This is Bloomberg Day Break Asia for this Monday, April seventeenth in Hong Kong, Sunday April sixteenth in New York, and coming up.
Today, Treasury Secretary Yellen says US banks may pull back on issuing credit.
Chinese ev maker Xpun will shave cost dramatically by the end of twenty twenty four.
And Mark is set to buy the biotech company Prometheus Bioscience is for nearly eleven billion dollars.
China high on the G seven agenda in Japan, Russia's president and China's Defense minister meet house. Hearings on the intelligence leagues could come as early as this week. I'm at 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 Brian Curtiz.
And I'm Doug Krisner. Here are the stories we're following today.
Treasury Secretary Jenny Yellen says US banks may pull back on credit after the recent stress in the banking system. The comments coming in an interview on CNN.
Banks are likely to become somewhat more cautious in this environment, and that does tend to lead to somewhat greater restriction in credit. That could be a substitute for further pricing, further interest rate hikes that the Fed needs to make.
So if that seems like a little bit of a walk back for Miss Yellen, she did come out and say that what she's seeing in the banking sector is not enough to significantly change her economic forecast. She said she's optimistic the US can avoid recession and a meaningful jump in unemployment as the economy cools and inflation slows.
Well in the US. On Monday, House Speaker Kevin McCarthy is expected to address the US debt limit. He's expected to do so in a speech at the New York Stock Exchange. We are told McCarthy will unveil a plan to suspend the US debt ceiling for a year in return for spending concessions. Now, the current standoff between the GOP and Democrats is threatening a US payment's default this summer. Needless to say, such an event would send shockwaves through
the global economy. Earlier today, ECB President Christine Leguard said she's got confidence in the US and doesn't foresee default. Here's Leguard speaking on CBS Face the Nation.
If it did happen, it would have very, very negative impact, not just for this country where confidence would be challenged, but around the world. Let's face it, this is the largest economy, it's a major leader in economic growth around the world. It cannot let that happen.
ECB President Christine Leguard speaking on CBS Face the Nation. Earlier here on Bloomberg Radio.
In some corp st news, Mercan Company will buy the biotech firm Prometheus Biosciences for about ten point eight billion dollars. We get that story from Bloomberg Susanna Palmer.
Buying Prometheus Biosciences will help MERK boost its research pipeline and strengthen its portfolio of autoimmune drugs. This as Merk's best selling cancer drug, key Trudea, loses patent protection. A MERK unit will acquire all outstanding shares of Prometheus at two hundred dollars each in cash, a seventy five percent premium to Prometheus's closing price on Friday. The transaction is one of the largest pharma deals in recent years. Susanna Palmer Bloomberg day Break Asia.
The Chinese ev maker x Pong is planning to shave its cost dramatically by the end of twenty twenty four. That story from Bloomberg zvon Men x.
Onun plays to cut twenty five percent off the cost of its power trade and say fifty percent on intelligent driving features by the end of next year. The two areas currently account for more than half of the cost of building x punk EV's that's according to the company's co president Brian Goo. Tesla cut prices earlier this year, and that has put more pressure on carmakers in the world's largest EV market. Xpun hopes these new cuts and
costs will propel the company towards profitability. Disappointing sales last year forced the automaker to push back its timeline for profitability to twenty twenty five. X pund will introduce a new mid sized suv set to rival Tesla's Model Y at the Shanghai Auto Show tomorrow in Hong Kong. I'm von Mann Bloomberg day Break Asia.
PBOC governor E Gung says China has largely ended foreign exchange intervention. Bloomberg's Joan Wong has that story from Hong Kong.
Ye says sooner or later markets defeat central banks. He said the PBOC now operates what he calls a managed floating regime, but the central bank governor said the PBOC still reserves the right to intervene in the market, and a speech at the Peterson Institute in Washington, y said China does not have a date for letting the yuan trade freely. He said, at the moment, the basic policy is simply to make it easier for people to use
the currency. The US Treasury often criticizes China for a lack of transparency and how the country manages its exchange rate. The US Treasury often criticizes China for a lack of transparency and how the country manages this exchange rate. Is not clear if these latest comments from the PBOC governor changed that calculation. In Hong Kong, Joan Wong, Bloomberg Day Brigasia.
I'm Brian Curtis along with Doug Christner, Doug Yields really popped on Friday, particularly at the short end of the curve, which kind of indicates what the market expects. The fed will do. And it's funny because the retail sales data was pretty weak. However, if you strip out cars in gasoline, the number was better than expected and rates moved up on that, but still it was pretty negative. Then the consumer sentiment was pretty positive. So I don't know that we learned all that much on Friday.
Yeah, but I would point out as part of that University of Michigan data Brian uncertainty over short run inflation expectations, they were notably elevated in the year ahead. The expectation from the University of Michigan is that we could see a rate maybe as high as four point six percent. That was the April reading, and if you look at where things were in March three six so that's a
big move up. And I also want to point out the fact that in terms of the data, there was a bit of an upside surprise in the March industrial production number that may not really be accurate in terms of some of the contraction that we've seen overall in US manufacturing, which makes this week's PMI data on Friday all the more important.
Yeah, we keep moving forward to data and then really not doing much off.
Of the data.
Although I guess you have to say that yields really did pop on Friday, so that was a big move the two you yield up thirteen basis points to four points zero nine percent, and the dollar moved. But we just didn't get a lot of expression, I suppose in the stock market.
So that's what's let me.
We'll get a closer look on the Asian markets coming up a little bit later this morning. Now it's time for global news. Tensions with China are high on the agenda at the G seven meetings in Japan, and Baxter has global news from the nine to sixty newsroom in San Francisco.
Yeah right, Brian.
Japan now holds a rotating presidency in Asia, sure to come in a greater focus. Taiwan in particular holds special interest in the wake of President Sayang Wen's meeting with Housepeaker Kevin McCarthy and the ensuing Chinese military drills. Also in the mixed France President Maliam mccron's meeting with President Shi Jimping. Now Joseph Borel, the EU's foreign policy chief, is sought to downplay any differences in the block going
into the meetings. Russian President Vladimir Putin has met with China's new Defense Minister, General Lee Shangfu, who is visiting Russia on his first official foreign trip. Lee on Russian TV says a TIES surpassed some military political alliances of the Cold War era, and Putin praised the TIES and highlighted the exchange of intelligence as well as the joint
military maneuvers. Now, speaking of intelligence, the chair of the US Intelligence Committee in the House, Mike Turner on CBS has heard here on Bloomberg Today, said his committee expects hearings as early as this week into the leak documents.
Through life patterns, there were clearly signals that he might be a likely leaker of information in the future. And then also the access that he was having to this information should have been cut off. He should have never been having access to this level of classified information that could hurt the United.
State, and he says the system needs to be refined. Senator Lindsey Graham agrees, I was.
The Captain and major. I would be surprised if I had that kind of information. Yes, the system failed.
Graham on ABC's This Week is heard on Bloomberg.
And very damaging.
There's information about Masad supposedly helping the protesters. There's information about the air defense capability of Ukraine, and everybody in the regions really worried, because who wants to share information with the United States If you're going to read about it in the paper.
He says people should be fired. Graham's in the Middle East and it's met with Saudi Crown Prince in a reversal of his position after journalist Kamal Koshogi was killed and when they said the US should never do business there.
Saudi Arabia purchased thirty six billion dollars worth of seven eighty seven Boying jets made in Charleston, South Carolina. They picked the Boeing seven eighty seven over the airbus. I came over here to say thanks to Saudi Arabia. Well.
Today Graham is in Israel, where Prime Minister Benjamin Nett Yahoo's defending his effort to weaken the judiciary system.
There is an issue. It's a real issue. It affects many democracies. Sooner or later it's affected Israel because of the imbalance of the three branches of government. We're trying to bring it back in balance. But I think trying to bring it back into balance requires, at least for me, as prime minister of a democratic, fiercely a robustly democratic country called Israel, to try to do it in his blood an agreement as possible.
And who on NBC has heard on Bloomberg says he paused a plan to take a closer look, and Japan's Prime minister says he's getting back on the campaign trail, calling the FUMIOCAC to calling off, the setting off and an explosive at an event he attended on Saturday unforgivable. He says it strikes the core of democracy. Global newspowered by more than twenty seven hundred journalists and 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 Salamat, and this is Bloomberg Daybreak Asia. We are here in Hong Kong welcoming our guest Jason Schenker, president of Prestige Economics, to take a closer look at markets well the culmination of the data last week, Jason seems to be putting a little bit more upward pressure now on yields and the dollar, and that may be a little bit of a change of thinking and that the FED was getting ever closer to ending its interest rate hiking regime. Do you see
one more? Two more? How do you see the Fed moving here?
In the shorter term?
I think the Fed is going to remain data dependent, as they often have, and I think part of the reason we saw the rising yields at the end of the week was early in the week the imf S World Economic Outlook Report, which came out and really told a story of two kinds of inflation, where we're seeing headline inflation going down but core CPI plateauing, and that's the actual word they use within their report, looking across especially advanced economies, that core inflation we saw not only
plateau in the US last week, but we saw that core CPI accelerate year on year from five point five to five point six percent. And I think that's the Fed's biggest concern right now is can they push inflation through the stick? Can they get it to really go back down? Because PPI inflation's moving the right way, Core PPI, goods PPI, total CPI, you could argue, is moving in the right direction. But that core CPI number, that's the sticky bit, and that's why they're probably going to raise
in May. June looks more likely, and then we'll have to see do we actually see things moving in the right direction, because if core CPI does begin to decelerate, there's a chance we end up at the end of the year between three and four percent for core CPI. But I mean, that's what the Fed's looking for, I think, really, but that might take a couple more rate hikes.
Looking at this though, I mean, when we're in rates to where they are right now, that's you know, you look back thirty forty years, which is normalizing in essence, aren't we here justin And you know, on top of that, we've got other challenges ahead which are going to be a bit more medium to long term decombonization, deglobalization. On top of that, of course, aging populations, and this is all adding to perhaps the structure of inflation becoming perhaps a little bit more aggressive.
I don't think that's necessarily the case that we're there seeing inflation remain permanently high, especially because there's the opportunity with a base effect. Part of the reason that headline CPI is down or PPI goods PPI right right now? Year on year two percent back in June last year was seventeen point nine percent, right, So we're seeing some of these numbers really come down fast. That core number. I think housing has a lot to do with why
that's sticky. But there is an opportunity for things to move lower, partially because of that base effect. But this is why the Fed wants to keep the interest rates going up and remain in a tightening position, because they want the opportunity for us to really get back down towards that two percent target, which is critical given our record level of government debt and consumer debt.
So I guess the other side of the equation is how strong is growth? Does that help consumers and businesses handle stickier levels of inflation. I mean, the worst thing would be if growth falls off quickly and you have inflation stay high. How do you see the next six months from a growth perspective.
I think there's a few different things here. One is, if we're looking at those line items at GDP, I'm concerned about the investment line item. That's where we're looking at businesses making investments. Think about equipment, think about structures. Also residential investment. This week we're going to get US housing data out likely to be a little bit weaker, so that's also a line item of GDP that could be way down, So we could see an investment recession,
something we've been expecting for this year. Earnings could also come under pressure. Why cap X is up, we see labor costs are up, we see op xes up, right, so everything is higher, and so companies might really see some of their earnings come into that position where they're under pressure. At the same time, though, if you look at the Jolts data out last week, or rather two weeks ago, you would see that in the US there's
still about nine point nine million open jobs. Well, there were seven million open before COVID, so we're still up quite a lot. And if you look at where we were before the two thousand and one recession or before the Great Recession, it was a lot closer to five million p jobs. We have nine point nine million open jobs, and seventy percent of the US economy is people buying stuff, So we might skirt an overall recession because there's so
many jobs and people are making good money. But the investment side, the earning side, that's the question.
So what do you I mean is the earning season is very much in its nascence, even the big banks doing rather well. It's going to be really important what they say about the outlook too, isn't it.
Yeah?
I think so. And actually I'm a bit more concerned, i'd say, about Q two Q three earnings, especially because we see again the interest rates. It's just the FED is tightening up a little bit more, a little bit more. So I'm a little bit more concerned about the earnings for the next two quarters, not so much about the earnings for Q one. But I do think there's going to be a lot of pressure op ex capex there
up companies are having trouble there. That's where we're seeing some of these big layoffs, especially on the tech side. But there's still a lot of open jobs in many industries, and even in manufacturing where the pmis have been weak, there's a backlog that's been there for a long time, and that could keep some of those business is with pretty good shipments and earnings, even though we see new orders falling off.
So what do you do with your money here? Given all that we've talked about.
You know, there's a few different ways you could play it, and I think we're looking always at fundamentals. I think the most important thing here if we're looking beyond the next couple of years, is the fact that right now we look at that rent inflation's really high, but we know there's not much construction. We also know that rental
vacancies are the lowest since the early eighties. I'd be looking still at housing as an opportunity, looking twenty four to thirty six months out where we may be in a severe shortage situation.
Jason, let me look at elsewhere in the Marcus give us a sense of way. You see the dollar gave from here because of recent weakness, and that recent weakness warranted.
I think we are going to see maybe a little bit more weakness later in the year. I think it could go up a little bit more here. In the short terms, we see the FED, we begin pricing you maybe a June rate hike. But when we get later in the year, we see earnings under pressure, We see the FED, the questions about when is the FED cut. We're pretty close to the end for FED tightening, so it's tough to make a really big upside case for the greenback here, but it's a lot easier to make
a downside case later in the year. Obviously, we've seen precious metals, especially gold, prices have been on a real tear as there's high uncertainty geopolitical uncertainty as well as economic as well as banking. So I do think there are a few areas people are looking for a flight to quality, and we're going to probably continue to see some of that in the short term.
So it's very complicated. It's not like very easy to really figure out what to do with money. There was a piece on the Terminal late last week about how maybe shorting retail was a good hedge against a buoyant equity market, at least one that hasn't fallen much. But if you look at XRT, I have to say it really started falling when the FED started hiking. So you almost wonder whether the reverse might be true and that you could maybe get some gains here once the Fed
actually starts cutting. Admittedly not right around the corner, but you should be coming.
I'm a little bit less concerned maybe about retail. I am concerned, like Manny about what is in store for commercial real estate, especially office space. I am concerned we're going to see probably further downward pressure there over the next couple of years. But on the res side, there's just not enough supply, and I'm always looking for a supply demand imbalance. Speaking of which, if you look at oil prices right you've seen OPEC making this additional cut
begins May one. We're going into the summer driving season. There's nine point nine million open jobs. We still have record right now, record labor force participation, sorry, record labor force numbers. The participation rate is up. We've got record non farm payrolls in the US, So people have jobs, people are making money, they're making more money than they've ever made before, and there's still nine point nine million open jobs and they're going to be driving this summer.
So I think there might some upside oil prices in summer as well.
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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