This is Bloomberg Daybreak Asia for this Friday, April twenty first in Hong Kong, Thursday April twentieth in New York, and coming up today.
The Biden administration may be seeking to limit investment in key hearts of China's economy by US businesses.
Treasury Secretary Jennet Yellen says the US will accept economic costs to protect national security interests.
With China and Cleveland Fed President Lorettamester's signal support for another rate hike to lower.
Inflation, macranasshures a united front with regard to China in a call with Biden. China announces more military drills. SpaceX Starship successful lift off than malfunction and it is blown up. I'm Ed Baxter with Global News.
That's all straight ahead on Bloomberg day Break 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 Doug Krisner and I'm Brian Curtiz.
Here are the stories we're following today. Treasury Secretary Janet Yellen says the US will defend national security interests with regards to threats posed by China. Here's Yellen delivering remarks today in Washington.
Even though these policies may have economic impacts, they are driven by straightforward national security considerations, and we will not compromise on these concerns even when they force trade offs with our economic interests.
Yellen also said that the US is not seeking to decouple its economy from China, and she added that the nation will aim to seek healthy and fair economic competition with Beijing. She also said that the Biden administration will engage on issues like climate change and debt relief in the developing world, and Yellen repeated that she plans to travel to China at the appropriate time.
At the same time we are being told to Biden administration is aiming to get an executive order signed by the President in the coming weeks that will limit investment in key parts of China's economy by US businesses. That story from Bloomberg's Charlie Pellett.
The administration has been debating the measure for almost two years, and it plans to take action around the time of a summit of the Group of Seven Advanced Economies. That's due to start on May nineteenth. In Japan, the US has been briefing its G seven partners on the investment
curbs for high tech industries. The executive order will cover the fields of semiconductors, artificial intelligence, and quantum computing, focusing on investments where American firms play an active role in management. In New York, Charlie Pellett Bloomberg Daybreak, Asia.
Cleveland FED President Loretamester signaled support for another rate hike to lower inflation. Here's Mester speaking at the University of Akron in Ohio.
I anticipate that monetary policy will need to move somewhat further into restrict territory this year, but Fed Funds rate moving above five percent and the real Fed funds rates staying in positive territory for some time now. Precisely how much higher the Fed funds rate will need to go from here and for how long policy will need to remain restrictive will depend on economic and financial developments.
Mester also urged cautiousness. She said that recent financial developments could cause banks to tighten access to credit, and she warned that that could slow spending and growth and doug If you want to look at maybe one of the understatements of the day. Mester said that she sees the FED closer to the end of its tightening journey rather than the beginning after five hundred bases points or so.
Well, let's stay with the banks. We heard today from Brian moynihan, the CEO of Bank of America. He told us the banking industry is sound despite some of the recent turmoil we have seen in the sector. Here is Moynihan speaking earlier with Bloomberg.
Well, I think at the end of day, crisis is too strong a and.
Words like that get used a lot.
But at the end of the day, there was a fair amount of disruption for a few weeks there. Well, certain business models were sorted through. But on the other hand, you could see and we could see the stability in the other business models.
That is Brian moynihan, the CEO of Bank of America. Now, his remarks follow BAA's first quarter results that were released earlier in the week. The bank's deposits fell less than analysts had expected. Customers seemed to be turning to larger
institutions following the collapse of Silicon Valley Bank. By the way Bank of America was among eleven companies that helped to shore up finances of that ailing First Republic bank A combined thirty billion dollars in deposit infusion, and of that BAA contributed about five billion to the effort.
Ran Taiwan Semiconductor or TSMC reaffirmed its target for capital spending this year. It comes despite an ongoing slump into and for everything from smartphones to server chips. TSMC did warrant that demand would remain soft for now, but it plans to spend as much as thirty six billion dollars upgrading and expanding production capacity this year.
We heard from Bloomberg's Mandeep Singh.
They have to open overseas fabs, one in Arizona, one in Japan. They're talking about, you know, production being live by twenty twenty four. So clearly they are diversifying. They have no choice, and that is where the growth Martin impact may show up, because those fabs aren't going to be as profitable as the ones they have in Taiwan right now.
So that's the longer term.
Risk they have because as they diversify their locations and the factories, it will have an impact on their pricing and you know the cost structure.
Over the longer term, investors are hopeful that TSMC would benefit from a surge in artificial intelligence development and applications power demand. TSMC's high end computing chips, along with data centers will be required for train and hosting AI models. TSMC ad R has gained as much as five point three percent the most sense February twenty third. I'm Brian Curtis along with Doug Krisner. So we mentioned geopolitics. It's
interesting in looking at US China and China Taiwan. Certainly, for China Taiwan is more a sovereignty story, Doug, than a semiconductor story. But for US China, a lot of it does come down to those sorts of flows and business and economics. And so for Jennet Yellen to say that they're willing to sacrifice on the economic side for national security really shows you that there probably is some teeth in this from the Biden administration.
Yes, I would agree with that. And for companies like Lamb Research. We were talking about this earlier in in our pre show meeting, Brian that Lamb yesterday was indicating that now it's received some clarification on US trade restrictions. Lamb is one of the big makers of machines used to make semiconductors, and so now it's going to be able to sell a little bit more more of its
product into China, more than was previously expected. So there are a number of American companies that are going to be very, very much impacted by this new way of thinking.
I was interested to see the response from China this morning. It's actually fairly muted. I'd call it a conciliatory response to Yellen's comments. If you look at the Global Times now, it's a little bit early. We may see a change once officials come out a little bit later in the day, but getting the early reading, it referred back to Chinese and US commerce officials.
Meeting last week in Beijing, and.
That they exchanged a lot of views on bilateral economic ties, a lot about climate, and a lot about debt relief, as we mentioned in our story. But it said that this re engagement could actually lead to a kind of thawing in strained relations. So that's pretty interesting that China didn't issue vitriol after the overnight comments.
You might remember a conversation that you and I had recently about the green movement here in the United States and the degree to which a lot of that is going to depend on green technologies. Think wind turbines, Think solar panels produced in large part by China that will be used in the United States.
Yeah, and rare earth materials still something that needs to get resolved from everybody who isn't China. Well, we have Rebecca Felton coming up in a few moments, senior market strategists at Riverfront Investment Group to take a look at the markets in addition to some of these geopolitical concerns.
Now it's time for global news.
The presidents of the United States in France have talked about Taiwan and China in a call today. Bloombergs Ed Baxter is covering that and has the rest of the Global news from a nine to sixty news room at San Francisco ahead.
Yeah, Brian, As you know, relations have been at an interesting point Cincerimonia, Macron's trip to Beijing and Macron promoting China's trying to maneuver piece in Ukraine. The joint statement today says both reaffirm the importance of maintaining peace and stability in the Taiwan strait. Bloomberg's nik Watam.
So, I think what you're seeing with the Biden Macron call there is more of a like, hey, we're on the same page. Don't worry, We're still allied. Here's what we want to do toward Taiwan. The French position his statement did not represent a significant change in policy. Flip the channel back to regular programming now.
The joint statement also says they talk to Ukraine and pledged continued support there. Ireland's Prime Minister is urging a United EU tact and dealing with China US conflict. Leo Varadkar saying Bloomberg New Economy Gateway Europe Events says EU can't be caught in the middle.
Trade of China is very important.
We don't want to entered any sorts of political conflicts which China. They're competitor, they're also a partner, but we do need to bear in minds that there are potential risks.
So competitor but trade partner as well. Meanwhile, military announcing plans to conduct at least five drills in various areas that include waters off the coast and the South China Sea. This goes along with China's escalated military and aerospace activities of its off its coast in recent days, and a group of US lawmakers gathered around maps spread out on tables in a committee room on Capitol Hill last night, pretending to advise the president after a hypothetical Chinese invasion
of Taiwan. Committee chair Mike Gallagher said the US is well within the window of maximum danger for a Chinese invasion of Taiwan, saying it would be disastrous economic consequence for the global economy. He says Taiwan has to be armed to the teeth to prevent such an event. Debt Ceiling Freedom Caucus members of the Republican Party demanding more cost saving measures at Speaker Kevin McCarthy's plan things dealing
with Medicare, social security, Bloomberg'slaura Davison says it complicated. It's the vote count.
He doesn't have enough, you'll mention.
To sort of putting a pin in that, saying, look, you know that there is you know, we got to move forward with something.
And McCarthy has a plan that is moving forward and that's the only ballgame in town right now.
And add to that, the government is reporting revenue not coming in as fast as projected, which could move the deadline up even further. SpaceX Starship did get off the launch pad, remember Elon Musk saying it would be successful if it just cleared the tower, but then minutes later.
As we said before, obviously we wanted to make it all the way through.
But to get this far, honestly, is amazing.
Yeah, an explosion. Now SpaceX is now saying it intentionally blew up the rocket after an engine sent it into a spin. It does point out that there is quite a distance to go to get the Starship to the Moon or to Mars. Global News poired by more than twenty seven hundred journalists and listen over one hundred and twenty countries in San Francisco. I'm Ed Baxter, and this is Bloomberg.
I'm Brian Curtis, along with Rashad's Selamat in Hong Kong, and our guest is Rebecca Felton, senior market strategist at Riverfront Investment Group. Rebecca, you point out your notes that the SMP five hundred is up eight percent year today, and sometimes when we get bad economic data we say, well the market has kind of priced this in but actually the S and P five hundred is really dominated by the gains in tech, and a lot of that's driven probably by the AI excitement. If you look at
the equal weight, it's essentially flat for the year. That you look at the Russell two thousand, it's actually flat for the year so far as well. So we've been getting the signals. But do you think that we head down from here or something else?
Well, thank you so much for having me and just listening to some of the headlines as we were coming into this segment. It certainly doesn't feel good, does it. I mean, this is really there are so many negative undercurrents and there's still a lot to go as we navigate through earning season that could point markets lower because
we are hearing some caution from these management teams. Even though many of the companies have been on the earnings expectation, that forward guidance is coming in a little bit more muted than we've heard in the past.
Rebecca, can you make with yields where they are currently, can you make really a compelling case for broad equities?
Well, we believe that the balanced portfolio can have a good year. Obviously, if earnings can hold in. That still is the big question here, and we're so early into earning season and you think about how far growth forecast have come down. I think for Q one right now, consensus is a negative six percent and a far cry from where we were even at the beginning of the year.
So we've got a lot of positives baked in as we look forward to pay maybe a resumption of double digit or high single digit growth in twenty twenty four, but that's a long way from here to there. So I know that's a long winded answer, but we're very cautious about this earning season and the implications for the markets going forward as we emerge from it.
Rebecca, you could have just said, I can't make a compelling case for broader.
Curtis, but we're we're neutral equities right now, so we do believe that there's opportunity. We're still somewhat underweight fixed income, not significantly. We've got a little bit of extra cash on the sidelines right now to be opportunistic. You know, our tactical rules are signaling neutral right now. Our outlook is more cautious than that, but we're following our process rather than our emotions on this one.
So it seems like you still think stockpicking can it can be something to look forward to.
You say, there's opportunities, So where.
Do you see the best opportunities and is it to the short side or is it long start?
In companies as sectors, well.
Where we've been, where we have been trying to be more selective is playing quality. Obviously, strong balance sheet, cash flow, companies that can pay dividends, grow those dividends. And I am reticent to use the term Barbelle, but we still have a healthy weight to technology, those megacap names that typically can weather economic cycles and sustain consistent revenue streams. But we've also added back in some energy, some mining,
and then in healthcare. We're more inclined to go into medical devices and services than we are into pharma.
Just briefly, does it surprise you that Europe has outperformed the US and almost everywhere this.
Year, Well, it is surprising, and we have remained somewhat underway international because their economies are still emerging from the pandemic at a slower pace than hours. You saw probably some of the inflation news coming out of Europe today. UK inflation was ten percent. I think so central banks are going to have to maybe do as much or
more as we're doing to curb inflation. And so it feels like that snap back was more rotation into value, which those indices are heavier into value than ours being more tech heavy, and so it seems like it was more of a rotation than it was anything based on fundamentals.
Rebecca, you also at the moment looking perhaps a mild recession or perhaps a study deeper one.
For the third quarter.
You know, when you think about the global economies, when you think about how precarious things are, it is likely we believe that we will have a global recession in the back half of this year or maybe early twenty twenty four. But where we are right now in the US with growth, it's not there yet. You know, the GDP numbers are probably going to be very strong, although the leading economic data that came out today was very discouraging.
It was I think the negative one point too, and that was pretty rough.
So is that the centralized key question is are we are we heading into a mild recession or a deep one?
Rather than can we avoid it? Is that sort of the crux of it.
Well, we think that if we go into a recession, it will be mild because of how strong US corporations have maintained throughout the period coming out of the pandemic. And even though we're worried about the consumer, net, the consumer is in a very strong position as it relates to overall debt levels, certainly employment levels. At this juncture, there's a lot to be encouraged about, and we do believe that if we have a recession here in the US, it will be mild, just very quickly.
Is that any part of the market you think is really really as screaming by be it you know, a tiny little niche somewhere or something larger.
No, I mean we again the sectors that I mentioned where we're more interested in leaning into, But we are not overweight really any particular sectors at this juncture because it is nothing in our view is inexpensive.
Yeah, well you mentioned mining. Would you be buying gold then, for instance.
Not at this time.
So a lot of people look at copper versus gold that ratio, and it don't feel comfortable about growth in the United States with that trend line being that copper is not expanding as much as gold is. So we'll wait and see if we see that flip. Rebecca, thanks so much for joining us. Rebecca Felton there from Riverfront calling for a mild recession.
If that's indeed which direction we go?
This is Bloomberg Daybreak Asia, your morning brief on the story is making news from Hong Kong to Singapore and Wall Street.
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I'm Brian Curtis.
And I'm Doug Krisner. Join us again tomorrow for all the news you need to start your day right here on Bloomberg day Break Asia.