This is Bloomberg Day Break Asia for this Monday, May eighth in Hong Kong, Sunday May seventh in New York, and coming up today.
Treasury Secretary Yellen warns there are no good options for solving a debt limit stalemate in Washington.
With US adding more jobs than expected in April, traders are now looking for upcoming inflation data for clues on the Fed's rate hype path.
And Warren Buffett predicts the good times may be over with earnings falling this year.
Rare South Korea Japan Summit works on rebuilding relationship and semiconductor agreement. South Korea US Summit this week on cybersecurity. US prepares for biggest potential migrant increase since World War Two. 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 Chrisner. Here are the stories we're following today.
Treasury Secretary Jennet Yellen saying that there are simply no good options for solving the debt limit stalemate in Washington. This comes as GOP leaders are demanding promises of future spending cuts before they approve a higher debt ceiling. Now, President Biden has insisted on a clean increase, with budget talks kept fully separate. The Treasury Department has warned that it could run out of money to meet its obligations
as soon as June first. Yellen told ABC's This Week that it's Congress's job to fix this problem.
If Congress doesn't act, more likely to see financial market consequences. In twenty eleven, there is a steep decline in the stock market and are borrowing costs back in twenty eleven, the US was downgraded by the credit rating agencies. There would be permanently higher borrowing costs for Americans for buying a home, buying a car, and a failure that would cause a steep economic downturn.
That's Jenny Yellen heard right here on Bloomberg. She also cautioned that resorting to use of the fourteenth Amendment would provoke a constitutional crisis. President Biden has scheduled to meet with House Speaker Kevin McCarthy and some other congressional leaders on Tuesday to discuss the debt ceialing issue.
Well, on Friday here in the US, we heard from the head of the Saint Louis FED, Jim Bullard. He was saying policymakers will probably have to push rates higher to cool inflation. Even so, he thinks the FED can still achieve a soft landing.
Yes, the conry couldn't go into recession, but that's not the base case. I think the base case is slow growth, probably somewhat softer labor market, and declining inflation.
Billard went on to say he wants to use a data dependent approach before decide on what moved to support of the Fed's June meeting. To be fair, he is a non voter on that rate setting committee this year. Separately, Bullard said the April job stated was stronger than forecast, but he didn't know. Job openings are still much higher
than they were before the pandemic. Now this Wednesday, we'll get US retail inflation data and clues on whether the Fed has the flexibility to pause in its rate hiking cycle.
Well, the White House is downplaying the need to curb short selling of banks. That's even as President Biden has not ruled out any options to ensure the stability of the banking system. Shares of regional banks have been under pressure following failures at First Republic SVB and Signature Bank, as well as Silvergate. We heard from Heather Bouchet, a member of Biden's Council of Economic Advisors, the.
Information that we have at this point is the situation remains under control. Certainly, the FDIC and Treasury are watching these things very closely.
We've been able to.
See stability back into that system, and we've seen deposit flows again stabilized, So I think they are indications that we are in a better place certainly, and we continue to watch the situation as it unfolds.
The KBW Regional Banking Index has dropped about thirty percent this year. However, as we heard from Doug a few moments ago, rebound across regional banking stocks on Friday into that selling pressures had gone a little too far, Pack West leading the way, soaring more than eighty percent. Following the route that saw it shares tumbling to a record low.
We go next to the Oracle of Omaha, Warren Buffett, who is warning of an economic slowdown, and he's also calling for some bank executives to be punished. More from Bloomberg's th Nase Pellegrini.
Berkshire Hathaway is reporting a jump in quarterly operating income, but the billionaire chairman and CEO also warned earnings could decline across Berkshire's units going forward, and at the annual shareholder meeting in Omaha, Buffett also said execs failed banks should be held accountable from mistakes hiding in plain sight,
including lex mortgage lending. He says at First Republic. Buffet also says Berkshire isn't planning and buying the rest of Occidental Petroleum it doesn't already own, and he reaffirmed his choice of greg Abel as heir apparent at the conglomerate Denise Pelgriny Bloomberg day Break Asia.
Australian Treasurer Jim Chalmers said that China is the economic rebound cannot offset the impact of the Australian budget from the global economic downturn. That's despite China being Australia's largest trading partner. Here is Chalmer speaking in an interview with Bloomberg.
The Global economy more broadly has been a bit a bit softer than what people were anticipating. China maybe a little bit stronger, but you know, overall, we want to make sure that we're making the most of these trading relationships. That's been a big priority for US. China is important to our economy and to our budget. Not the whole story, but important part of it.
Chalmers is also expected to announce Australia. Ellia's economy has returned to surplus for the first time in fifteen years. Bloomberg economists predict that tomorrow's fiscal blueprint will show a three point six billion dollars shortfall, or about a quarter of a percent of GDP. Australia is expected to benefit from surging revenues from commodities, exports and a persistently strong labor market. We'll get the full Australian budget on Tuesday,
seven pm, Sydney time. All Right, I'm Brian Curtis, along with Doug christ and Rashad Salama will join us in a few moments, so Doug more talk of a short selling ban on regional banks. That's one interesting bit of the news flow, and I think also Warren Buffett saying the good times may be over. However, a few moments ago I mentioned good news. It's nice when good news is good news, but then you know good news is actually bad news to some and the reverse, so we
have to kind of explain ourselves. I would see the jobs report as on balance good news, and it's interesting because it seems that the market may have to come around more to the Fed's position than the reverse, and I think that's something that we'll get at all throughout the morning.
I think that's a very interesting point, particularly in light of the fact that we still don't have the data on the current data on inflation. Will get that this week CPI Wednesday, PPI on Thursday. If those numbers come in on the soft side, maybe maybe the Fed has a little bit of room to pause. But I hear
what you're saying, Brian. When it comes to those jobs numbers coming in above forecast, Okay, perhaps we can avoid recession, but the implication here is that inflationary pressures will remain.
Well, that's my point, and that's what Jay Powell has been saying. He's saying we're not likely to cut, and the market says we're going to cut this year and he's saying no because he doesn't see recession and also because he doesn't see inflation coming down quickly. So it seems like at least at the moment. And you know, this is funny because the market, the market is like
millions of people. But at least at the moment, the Fed policy makers have a better grasp of this than what the market is suggesting, because the market only is saying one of two things is going to happen. Either inflation is going to come down, it doesn't look like that's going to happen, or that there's a serious downturn in the economy which will force the FED to bring interest rates down, and the Fed's saying not, we don't see it.
Well, I think that's what the bond market is hoping for. We know that employment is a lagging indicators, so maybe an abrupt decline in the number of nonfarm jobs created and perhaps some contraction of the labor market, and that then maybe would justify the two twenty five bases point rate cuts that the market is pricing in before the end of the year.
Yeah, we did get a little bit of a rationalization on the work from what it was before. So is it two now then it was three before, I think, so that's right. Yeah, it's a real moving target.
All right. Now it's time for Global News.
In a rare summit, South Korea and Japan has struck a court of unity in a rare summit over the weekend. A backs to with Global News in the nine to sixty newsroom in San Francisco.
Ed, yeah, right, Brian. It is rare. President yunsuk yu Ol Prime Minister Fumio Kishita agreeing to cooperate fully with each other and the US on security in the region from North Korea also agree to implement a deal meant to heat an historic rift between our heel, I should say, an historic rift between the two going back to Japan's colonial rule from ten to ten or nineteen ten to nineteen forty five, and to work on an agreement on semiconductors.
Although they did not release any details. Kishita says he sees talks going forward in dynamic manner, and Ewn says he looks forward to shuttle diplomacy. Meanwhile, South Korea and the US will meet this week to strengthen their cooperation in responding to cybersecurity threats. Janhapp says part of the
Cyber Cooperation Working Group schedule for today and tomorrow. In two days, US President Joe Biden will sit down with Congression leaders to talk about how to stave off crisis that could be caused by the government running out of cash be the first time in history. Treasury Secretary Janet Yellen today on ABC has heard on Bloomberg blaming Congress.
It simply is unacceptable for Congress to threaten economic calamity for American assholds.
And the Senate Majority leader Chuck Schumer says social security crisis.
In fact, there could be a Social Security check shutdown unless they can get their act together and we can have a clean debt ceiling.
But Republican Senator James Lankford on ABC has heard here on Bloomberg, says the GOP has said we'll.
Be tied to the deadlmit because we've got to have this conversation again.
Yellen says the deadline is the first few days of June. All maneuvering is exhausted at that point. She says. The head of the Department of Homeland Security, Alejandro Maorkas, is warning that this week we'll see a potential influx of migrants bigger than anything the US has seen since World War Two. My arcis on CBS as Homeland is working on plants, but its hands basically are tied.
We need immigration reform. Everything that the Department of Homeland Security is doing, everything that our partners across the federal government are doing, is within a broken immigration system.
Fifteen hundred troops have been sent to the border to help with processing, but not law enforcement. Alan Texas mourning the loss of another US mass shooting. Eight people killed, at least nine injured. Police Chief Brian Harvey says response was very quick, but it could have been much worse.
One of our officers was on an unrelated call at the Outlet mall. He heard gun shots, went to the gunshots, engaged the suspect and neutralized the suspect.
Police identify the man as being thirty three years old, armed with a semi automatic weapon. They say he'd had gun training to be a security guard. Global News powered by more than twenty seven hundred journalists and analysts in over one hundred and twenty countries. In San Francisco, I'm at Baxter and this is Bloomberg.
IM Brian Curtis along with rushad' Salama. We are here in Hong Kong.
George B.
Boris joins us now head of Research K two Asset Management.
George is in Melbourne.
So George, great to have you with us on a Monday morning here in the Asia Pacific. Warren Buffett predicting that the good times may be over. He's the Sage of Omaha. What does the Sage of Melbourne tell us on this Monday morning?
Opportunities?
Good morning, Yes, always opportunities.
That's why we have as allocation and we're always looking for low correlations across the act classes, which is another way of saying, always opportunities at different stages of the cycle. The thing to reinforce is higher level of course, building on from the great man Warren Buffett and many other good ones. And I'm just a mere humble acid allocator and front manager. Is is you looking through the scenario of a shallow technical economic recession in North America with
the tight labor market and FED policy? What it should be hawkish to deal with something that's quite stubborn and concerning.
With the core inflation.
But there's the reality is there's an unevenness in all Western economies across the different sectors for equities, but also across the economy, And you're saying it amplified obviously with regional banks, small caps in North America versus the core superbanks and then the big tech driving the aggregate earnings through and beating expectations. But we come around in circle again and have to deal with inflation. What are the
consequences of the policy that demand destruction? Things are breaking at the margin, but it really isn't a traditional recession that's going to be right across in aggregate.
Stan's hurting North America.
So does I mean you can Does that mean you can just kind of ignore it and just play as you would normally play because the recession isn't going to be that deep.
In part, you can never ignore it. We are data dependent, like the Federal observes. We're always looking to data week by week. But what what is happening and what we're expecting going forward is unlike the past fifteen years. And some of the many consequences of that is that we're looking for again low correlations before the asset classes and fixed income behaving as it should be when you have
that in your portfolio versus equities. And then when you're in equities, obviously there's a big tilt to defensives and the big texts and some of the big banks relative to the smaller ones. Industrials obviously looking at an opportunity
in North America and parts of Europe. But the point being is we're getting more traditional cycles and the risk free rate being elevated for longer is something that was experience over fifteen years ago, and that's where we're getting into that sort of operating platform Georgia.
You know, then as an asset allocator, you look at what's going on and did you stay away from US assets for the tone being.
No, we like US assets because there's a little bit more predictability to the source of those revenues from again largerous corporates, the majors.
And you're saying it, you got very with the quarterly numbers.
Earnings are much louder whether we're a year ago, but the much better versus expectations, and you're getting a good high concentration being delivered again by big tag, big big American industrials and some of the larger banks, and that's replicated around the world in Australia. So in essence, the predictability is a little bit better for the large cap and the broadcap, but not so much for the med and small cap, which is a typical story around the developed markets.
Well difficult times.
So we've had a few guests on the program of late saying, go with the you know, with the best performer.
In these industries.
So you're looking at JP Morgan and the banks, maybe looking at someone like United Healthcare in managed care in the healthcare area. You know, obviously every industry has its superstars, the best balance sheets, the best performers excellon in.
The energy patch.
Is that a way to play it or can you be or do you need to be a lot more subtle?
Yeah, that's how we're playing it.
So predictability with energy, the transition, energy exporters, materials, metals, rare, earth, healthcare, large cap, big super tech, they're the things that we are long in. We don't talk about our shorts across the world. But that's opportunistic and it comes from many different reasons. But that's the reality is that in aggregate, the earnings are very reasonable given the tightening there. But once again it's an oversimplification risk free rate higher for longer pressing and rate carts.
Is reasonable by the mud market, but unrealistic. They just price them out again then pross them back in again.
But you get the sense that this is unlike policy of the past fifteen years.
We need to erase that a little bit and go forward.
They're really doing something because of that stubborn services core inflation, which is concerning on a year on your basis, because it's not dissolved yet the other parts that are resolved.
George, I mean, they're just essentially normalizing, aren't they having themselves more wiggle room and bullets to put in the chamber should there be another big bundturn.
Spot on.
And that's good policy, and that's why the hawkish starts would be there from a retric But again we.
Are wake by wake from the Fed.
We're week by way every other central bank in the world looking at the data. More demand destruction has to happen, More breakage will be a consequence of it. The market will have a conniption and bolotilla is spiked for a few days here and there, and unfortunately the unemployment rate as a consequence needs to be one to two percentage points higher, which is still a reasonable long run situation to be in to get the outcome that they're looking for,
and that is stable price stability in economies. Because of the consequence, it's much worse for investors and everyone in the economy.
So the real rates at least positive.
Now, that's a good start, and you know, still room to go, room to move. I know that you said K two doesn't reveal it short, so you don't have to be specific. Are there some areas that you think might might warrant some attention there that are still you know, sort of vulnerable to the downside that could be exploited by a short position.
Yeah, shorts tend to happen.
The way to answer that one, and I'm not a politician, but shorts tend to be overvaluation, like expensive or sectors that you're trying to avoid and and generally no outright sector we want to avoid. I mean, there's highly cyclical sectors that we weary of. But in essence, there's some
financials have been short and active. Again, not to go down in that pathway, but the way if I can tilt at my way and be the answer is that the divergence of mid small banks versus large banks and the developed economy is a big signal of the concern out there from people. And it's also amplified by the term deposits being offered in the West and well by MidCap small cat banks versus the majors and.
The and that's still called a britual relationship. So that gap is quite wide. Yes, it is. It is a crack in it. It's a crack in the system, and just be wary of it.
And that's where shorts are actively playing and testing that proposition.
This is Bloomberg Daybreak Asia, your morning brief on this story is making news from Hong Kong to Singapore and Wall Street.
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I'm Brian Curtis and I'm Doug Prisoner. Join us again tomorrow for all the news you need to start your day right here on Bloomberg day Break Asia