cash balance sheets or cash positions on their allan sheets, and in a

time like this, where there's so much turbulence, so much uncertainty, particularly as it relates to the banks, tech has become a bit of a safe haven. And I think that makes the Fed's job a little easier because you can imagine how difficult it might be for the Federal Reserve to be continuing to raise interest rates if you had

the SMP five hundred falling two percent every day. I wanted to mention as well that you probably pick up on this line from Neil Kashkari as I did, where he said that it will take time for the current problems to work themselves out, if only they would work themselves out well. And I think that's what Janet Yellen is trying to do. By sending the message to the market that the government in some shape or some form has the back of some of these banks. That would

help to engender a bit of confidence. But on the inflation side, it's going to be very interesting to see what happens in the US at the end of the week with that personal consumption expenditures price index. It really may put the FED in an even more difficult situation with the volatility and the concern about the financial system on one hand, and this upward pressure that remains where the inflation story is concerned. Yeah, and I was only

half joking about Kashkari's line. He probably didn't really mean that these will work themselves out. He's probably more in the camp that Powell and Yelling are in, as you suggest that some intervention will be needed and will be forthcoming. So that's kind of where we stand on this Monday morning. All right, it's time now for Global news. Russian President Vladimir Putin says that he is preparing to move tactical nuclear weapons into Belarus. At Baxter has Global News from

the nine to sixty newsroom in San Francisco. Ed. Yeah, that's exactly what he's saying. Brian. Putin is saying that ten aircraft capable of carrying nuclear warheads have already been prepared in Belarus and the storage facilities for the weapons will be completed by July first. Putin says a US as long deployed tactical nuclear weapons on the territory its allies.

US National Security Council spokesman John Kirby on CBS has heard here on Bloomberg says, although US intelligence reports no significant movement of nuclear weapons, yet he does see obviously we would agree that no nuclear war should be fought. No nuclear war could be one clearly that would cross across a major threshold, and the US says it sees

no idea now to adjust its policy whatsoever. China has also brought up the discussion today, as Congressman Mike Gallagher says, the free world had better understand how the Putin She relationship works. You need to understand that Putin is she Jumping's junior partner. He is She's agent of chaos. Is tethered goat in Europe, and if we try and separate these these problem sets, I think we're gonna result in

a jew political posture that's ineffective. Also in the region, there the head of the UN's Nuclear Agency will travel to this Operasorifia plant on Wednesday, and Russia's claiming a Ukrainian drum hit a town about one hundred forty two miles south of Moscow. The claim to date has not been verified. Taiwan's President Siang Wing to visit the US this week. An NSC spokesman, Kirby on CBS has heard here on Bloomberg with Margaret Brennan, says, in spite of

China's protestations, this is nothing out of the norm. I think it's important to remember what this is. This is a transit, their normals. She's done sixth to long transit. She's done sixth Tension with China's never been this high. There we are and look, we understand that. And the president has said clearly he believes it's important to keep the lines of communication with China open. He wants to have another conversation with President. She will move in that direction.

But these transits are normal, particularly for this particular president. So I will visit New York and California. Meanwhile, Taiwan has lost an ally of decades after Honduras sides with China. Honduras now saying it recognizes Taiwan as part of China. China Honduras will have no established, no diplomatic ties at the ambassarial level, effective immediately. Now it's China and Honduras. Brazil's President Luda da Silva has postponed his trip to China.

His administration says health reasons. It says flu like symptoms. Singapore Prime Minister at Lee Sang Hung will begin an official visit to China today as scheduled. Itinerary includes meeting with President Hijimping. Federal officials are touring the devastation in Mississippi today, a town of two thousand absolutely leveled. Aerial

pictures show a total flattening, looking like a bomb. This is a Governor Tate reeves the resources of the people here in Rolling Fork, in throughout Mississippi need the help is owned the way and a Homeland Security Secretary, Alejandro Mayorcas says, it appears these events will continue to happen. It is heartbreaking to hear of the loss of life, to see the devastation firsthand. It is also, as the governor expressed, inspiring to see the people of Mississippi come together.

Myorcas says federal government will help in any way possible. So far, the death count there in Mississippi is twenty five. Global News powered by more than twenty seven hundred journalist and analysts over one hundred and twenty countries in San Francisco. I'm Ed Baxter and this is Bloomberg. I'm Brian Curtis in Hong Kong along with Rashad Salana. This is Bloomberg GAB Break Asia. Our guest is Carol Schleife, CIO at

BIMO Family Office. Carol, great to have you with us, and thanks for the double duty, the extra duty of a Sunday evening to join us here on the program. As we were saying earlier, all things considered, the markets are remaining relatively calm. Why first up, thanks for having me on calm. I think a piece of it is is we're definitely in that waiting c mode, trying to figure out will there be more fallout from the regional or the midsized banking issues going on in the United

States where there'll be more global issues. But on the other hand, we have strong economic numbers coming through. The construction numbers are good, Employment is solid, Inflation is coming down, not as fast as the fit or anybody else wants, but it is coming down. And it's important to remember too when we get into the back half of the year, the comparisons will be easier. Just by default, so the math will make it look like inflation is coming down,

even though we might not feel it as much. But I think the markets are definitely taking a weight and see approach, are gonna look at a lot of the incoming data for a change, which we haven't. We were told a couple weeks ago we were going to be a lot more data dependent than we've been able to be in the last couple of weeks. And it's actually really delightful, as you also mentioned earlier, to have a weekend that isn't full of all kinds of coming part medos.

So I think the markets are taking that weight. Is see approach just trying to see how it plays out, And if you've got a diversified portfolio, that's probably the thing to do, to just sit tight and let the news fall and make sure that you're staying adaptable at the edges, but to sit pretty tight and just watch it come in, Carol. But what's happening with the banks is something which is noteworthy. I mean, sure they probably be backstop, but that's not the point here. Small bank

deposits continues to plunge. We've got perhaps in you know, the next age eight fighting which comes up as well, like you to see another another big, big fool in those deposits, especially these small banks, and you know this is providing selling us. There's a liquidity issue here, and it's clear to the Fed as well, But you know, what should they be doing? What's twenty five basis points of mistake? Last time? I'm not sure it was a mistake.

Although they were pushing, probably pushing the envelope, we probably would have preferred to have seen them sit steady some of the day. Some of the incoming data is still conflicting on those banks, because we've seen some anecdotal stuff that it's stabilized a bit in the last week or so. MP people are starting to come around psychologically, some are to the thought of I still want my dollars to be circulating in my local economy as opposed to the bigger,

broader banks. But it is tough because you know, it's important to remember that when we had the GFC, we didn't even have the iPhone then. So we've got a lot more transmission, a lot more rapid transmission, a lot more ability for people to be able to shift stuff around. But they also have to remember, regardless of what the Treasury does for backstopping the banks. Anything up to two fifties already covered. Yeah, yeah, for most people that's enough.

But you had a lot of institutions, a lot of companies, a lot of vcs that had, you know, forty fifty sixty million in Silicon Valley Bank. Hey, I was just noticing here that in the swapt's market there's a twenty six percent chance that the FED would move to four point eight six and that is and would be the terminal rate for the years. So if you put that together and by the end of the year it's at three ninety seven, so that would appear to be three cuts.

And a lot of people are saying, wow, that's really in conflict with what the FED is saying because j Pala said didn't anticipate any cuts. But they are data dependent, right, so a lot can change. You don't really need to take palace comments to the bank, not necessarily, but we don't see cuts by year and the futureist markets have been discounting cuts against the FED and fighting the FED for over a year and that hasn't necessarily to be very prophetic either. And so I think a piece of

it is is it's just in a long career. It's really interesting to me to see the dichotomy between the equity traders and the fixed income traders and the fixed income traders and what the Feds saying, because they tend to go more hand in hand and we just don't see that cut. I mean, that would imply a really seems like it would imply a really serious recession in order to get those cuts at the back end, and

the curves all come down, and that's yeah. I mean, even the bond market has the two year at three point seven six percent, so that's fully one hundred basiness

points below where the Fed funds rate is well. And the interesting thing is is depending on where banks price or deposits, that may slow the outflow of deposits because one of the things that a lot of points is I've looked at it as they said, look, banks aren't paying me to sit in deposits, so I'm going to move it into a money market to counter a short term treasury letter, and it's a short term treasury letter

doesn't yield what a bank will give you on the deposits. Now, that'll pressure some of those banks that are pressure than that interest margin because the banks are forced to pay more to hold the deposit. But so it's tricky, and I think that's what the Fed's trying to do, sort of imply that the Fed's going to cut with all

of this this very narrow tight rope. It's almost as if they were on a regular size tight rope and now they're walking on a thread because they're well, tell me Carrol here, I mean, let's all forget you know, we're talking about the deposit side of things. I mean, certainly, but you know, if you want to get a load, it's going to be much much harder, going to need

more collateral. You're probably going to see spreads wide. Not on top of that, rejection rates are lightly to rise, and you know that could also spread the non banks and the consumer lending that that's focused on. So in a sense, that's in a way doing the fred's job as well, is it not. I think a piece of it, And I think it's important to remember that business goes

on anyway. I mean, two people are my very two younger millennials are my very narrow circle of folks around me have signed mortgages in the last month, closed moved in the last couple of weeks and stuff still happened. You've still got you still got yes and no. I mean there are at the point too, because demographically you've got a whole big segment of the economy that's walking

at it. Say, unless they were over seven percent, now they're down to six six and a half percent, and what if they go to eight or nine and were we want out of the city and we want a yard and a grill and a dog and yeah, so you know, and so you've got that piece. But you've also got businesses are still going to do stuff done because demographically you've got people in their businesses that said, look, I was in to sell this business in twenty twenty

the pandemic hit, so I held off. Now I might not get quite what I want, but the buyer has some financing lined up, and stuff's still going to happen, not just as exuberantly as it would have if we were as the early days out of the pandemic. And so I think, okay, it just six system tightens itself up. Let's distill this down, Carol, in thirty or forty seconds into what you're doing in the markets. Where do you put fresh money to work? I think the short term

treasury letters are still pretty attractive. I think looking globally at some things because you've been having a diversified folio, being looking again at MidCap small cap being not being a hero and taking too much risk, but having balanced and we actually like a lot of the industrial renaissance kinds of companies and where the spending is teeming up in a lot of those more traditional value oriented things.

This is Bloomberg Daybreak Asia, your morning brief on the story's 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 listen 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. Our flagship New York station is also available

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