This is Bloomberg Daybreak you up for this Friday, the twelfth of May in London.
Coming up today, Yellen out loud.
US Treasury Secretary Janet Yellen says America has to raise the debtlimit to avoid being labeled a dead beat country.
Bumping along the bottom. The UK posts anemic growth but no recession. As the Bank of England's Bailey tells Bloomberg, he hopes rates have peaked.
Get ready to feel the squeeze.
Soop gen Ceo says rates are impacting the economy.
And it's going to get worse for banks.
Jamie Diamond says that lenders should expect more regulation.
That's all straight ahead on Bloomberg Daybreak Europe, the business news you need to start your day in just one fifteen minute podcast on Apple, Spotify, the Bloomberg Business App and everywhere you get your podcasts.
Good morning from London.
I'm Caroline Hepca and I'm Tom McKenzie. You're listening to day Break Europe. Let's get brought up then with the top stories of the day and Yellen, of course front center. Given that exclusive interview, the US Treasury Secretary Jality Anna saying that there is no good fix for the debt limits short of lifting the ceiling. Speaking to US exclusively, Yellen said that markets need to see a decision.
What global markets and American households and businesses need to see is that we have for Congress that's committed to paying the bills that we've incurred as a consequence of our legislation. That we're not a dead beat country.
Not a dead beat country. Yellen, speaking to Bloomberg in that exclusive one on one interview after a meeting between President Joe Biden and US House Speaker Kevin McCarthy was pushed back. According to White House officials, the decision to delay the meeting is a sign that negotiations are making progress, at least at a staff level.
Now to the UK, the economy here out a small gain in the first quarter, so further reducing the risk of a recession. GDP did rise by tenth of one percent from the fourth quarter, but strikes curtailed activity in March. Output declined by three tens of one per cent in that month, but it was nullified by an upward revision
for January. The figures do leave the UK on track for anemic growth for the first half of this year, as sawing inflation and rising interest rates eat into consumer spending power.
Meanwhile, Bank of England Governor Andrew Bailey says rates are now getting close to their peak. Speaking to Bloomberg after announcing a twenty five basis point hike, Bailey was asked whether the BOE is close to a pause.
I'm going to say I hope we are. This is the twelfth consecutive increase and rates.
I'll be very clear that we will be guided by the effort once as it comes to us. Andrew Bailey was speaking to Bloomberg's Guy Johnson after the BOE raised its benchmark raat two four point five percent. That's the highest since two thousand. Markets anticipate the central Bank may push the base rate to five percent this summer. We'll bring you more of our interview with the Bank of England governor in a moment.
So General's fixed income trading unit outperformed most of its peers in the first quarter. Income from debt and currencies trading at the French bank jumped sixteen percent from a year earlier to eight hundred and ninety million euros. This is the last earnings report under the CEO of Fred Guder, who's stepping down later this month. Speaking exclusively to Bloomberg, he says he believes rates will squeeze the economy soon.
The central banks started a bit late compared with the existing inflation twelve to fifteen months ago. They are catched up. But I think that we see certainly the impact and we will see the impact on the economy, and I tend to think that the central banks will then be comfortable to stop and then probably start decreasing progressively their short term interest rates.
UDAYA will be succeeded by a slavom crooper who currently runs SoC Gen's investment banking business.
Now struggling US regional banks are about to get hit with more red tape. That's according to Jamie Diamond, speaking exclusively to Bloombogs transling like what the JP Morgan chief said, he expects policymakers to take the.
Wrong lessons from this year's upheaval.
He to get worse for banks. They're just more regulations and more rules and more requirements. I hope they do it very thoughtful, you because you know, if we love the community banks, the regional banks, we're the biggest banks of those folks. But you know, if you overd certain rules, requirements, regulations, there are so many community banks tell me they have more compliance people than loan officers, you know, and so at one point and make it harder for.
Them to do business.
Diamonds warning comes just weeks after JP Morgan stepped in to buy troubled lender First Republic. At the time, he declared that the crisis is over, but those comments did little to quell invest a concern, and regional banking shares have since dropped considerably well.
Our interview with the boss of America's largest lender comes as news emerged at the country's biggest banks face billions of dollars in extra fees in order to replenish the US government's deposit Insurance Fund. The assessment from the FDIC stems from the regulator's decision to ensure all deposits at Silicon Valley Bank and Signature Bank. The FDIC estimates that that move costs its deposit insurance fund around fifteen point eight billion dollars.
NBC Universal's head of advertising, Linda Yaraquino, is in talks to become Twitter's new CEO. That's according to The Wall Street Journal. The report comes after Elon Musk tweeted that he's leaving the job the top job at the social network, to become executive chair and CTO, where he will oversee product, software and system operations.
Bloomberg's Ed Ludlow has the details.
Boiler. Musk says in the tweet that the new CEO she will be starting in the role in around six weeks. Muscat actually said in February that he may need a year to fix Twitter before handing over the rain to someone else. What he is doing in the second paragraph on the tweet you see on your screen is reiterracing something he's done said before that irrespect of his title, he wanted to be involved on the engineering, product and functionality side of Twitter.
Massport Twitter for forty four billion dollars last October at the time, said he would only be in charge for a limited time to complete an organizational overhaul.
That story is the last in our roundup of top news stories. So it's kind of funny, really, isn't it, Because Elon Musk talked about, you know, whoever would be foolish enough to take over that top job at Twitter. But it looks as if he's found somebody actually potentially incredible, quite credible obviously to lead the business.
Yeah, credible of course, with a very strong background in advertising and sales, which is going to be important for Twitter. They are a smaller buyer, much smaller buyer than the likes of Meta, but still of course consequential, crucial for that business if they're actually going to get back to kind of the levels of valuations for which he paid. But also interestingly importantly, a female CEO a rare thing, still disappointingly in the tech world. Yes, but that's good news on that front. Yeah.
Absolutely.
I also want to mention the rand this morning is plunging at the moment one point two percent. The currency also for the week has done incredibly badly. It's just another issue for South Africa. There is this diplomatic spart that's going on between the US and South Africa, the accusation that South Africa supplied weapons and ammunition to Russia in the war in Ukraine. This has really sent government bond yields sowing and the rand slumping to the lowest
level against the dollar frankly on record. So there's now an investigation by the president, but there's still the s com power supply issue in South Africa going on.
So it's just a fascinating twist. Not even China has supplied weapons to Russia, but now accusations that potentially South Africa has. They've taken a quote unquote neutral stance on Ukraine. Maybe that's coming back to bite them. And this, by the way, the pressure on the rand coming despite the fact that the US dollar, the Bloomber dollar is down about ten percents in September.
Yeah.
Absolutely, Okay, that's something we're watching in the markets for you. But let's get back to that fascinating interview with the US Traasury Secretary Janet Yellen speaking to Bloomberg's A Mui Hordan in an exclusive interview. Now, Yellen made clear that she believes that is only one solution to the debt ceiling in pass in Washington.
All I can say is that there is no satisfactory solution for the United States, a solution that will be good for the economy and financial markets, or through the in Congress acting to raise the debt ceiling. There are potential different paths that could be taken if it doesn't happen, but there is not a single thing that can be done that will save the United States from considerable economic and financial damage.
But this planned was outlining back in twenty eleven, and you were there at the FOMC meeting about it, and it's said that Treasury principles and securities would be paid. Is this something that at least for contingency plan has been discussed with the President?
So my understanding I was at the FED in twenty eleven is that this plan was never presented to the President and never approved.
And but would you present it now? Look, we would. We were working full time to work with Congress to raise the debt ceiling. That's where our focus is.
We know that the only good outcome is one in which Congress act acts, as it has many times, almost eighty times since nineteen sixty, to raise the debt ceiling. What global markets and American households and businesses need to see is that we have a Congress that's committed to paying the bills that we have incurred as a consequence of our legislation, that we're not a dead beat country. And if Congress fails to do that, it really impairs our credit rating. We have to default on some obligation,
whether it's treasuries or payments to social security recipients. That's something America hasn't done since seventeen eighty nine, and we shouldn't start now. So we've not discussed what to do if that doesn't occur with the president. Our focus is on getting it done.
Because, as you know, treasuries are the bedrock of the global financial system and the asset managers I speak to the investors, they don't have the luxury of not contingency planning, So at this point should they assume that debt may not be serviced if there's no deal.
If Congress doesn't raise the debt ceiling, we face economic and financial catastrophe one way or the other. And that's why our focus is on making sure the Congress does raise the debt ceiling. I feel that that's something we're going to succeed at doing, and we're working hard to make sure that that gets done.
As we get closer to June first, will you alert Congress on a more precise date.
Yes, I will update Congress as we have available information, But.
Anything new now or still June first, Well, what I've said is early June and potentially as early as June one, as we get closer, I may be able to provide more refined guidance.
But you know, there is a lot of uncertainty about the exact level of cash balances and payments that we have to make from day to day, and so theory means level of uncertainty about precisely when we would run out of cash to be able to pay the government's bills.
So that was Janet Yellen, the US Treasury Secretary, speaking exclusively to Bloomberg's and mury hal Dan.
Okay, let's get some context analysis there and bring in our senior Asia Economy reporter of Michelle Jehn Risco from some context on this. Michelle, the warning is getting loud and not a surprise from Janet Yell and the austrocial sector to kind of drum beat on the warnings around this, but really kind of insight, fascinating insight in terms of the color and.
Some of the details.
At a time when we're at the staff level, will being told that there is a little bit of traction.
At least, well, that's right, and she has to really tread this delicate balanced time. I mean, she's upping the stakes, as you say, talking about it being catastrophic. Yesterday in her press conference, she talked about, you know, a potential of a default leading to a global meltdown. I mean, there's no shortage of you know, I won't say hyperbole, but you know, these big, big, big talk about what
could happen if they do reach that X date. Now, she also has to reassure, as she did in this interview with Anne Marie, that you know, they're doing everything possible and she does have confidence that they will avoid that. But at the same time, she's not tipping her hand. She's not telling which course of action they would take
or what they're favoring. She does lay out some options there, as you heard, and what our reporters have been looking at is the different things that could happen at that X date, the fourteenth Amendment potentially being invoked, even though that's a pretty legally fraught decision. There, payments on the debt, you know, being a top priority, as Yellen mentioned in that interview, and then from there it's a reduction of payments on any number of obligations that could be in
the crossfire. A lot of things that are politically sensitive, like social security, federal salaries, and critical agencies like the Federal Aviation Administration. So a lot at stake here and little certainty going forward, but we are fast approaching that's so called X date.
Yes, we are.
The fourteenth Amendment also we should be besides relate to the US upholding and paying its debts effectively a very much shortened and boiled down version of the fourteenth Amendment.
Look.
Theuretic on the Republican side, though, is also equally quite firm and noteworthy the House Speaker Kevin McCarthy talking about President Biden Senator Schumer are stuck on no. And then also I think it's worth underlying that the former President Donald Trump at a CNN town hall talked about, you know that the Republicans are going to have to default if Democrats don't give massive cuts. Here's the front runner in the Republican potentially for the Republican presidential nomination.
So it's very fought politically.
Yeah.
No, absolutely, And this is the same sort of game that we've been playing for years and that you know, more pragmatic and callerminds are saying like this is ridiculous. I mean, even a Yellen in her press conference yesterday was asked about how we should do this going forward, and she said personally, I think we need to change all of how full fiscal policy is conducted. I mean,
this just isn't sustainable. So I mean, yes, it's very politically fraud especially right now as we're heading into the US presidential election season, which you know, in some ways has no end, but is really heating up leading up to the twenty twenty four and we're hearing things as you mentioned, Speaker McCarthy even after that somewhat upbeat postponement of the meeting on Friday because it was a sign that AIDS were making progress, he came out and said
what you quoted and talked about Democrats not wanting to actually avoid default and having no plan and no desire to get there. So there are going to be a lot of expectations, setting comments, and I can imagine between now and whenever McCarthy and Biden meet again, you know, supposedly next week, we will hear more from both sides about you know, the sort of blame game and what is at stake and trying to kind of save face as we lurch toward that critical ding.
And for the markets. At Michelle, we were speaking to UBS's chief European equity stratsus. She was making the call that maybe you want to lean into gold at this point as a bit of a risk, diversify maybe higher quality bonds bill gross saying, look, this is ultimately going to get solved. This is an opportunity to buy short dated T bills and the kind of two three month range. How are markets How challenging is it for markets to position around this risk?
Yeah?
I mean among many days, Tom, this is a day where I do not envy money managers. I have no idea what you should be doing, but I can say that a lot of them are. You know, you know, there are comparisons made to previous debt ceiling standoffs. It seems like, you know, in some ways some are thinking this could be more serious. There's it's more intractable, and in other ways, you know, you do hear a lot
of people saying, well, this is kind of similar. We do hold out hope that they'll get it, and might be in the eleventh hour, might be in the twelfth hour, but they'll they'll get there, and you know, all investments will be to say, in the meantime, but it is highly fraught and what we heard from Jamie Diamond in that interview yesterday was he's got a so called war room of contingency. So they're taking this very seriously, and everyone's very on edge.