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00:00This is Bloomberg Daybreak Middle East. Our top stories this morning, PIMCO and Invesco were among the largest holders of Credit Suisse's riskiest bonds wiped out by the UBS takeover. Meanwhile, recruiters across the world are getting unprecedented flood of calls from Credit Suisse bankers seeking new jobs. U.S. officials are studying ways to expand federal insurance to all bank deposits temporarily. Lenders argue over the fact that it's needed and trying to head off a potential financial crisis. Russian President Vladimir Putin says he will discuss China's Ukraine peace plan as he welcomes his counterpart, President Xi Jinping, to Moscow for a three day visit. And Russia surpasses Saudi Arabia as China's biggest oil supplier, with refiners taking advantage of cheap barrels to feed rebounding demand in Asia. Its biggest economy comes after the end of Covid 0 8 a.m. across the Emirates. I'm Yousef Gamal El-Din in Dubai. You're looking here at equity futures and we're higher on the margin. There is a sense that much of the banking crisis has been stabilized for the moment, and we're seeing that getting priced in. The U.S. Treasury futures a little bit higher here. Bear in mind that it is a holiday in Japan. So there's no cash trading and a dollar flirting with a one month low. It all eyes on the Fed move next. And then Brent crude off by 1 percent, with Trader Trafigura seeing strong commodity demand out of China. I went get to this chart here. Just reflect on Credit Suisse has five year credit default swaps and compare it to the likes of BNP, UBS, Morgan Stanley, because the blowout in credit risk is limited to see it. Most banks credit default swap spreads are still below the pandemic level. Yes, Deutsche Bank is maybe an exception to that, but the contagion risk is much lower than it was in 2008. But it is definitely not zero. Contagion is not always logical. Credit Suisse is Tier 1 capital ratio was higher than Deutsche Bank's, for example. Goldman Sachs says watch on the potential replacement of eighty ones with CGT once. That will mean more capital building. I want to get to some of the movements in the nickel market so we have identified who is behind the mysterious batch of stones that were thought to be a nickel in a storage warehouse. And it is J.P. Morgan. At least this is according to people familiar with the matter. J.P. Morgan has declined to comment on it. And as much as the amount is low. So one point three million dollars LME contracts are generally viewed as beyond question. There is a sanctity to the storage of LME contracts. And the idea that this can even happen, that stones could replace nickel in a storage warehouse. That is truly shocking at the moment. Nickel of the last five days here down one point or five percent. I'll get to the wider markets in Asia. Rishaad Salamat joins us for all the nuances from our Hong Kong studio. Harish, about all the nuances use of it's certainly Matt Miller because over the price action right now and of course it's financial equities which are driving things along Hang Seng just get going for its lunch break a couple of minutes ago, up by one third of one percent. Really this sort of risk rally petering out here in Hong Kong. This various other parts began to move CSI four tenths of one percent up. I see what's going on with the Sydney market. It's a really one which is grappling with what the Reserve Bank there had to say about their previous meeting. And what they indicating right now is that they could be pausing next time they meet here as well. We saw 10 year yields dropping to a new seven month lows off the back of that, looking at the individual banks. Let's have a look at what's going on. HSBC, for one thing, looking at Standard Chartered to moving pretty much up to the upside. Hang Seng, of course, is almost a subsidiary really of HSBC, owns about 40 percent of it. But we're seeing a move to the upside. But on top of this, we've got high ball now. This is really important here because what we have is the Hong Kong overnight. But boringly radio offered rate here surging all ahead, of course, the Fed meeting. And in fact, it is the biggest increase in data that we have at least since 2006 with regard to highball looking the gaming stocks. And they've lost their luster a little bit because we've got videos like that gave me like to be a video streaming site. Billy Billy winning out in the US, 2.8 percent up here as well as that. We've got Chinese regulators approving certain games by them and one each from Tencent and that is two. So there you go. I think you've got breaking news. I use it. Yes, absolutely. Thanks for that report. That's Rishaad Salamat with the roundup. I want to add one more item to the Asian component, and that is from the automaker Geely. They're coming through here with a fiscal year, full year net income, 5.2 6 billion yuan. The market is looking for four point eighty five billion yuan. This is significant for multiple reasons. One is that, of course, Asia's stocks have faced a reality check with earnings broadly disappointing. So this surprises on the upside. The final dividend per share is at 72 Hong Kong cents and the CapEx for 2023 is going to be 14 billion, while on the revenue line is higher than what the market anticipated, the fifty three point sixty five billion yuan. So those are some numbers for you there on the automotive side of things. Want to get to banks again? A UBS shares made gains as investors weigh the pros and cons of its takeover. Credit Suisse. UBS chair Colm Kelleher commented on any potential job cuts as part of the restructure. Take a listen. As regards job cuts, it's just too early to say. I mean, we have to now we are clearly cognizant of Swiss societal and economic factors. We will be considerate employers, but we need to do this in a rational way thoughtfully. And while we've sat down and analyzed what we need to do. Bloomberg's also learned that risky Credit Suisse bonds that are set to be written down to zero by regulators are being quoted that prices of a few cents on the dollar. Bloomberg's finance reporting to be NAMA joins us now from Sydney. So, Nabila, what's the latest then on these bonds that set off alarm bells from Sydney all the way out to San Francisco? Yes, this was definitely the most contentious point of that deal, but as you say, these bonds have been written down to zero, but they're still trading and they're trading at above zero. We've got firms like J.P. Morgan, Morgan Stanley, BNP trading in these bonds. They're buying for about two cents, selling for about five cents. And the reason they're doing that is because the deal hasn't closed yet. So they haven't been slashed to zero yet. And there is some hope that when litigation eventually happens, these bonds could provide them a claim to Credit Suisse. So they're crafting terms that allow these bonds to turn into claims on Credit Suisse when the deal eventually closes. There's also a little bit of hope that maybe regulators will throw them a bone after all, given how much this has really upended that market for 81 bonds. There is a lot of disappointment in the Swiss public discourse. Newspapers and some of the television shows about how all of this was handled over the weekend. There was an understanding that following 2008, what happened with UBS, that the system was better built and more resilient. How is the merger being received elsewhere? What are you hearing? Well, we've got protests on the streets of Zurich, to your point. People are really disappointed and it threatens to become a bit of a political issue. Remember, they've got elections, national elections coming up in October. And the Social Democrats have asked actually for an inquiry, a parliamentary inquiry into what happened in this government brokered deal. When you look at the markets, UBS investors still trying to figure out how good this will be and when they will actually get the benefits of this deal. So you saw shares plunge 16 percent, rise 7 percent. They finished the day up about 1 percent. But investors are really concerned about how long it will take to get through the details of this deal. Also, they don't like the fact that UBS has had to stop the share purchase plan, that they had a five billion dollar share buyback will now not be going ahead. So there's still a lot of uncertainty out there, Yusuf. And it will probably take a while to figure out. Remember, the deal is set to close until the end of the year. So there's many iterations to come here. Mia, I don't even know what I'm doing tomorrow, so we will see how it all comes through. Nabila Ahmed, thanks for that, joining us there from Sydney. Now, declines in most U.S. regional banking stocks, they have slowed or reversed, but investors remain on edge and sell off in shares of the embattled lender. First Republic continues. Meanwhile, Bloomberg sources tell us that U.S. officials are studying ways to temporarily guarantee all deposits. Bloomberg Simone Foxman as more. So how close is the US then to pursuing such a dramatic step? You said this is absolutely not a done deal. We understand from Bloomberg sources that most U.S. officials actually believe that they've done enough at this point to sort of stabilize this banking crisis, but that they're nonetheless studying this plan as what to do. If for some reason this were to get worse. And part of the reason they're studying is it is because it's not exactly clear how they go about insuring or guaranteeing these deposits. They probably can't get something through Congress, a heavily divided Congress and Republicans particularly concerned about the moral hazard of taking such a step. We've seen some of this commentary come out in the press over the past couple of days. So if not through Congress, then they might have to take some step through the executive branch and they're kind of figuring out exactly how they go do that. There are still calls from the likes of Bill Ackman, from mid-sized bank lobbyists that they should move forward with this. Lot of concerns that if another regional bank were to fail, that we would see deposits move en masse to the major the major U.S. banks fleeing those regional banks. One thing, however, I should note that there is some consensus around on both sides of the aisle is that that 250000 dollar FDIC insurance. That's just too low for a lot of small businesses. A lot of, you know, middle income people, you know, small businesses need to meet payroll. And a lot of those numbers on even a monthly basis are higher. That's something I think we could see some movement on in the coming months, if not weeks or days. Samoan I'm looking at the charts for First Republic Bank and it is truly stunning the scale of some of the moves just run me through. I mean, you know, 12, 20 a share as we speak. That doesn't seem to be fading. The fear, the pervasive fear around the viability of this institution. Yeah. Look at that chart. It's a doozy, Yusef. And there doesn't appear to be an end in sight. As you say, shares were down 47 percent yesterday. They're down some 90 percent this month, the first republic. A lot of the angst we saw in markets yesterday coming after S & P made its second downgrade on the credit rating of the bank in less than a week. So that playing out in markets, we do understand. Jamie Diamond leading the charge with other U.S. banks, discussing whether or not they can convert that 30 billion dollar deposit. They made an expression of confidence in First Republic last week. Convert that into an actual capital infusion. The likes of Bloomberg Economics believe that that could be important, could be a vote of confidence yet. I mean, shares were down 47 percent, fell back to where they were before that announcement. So we'll see if this changes as markets continue to kind of digest this news. Someone, thank you for the updates at Simone Foxman at the kind of financial center in Doha. Now Vladimir Putin has in the meantime, welcome China's Xi Jinping to Moscow for three days of talks aimed at boosting the relationship and allowing XI to present Beijing's Ukraine peace plan. Chief North Asia correspondent Stephen Engle is in Hong Kong for more. Steve, what's been the main takeaway here so far? I mean, they really seem buddy, buddy and at ease in front of the cameras. Yeah. And that kind of puts it in contrast to the position that Xi Jinping wants to position himself as as a global statesman, as a neutral party, as an honest broker to bring this twelve point Beijing peace plan for Ukraine, Russia war to all the parties. But he goes right to Vladimir Putin initially. Three days of talks. And look, the state media through the Chinese government essentially quoted she is saying that the buy ran bilateral relations between China and Russia is a strategic choice China has made on the basis of its own fundamental interests and prevailing trends of the world. So Xi Jinping, on the one hand, wants to be a neutral party. But then he also is essentially saying that their aims and their goals with Russia are in lockstep. So that essentially undermines the credibility, perhaps at least according to Anthony Blinken, the U.S. secretary of state. I paraphrase, of course, but essentially that twelve point peace plan that Beijing first unveiled last month in February was quickly rejected by Ukraine, by the US and the U.S. allies in Europe. So they they were buddy, buddy, essentially. Putin says she is his dear friend. She said that, you know, he values this relationship with Russia. He did not, however, reiterate that, well, repeated no limits pledge in their relationship. Every relationship has its limits. But again, she is trying to, on one hand, be a neutral party, but at the same time shore up that relationship with Vladimir Putin. Yeah. We also have the Japanese prime minister. We understand that he's going to be visiting Ukraine imminently. We'll see how it all plays out. Thank you for that. That's our chief North Asia correspondent, Stephen Engle. Let's get to the first world headlines for you from around the world. Medicine Mills has those. Thanks, Youssef. Bloomberg has learned that U.S. asset management giant Vanguard is planning to complete its exit from China. Sources say it's notified the Chinese government of its intentions to shutter its remaining unit in Shanghai. It's also considering exiting a robo advisory joint venture with Ant Group. The company began its retreat from Beijing back in 2021. And sources say First Citizens Bank Shares is still working on a deal for Silicon Valley Bank. We're told the lender submitted an offer on Sunday to buy all of this. Maybe it may participate in the auctions this week for the two parts of the company. The FDIC says it's extending the bidding process through Friday. That comes after getting substantial interest from multiple potential buyers. And in Europe, ECB President Christine Lagarde says there is no conflict between the central bank's inflation targeting mission and its responsibility to stave off financial system threats. She told EU lawmakers that there was no tradeoff between price stability and financial stability. In her capacity as chair of the European Systemic Risk Board, Lagarde assured that Europe's banking sector remains strong. Take a listen. We are very confident that the capital and liquidity positions of the euro area bank are very satisfactory with significant capital ratio and liquidity coverage ratio way in excess of requirements. And the French government has narrowly survived to no confidence votes over a controversial pension reform. The majority of lawmakers voted to reject both motions, which would have notified the bill and forced the prime minister to resign. Opposition parties still vowed to use other means to derail that measure. The pension reform, which is championed by President Macron, seeks to raise France's minimum retirement age by two years to 64. Global news powered by more than twenty seven hundred journalists and analysts in more than 120 countries and Matt Miller. And this is Bloomberg. Thanks, Anderson. Here's a bit of a snapshot of what else is still in the pipeline here. While former New York Fed President William Dudley thinks the central bank will keep going with sea runoff off its bond portfolio despite the banking turmoil. But first, we'll talk strategy with in touch capital markets as they see slimmer chance of a repeat of the 2008 financial crisis. This is Bloomberg. The real trouble starts when the Volcker rule, because that's essentially the bond market saying the Fed is going to have to be cutting here at some point. So the two year, you know, no rallies in a way where the Volcker Rule Stevens that's exactly what's going on in the bond market effectively is pricing some sort of of recession at this point in the equity market is still in denial. Kevin Cirilli Mike Wilson on what he thinks is the start of a vicious end to the bear market in U.S. stocks. Meanwhile, JP Morgan's market, Galina. She says the bank failures, market turmoil and economic uncertainty have increased the chances of a Minsky moment. I've got to tell Ali, he's the head of Ethics and Macro Analysis Asia and in touch capital markets. Todd, what do you make of all that kind of commentary? Where do you stand? I have a lot of sympathy for the view that we face a challenging environment for asset prices moving forward. And the reason I say that is less about some of the acute strains that we've seen so far in terms of the financial sector. I do think that policymakers are moving decisively and we learned lessons during the global financial crisis that we can't allow liquidity to dry up, that there is a playbook for countering those types of strains. But we have to bear in mind is that we are seen tightening in terms of credit. We are seeing tightening in terms of financial conditions. And that is going to exact a toll. It's going to exact a drag on the economy moving forward. We haven't seen that show up in the data as of yet. And I think that that means that we are going to struggle to move a bit higher in terms of equity prices. I think that's going to keep a cap on yields. And I think that that is going to present somewhat mixed signals for the dollar. Probably a very strong signal for appreciation from other safe havens such as the Japanese yen. Tom, I normally don't quote Elon Musk a couple of days before a major announcement from the Fed, but I will this time round because it is about concerns that there will be a financial crisis if the contagion within the regional banks is not halted. He also says the Fed needs to drop the rate by at least 50 basis points on Wednesday. That's how drastic and action he would like to see. Where do you see the Fed in the coming hours time? I think that they face a bit of a push and pull because we are still seeing elevated inflation pressures. But as I said, I think the more important consideration at this point is that moving forward, this tightening in terms of financial conditions is going to contribute to slower economic growth. And I think that that argues for the Fed to keep rates unchanged. And I think that if they do weight those factors more heavily, that is the risk that we will see no change in rates. Then it's the number six, meaning six weeks before the next meeting, which does give them more time to assess the data to see how this crisis is playing out. In terms of investment strategy, you talked us through some of the ideas. I want to get to a key inflection point that's occurred and portfolio balancing and specifically between equities and fixed income. The relationship is kind of back on to healthier ground, see TV go for our clients. This is the 40 day correlation between the S & P 500 and benchmark treasuries. Positive for most of last year has just turned negative after hovering near a multi decade high in January. So the stock bond relationship is back at the play and I'm wondering how you find the split between the two as you approach some of the macro risks. I think you've hit the nail on the head. We're tending to see yields and equities trade in the same direction recently, and I think we're very recently. And what that means is that investors are trading to some extent sentiment more so than some of the underlying fundamentals. And as we see this expectation come through that we are not out of the woods yet in terms of recent developments in the financial sector that we may start to see flare ups elsewhere. This is probably going to continue to see that relationship play out in the same fashion. I think that that probably points lower for both asset class. What can the Fed do Tor to reassure markets that are on edge following the crashes and demise of a major heavyweight lenders? You know, I think that they told us in terms of financial sector stability that these are not the droids that we're looking for, that the US financial system is very sound and I think we'll continue to see that message. But I wouldn't want to think that is critical. Is that in the event that we do see any further tightening in terms of liquidity, there are signs that there are starting to be the beginnings of strain. Certainly nowhere near as severe as we saw during the global financial crisis. But I think that they need to act decisively against those types of strains. And that will go some ways to ensuring smooth functioning of the market, which I think is sort of the best outcome that the Fed can hope for at this point, because there certainly will be additional pressure on other financial firms, on hedge funds, which have been rocked by recent moves in terms of asset prices. I don't think that there's any way that the Fed can prevent that at this point. Fantastic to get your insights. Todd Elmer. He's the head of ethics and macro analysis for Asia In Touch. Capital markets, stunning charts in the background as well. So much more to come. This is Bloomberg. Let's take a quick look at how Middle East equity markets fare at a couple of things I want to highlight. A is what happened with Khatami stocks because that losing streak extended into a seventh session with broad based declines. And then the other highlight coming through from Abu Dhabi with some of the lenders in focus, Abu Dhabi National Energy being the only outlier of that, ADC ECB down almost three point one percent. Oh, quick look here at the Egyptian pound, the 12 months forward, because we've crossed a new record line, we've crossed the 40 barrier against dollar and in place 33 percent. Potential downside for the world's worst performing currency already. Much more ahead. This is Bloomberg. This is like DAYBREAK Middle East. Our top stories this morning, PIMCO and Invesco were among the largest holders of Credit Suisse's risk response wiped out by the UBS takeover. Meanwhile, recruiters across the world are getting an unprecedented flood of calls from Credit Suisse bankers seeking new jobs. U.S. officials are studying ways to expand federal insurance to all bank deposits temporarily as lenders argue over whether it's needed. And if that's going to help stave off potential financial crisis. Russian President Vladimir Putin says he will discuss China's Ukraine peace plan as he welcomes his counterpart, President Xi Jinping, to Moscow for a three day visit. And Russia surpasses Saudi Arabia's. China's biggest oil supplier, with refiners taking advantage of cheap barrels to feed rebounding demand. India's biggest economy. And it comes after the end of Covid 0 1 to get back to the markets because, yes, you have equities gaining a little bit of ground off the back of easing financial concerns, but barely. There's not a lot of conviction here. Up a tenth of 1 percent on the S & P 500, meaning we have the cash trade for U.S. treasuries that are shut because of a holiday in Japan. So you're seeing futures here move incrementally. A dollar is at a one month low close to that with ISE all on the Fed in terms of the next move. Now, Brent crude at seventy three dollars and 11 cents a barrel, with Trafigura seeing strong commodity demand. In its latest comments around the story from China, want to get to a chart to reflect on the big moves that we saw on credit default swaps so far this week. Credit Suisse is five years seniors and compare that to some of the other banks to blow out and credit risk has been limited to see us. Most of these credit default swap spreads are still below the pandemic level, with the exception of maybe Deutsche Bank. The contagion risk is much lower than it was in 2008. But the reality is, it's not zero. A contagion is not always fully logical. Credit Suisse's Tier 1 capital ratio was higher than Deutsche Bank's, for example. And Goldman Sachs also makes clear that the next focus is going to be about the potential replacement of 80 ones with CGT ones. And that's going to lead to required capital build and higher funding costs as well. Let's talk about nickel, because as much as the price moves have been contained over the last five trading sessions, Bloomberg has identified who was behind the Mystery Stones contract. So itself. Nickel in the warehouse. You had a bunch of stones that were backing the contract. And as much as the worth of the contract isn't significant at one point three million dollars. The fact that you have these irregularities at a warehouse on an L.A. contract, which is viewed generally as beyond question, it's kind of sacred, almost dead. That was a shocker. And so this is according to people familiar with the matter. This is not official confirmation just yet. JP Morgan has declined to comment on this particular matter. I want to get to the wider market action in Asia. Rishaad Salamat has the details from our Hong Kong Sunni risk taking away. Yeah, I mean, we're just thinking about it was a mildly positive turn, which is just an even milder, if you will. We had big gains for some of the vital benchmarks in this part of the world. Of course, Tokyo, no trading today. It's a public holiday because of the vernal equinox. But we saw Hong Kong really giving up much of what we had. Just finish the lunch. Or should I say the morning session? About one third of one percent. Looking at Australia, the ASX 200, it is up by just about 1 percent right now. Some perhaps some food for those bulls out there on the bond market at least. I just seeing Australian bonds are loving those comments coming from the RBA governor, Phil Lowe. The central bank will be considering to pause in its tightening cycle at the next meeting coming next month. We had the 10 year yields dropping to seven month lows off the back of that rally, opening the door for the country's bonds to really extend the gains we've been seeing in March. And indeed, rates, markets are cementing expectations that they're going to be standing pat next Friday and even further down the line here as well. Just got to tell you also that we're seeing the banks also just coming back. A lot of the financials are helping to cement the rally that we've been seeing, and that is that we see perhaps to some of the I guess, the the spillover from what's been happening in Credit Suisse in the US, just perhaps that maybe it's best behind us here as well, and that the threat to the global financial system is essentially dissipating. But the liquidity in Hong Kong getting pretty tight highball. That's the Hong Kong Interbank Offered Rate. It is. It's essentially doubled here as well. It jumped 253 basis points this morning to four point one, 4 percent. That's a three month libel. And that really is the biggest increase in this data that we've seen since January of 2006. So a lot of moving parts here. And we've got those financials leading the charge. And we did have some of the gaming companies also doing that. But that advance has been dissipated to some extent as well. Yes. All right. Rich Stone Vanguard. That's the other focal point here. It's getting a lot of traction in our global audience in terms of readership. They've decided to shutter their remaining business in China. Right? Yeah. And it's odd actually, because, you know, we've got this new pension reform coming through as well, which is meant to be brightening the prospects for actually sending up these fund management companies here as well. And you know, what we do have is closing this remaining business in China has been slowly exiting, if you like, and this is abandoning quite something because it's a three point nine trillion dollar market fund market. Chinese government has been formed to to the people who we've been talking to here as well. But the companies also playing to perhaps get into a robo advisory joint venture with the ant group as well. But certainly wealth products have been disappointing to some some extent. And we've had others, such as Fidelity and BlackRock going in deeper into this market. And that may be a solitary lesson for them as they close off that business in China. Yousef? Rich, thank you very much for getting us up to speed with all of that. It's Rishaad Salamat there. I want to talk about the ECB president, Christine Lagarde now because she says that all banks should follow strict liquidity rules imposed after the 2008 financial crisis. And she added that she is confident in the capital ratios of European banks. We are very confident that the capital and liquidity positions of the euro area bank are very satisfactory with significant capital ratio and liquidity coverage ratio way in excess of requirements. I when I get out to Bloomberg's chief race correspondent in life, contributor Garfield Reynolds. Garfield, I'm sure when they sign a statement from the Swiss National Bank and some of the other players to bring in Credit Suisse and UBS together, we got knocked out of their windpipe because effectively you've messed with the secret capital structure. The ECB and others didn't like that, did they? Well, I don't think the ECB and others liked in particular either. Just, you know, the idea that Credit Suisse was having to be folded up into UBS, that that's the main problem. And the banking that you're the 81 bonds, that does also seem to have been something of a rushed process. Yeah, I've seen different opinions as to whether or not the Swiss were had the right to do what they did. But either way, the way they've done it has caused a lot of concerns about the law of unintended consequences. That is part of why a banking crisis is so dangerous. Every time you solve part of the crisis, you run the risk of opening up another part, because that solution might impose strains on other sections of the global financial system. That's what we're waiting to see, you know, when it comes to Credit Suisse and what's gone on there. Are there other bits of the global system that are under a bit too much strain? What about the broader contagion concerns in terms of potential steps that the ECB could take to mitigate some of that? I mean, you just kind of talked about it. I want to flesh it out in a bit more detail. What what do they have in their tool box? What could come down down the line? Well, I mean, part of what they've done is to, you know, part of the central bank's toolbox, as always, as it were, the bully pulpit, you know, saying what they will or will not do. They've tried to make it very clear they do not expect to ever carry out this sort of zero thing for 81 bond holders that the Swiss National Bank just did. So that's an important part of it. They're also, you know, looking to monitor closely how European commercial banks are going, do as much as they can to let the wider world know that these institutions are on solid capital footing. They also are very keen to make clear that they have a strong delineation between their financial stability and price stability mandate. So the price stability mandate says keep hiking interest rates. Yes, that does cause strain on the financial system. But you use these regulatory tools to make sure that the banking system can keep going. And as needed, you provide liquidity as the lender of last resort, but provide it in a way that doesn't counteract with the interest rate mechanisms. And even with you don't want to go releasing QE when you're busy trying to tighten monetary policy. So it's about making sure the money goes to the right place under the right, you know, scenarios under the right guidelines. OK. There's been a critical point of view. Garfield, thank you for sharing that with our global audience. That's Bloomberg's M Live. Garfield Reynolds. Now, Credit Suisse's Middle Eastern investors are among the biggest losers in the turmoil of the past week. Let's start with Saudi National Bank. That's the Swiss lender's top shareholders. They have seen the value of their investment plummet by about a billion dollars in a matter of months. For more, let's get out to Christine Berg. And we are Christine, what kind of losses are we talking about here? Who are some of the key players? Because not just Saudi National Bank. Yeah, that's absolutely right. Use of so of course, everyone out there at this moment in time and time is trying to assess the damage and the opportunity really that stems from UBS is takeover of Credit Suisse, Saudi National Bank, of course, being a key player here because its Credit Suisse's top shareholder with a stake of about 10 percent. Bloomberg calculations show that the value of that investment has dropped. As you said, by about a billion dollars. Remember, Saudi National Bank made its initial investment into Credit Suisse back in October, saying that it saw a possibility for, quote, excellent returns and that it liked the bank's turnaround plans. That initial investment was worth well over a billion dollars. Now, not so much. We're looking at more like three hundred and twenty nine billion dollars. So not really those excellent returns that the Saudis were looking for. Saudi National Bank did, however, make a statement yesterday saying that the changes in the value of its investment into Credit Suisse do not change its growth plans, nor do they change 2023 guidance. What about Qatar? I mean, what do we know about the sovereign wealth funds investments into Credit Suisse? I mean, equity bonds. Outside the key way maybe. Have you taken a closer look at some of the number? Yeah. So what do we look at the Q I in particular remember that the Q II is Credit Suisse, the second largest shareholder, having just increase its stake back in January to almost 7 percent. I really want to talk about 80 ones here, though, use of those contingent convertible bonds that have become a key focal point for investors in the last 48 hours. So the QE actually took up some of those bonds during an issuance round in April 2021 when Credit Suisse was really trying to shore up its balance sheet in the wake of losses tied to the fallout of the collapse, rather, of the arcane Goss Capital Management. Now, it's unclear at this point in time whether the Q A still holds these bonds, but if it indeed does, then presumably we are looking at more losses. What about the property angle here? Because there are also a source of pain in terms of exposure. Yeah, that's right. So this is a really interesting one, that QE actually owns an office building in Canary Wharf where Credit Suisse has a lease on office space until 2034, while UBS will assume liability for that lease under the takeover. You have to ask the question about how much of that office space is really going to be needed. I mean, we know there are going to be cost cuts at Credit Suisse under the takeover deal. We also know that there are probably going to be severe job losses. And specifically in the investment banking division of Credit Suisse, many of the people and not division are actually housed in this building in Canary Wharf. I also want to note that KUSA owns the HSBC headquarters in Canary Wharf and HSBC is looking to relocate. So really here there's just some potential added pressure on the Q ISE real estate investment portfolio. Christine. Well done, excellent reporting that said, Christine Berg, life from rehab. We say much more to come on DAYBREAK. At least this is Bloomberg. Former New York Fed President William Dudley says the US central bank will keep going with the run off of its bond portfolio, that's despite the sudden surge of problems in the banking sector. He also told us that the U.S. Central Bank should pass its hiking cycle this week with some conditions. I think we know I can raise 50, we think we know they're not going to cut rates. The real question is 0 or twenty five. The case for zero is do no harm. We know that the banking system is under stress. So why you continue to raise rates when the banking system is under stress, the case for 25 basis points is the same. Look, we still have an inflation problem. We can do both. We use our liquidity facilities to shore up the conference in the banking system and we use monetary policy to bring down inflation. If I had to if I had if I was sitting there, I guess I would recommend just taking a pause. You have to do it in a way that doesn't alarm people. One of the problems of pausing is you're going to say, gee, why is the Fed causing things must be worse in the banking system than we think? I think this is a very different situation with the Greek financial crisis in the sense that the banks. This is a question of confidence in banks due to uninsured deposits. Mark to market losses. It's not about the economy that's collapsing in the last recession. There is a great financial crisis. We were in recession beginning in December 2007. We're not in recession now. The economy is actually doing pretty well. And the banks that we're talking about that are under stress in United States for a small share of the total banking system. So I think it's important to recognize that this isn't the great financial crisis all over again. It's a lack of confidence in banks, because especially those banks with a high proportion of uninsured depositors and mark to market losses on their profits in their portfolios. All that said, Bill, do you still think that this Fed should bring monetary policy, should bring their terminal rate to 6 percent or possibly above that based on the inflationary pressures? If there is this ongoing tightening that people expect from smaller and midsize banks. Less really. Sixty four thousand dollar question how much is this stress that we're seeing today could result in tighter credit conditions? There has change the trajectory of economic growth. I don't think the problem is credit conditions right now. I think the problem is, mark, to market losses in the portfolio and uninsured deposits. It's very different than the great financial crisis. When we entered this housing boom and bust, it was the bust that really took down fundamental values in the banking book and also damaged households enormously because households have used the rise in home prices to pull money out to support their spending. The US economy is fundamentally in better shape today. Household and business balance sheets are strong. So this is, I think, more about confidence in the banking system. One reason why we're having more problems this time, though, last time there were big banks that were willing to ride to the rescue and buy the banks that were under distress. They're much less willing to do that this time because last time when they did this, they assumed huge legal liabilities that they hadn't anticipated. A second reason why big banks don't want to ride to the rescue this time is why buy a bank and get bigger? I could be pushed into a hierarchy of what's called a SIFI surcharge bucket with a higher cap requirement. Based on my size and complexity, which would be which would apply to my entire book of business, not just the couple of the new parts that I just as just acquired. So you don't have the, you know, people that come into, you know, bind up. Banks are under stress like you did last time. The former New York Fed president, William Dudley, there with Bloomberg, Louisiana. Abramowitz now. Plenty more still to come on the program. U.S. equity futures unchanged on this Tuesday. Bloomberg. A member of the Khatami royal family set to make a second bid for Manchester United by the end of Wednesday. It's to the Sky News. Bloomberg's Madison Mills is more on the developments. Madison. So we've seen already one bid from this royal. Why do we have a second bid and what else is kind of transpire? This is this is really Keats, these developments. Yeah. So the reason for the second bid now is that we have a deadline coming for the second round of bids and that's by end of business day tomorrow. So that's why we're hearing this discussion popping up again. I do feel like and reading in on this story, it seems like people are going to hate me for this. But the only winners here seem to be the Glazers so far because they put the estimated sale at 6 billion pounds. We've already seen this coterie royal. This is Sheikh Jasim bin Hamad al-Thani. He's already put in a bid. So we're likely to see that bid coming and higher this time around. The means on Twitter saying it's got to be at least seven billion to get this deal done. But this comes after he alone, he met with the man you team and officials last week for over 10 hours on the ground there. So a big meeting there. And we anticipate that this means that the Glazers really are interested and have that appetite for a sale. But of course, we know that some family members interested in maintaining their stake. So it's going to be interesting to see whether or not that sale continues to be part of the conversation. I should mention Jim Ratcliffe also still in the mix here, that British billionaire, but he is saying he really wants to only go in if he feels that it is a fair statement price. I mean, we know from the events of the weekend in Switzerland that a lot can be done, perhaps more than many expected, 24 hours of due diligence. Let's see what comes from here in terms of the currency developments this time in Egypt. Again, it's been an ongoing point of our coverage. But we've moved below a critical point. Now it's 40 Egyptian pounds against the U.S. dollar for the twelve months for it. That implies a lot more pain ahead, doesn't it? Yeah, the world's worst performing currency. And we've been having this conversation. Calls to devalue the currency for a fourth time have been part of the discussion here for weeks. And now this critical barrier crossing 40 against the dollar with an implied 33 percent potential downside here. We've already seen a record long streak of traders hedging against potential further currency declines as well before we even got this news. And we know also this banking crisis is likely going to impact Egypt as well, because any macro headwinds tend to really hit emerging markets really hard. And this comes as Egypt is facing a cash crunch. They're looking to Saudi Arabia to cash in that 10 billion dollar promise. So far, they've only gotten one point three billion. But from the Saudi Arabia perspective, they may be looking at this currency news and thinking they want to kind of see whether or not Egypt comes through with those exchange rate changes and promises before they move forward with that funding. The troubling part for me is that none of the houses got this right. ISE. We started at 17 against the dollar and people were saying, oh, 25 major investors saying 30, 32 max. And now if we end up at 40, that's just rips up the whole rulebook. So evolving story. The other thing I'm watching it are these EU sanctions against Iranian officials. What differentiates this round from the previous round? Yes. So a sixth round of sanctions here. What feels very significant to me is that this is a sanction against the Supreme Council of Cultural Revolution, the top Iran body, the E.U. imposing asset freezes on that body. And Iran as well, saying that they promoted projects that, quote, undermine freedom of girls and women. And this leads to a blacklisting now of 200. And for people in Iran, 34 entities as well. And this is an additional eight officials facing more restrictions. And just to give the context here, as you know, this comes after months of protests since the death of Masha Meany in September in police custody. I think it's interesting you said that yesterday we spent a lot of time together talking about Gulf powers, looking to restore diplomacy, create geopolitical calm on the ground. But we're still seeing these protests continuing in Iran and not seeing any signs of them slowing anytime soon Anderson. Well, Don, thank you for highlighting some of those updates that simply Mubarak's medicine mills their own to get back to the market action for you. This is the equity futures positioning on a Tuesday where we're coming off the back of gains in the previous U.S. session overnight. But those are moderating now on the S & P 500, many just barely above the flatline, a tenths of one percent. I want to flip the board, get you treasury. Just bear in mind that these are the last closers Japan holiday today. So no cash trading saying actually these are the futures. So we got them. We got them right on. Time with the U.S. tends once again in focus. But does the thinking from the M Life team is why would there be demand for havens on the line of sort of shorter and treasuries? If the situation is beginning to stabilize, it's counterintuitive. That's the verbatim from the research that's off the board again. Get you your cryptocurrency equation maybe a little bit early for the day for you. But it is a critically important indicator. It's become an important indicator. Bitcoin we are down at the moment three tenths of one percent under twenty eight thousand dollars and it's been a major run up in the last four to five trading sessions. And so a little bit of a giving back that is happening here. Flip the board one more time. Talk about crude oil, where we're seeing the impact of greenback's strength. Just weigh on the margin. WTI now slipping back on the seventy one dollars a barrel. Sixty six ninety. I think there is a broader bewilderment around the steps being taken by regulators and some of the commentary from Federal Reserve officials around what's to come. We're going into the Fed meeting in the coming hours. Are we going to get 25? What kind of guys are we going to get? We're going to get into all of that. This is Bloomberg. This is Bloomberg Daybreak East are our top stories this morning. PIMCO and Invesco were among the largest holders of Credit Suisse's riskiest bonds wiped out by the UBS takeover. Meanwhile, recruiters across the world are getting an unprecedented flood of calls from Credit Suisse bankers seeking new jobs. U.S. officials are studying ways to expand federal insurance to all bank deposits temporarily. Lenders argue cover is needed to head off a potential financial crisis. Russian President Vladimir Putin says he will discuss China's Ukraine peace plan as he welcomes his counterpart, President Xi Jinping, to Moscow. QUEST MEANS Day visit and Russia surpasses Saudi Arabia's. China's biggest oil supplier, with the fighters taking advantage of cheap barrels to feed rebounding demand in Asia's biggest economy. It comes after the end of Covid 0, just gone. And 9 a.m. across the Emirates. I'm Yousef Gamal El-Din by Manus Cranny is off. I want to get straight to the market action because the easing around the anxiety of financial stress that is beginning to stall in terms of risk appetite. So on the S & P 500 anywhere barely called above the flat line on this Tuesday, under a tenth of 1 percent. U.S. Treasury futures and focused. We have a holiday in Japan, so no cash. Treasuries are trading curly. We are moving by about a fifth of 1 percent. Your dollar trade is close to a one month low as we count down to the Fed decision. And then crude oil with Brent down nine tenths of one percent. Trafigura is seeing strong commodity demand for China, but it is not lifting this particular equation at the moment. I want to get to this chart and reflect on Credit Suisse in terms of where we stand with the five year credit default swaps compared to peers compared to BNP, UBS and many others. Now, the blowout in credit risk has been limited to see us. Most of the credit default swaps with the other banks to spread. It's below the pandemic level, with the exception maybe of Deutsche Bank. The contagion risk is much lower than it was in 2008. But hey, it's not zero. The contagion is not always fully logical. Credit Suisse is Tier 1 capital ratio, for example, was higher than Deutsche Banks and Goldman Sachs in a new note saying that investors are going be focused on the potential replacement of 80 ones with CGT ones. And that's going to lead to required capital build, and that means higher funding costs. I want to flip the board gets your nickel trade, not because we see a huge move in price, but because Bloomberg understands from sources that JP Morgan is behind the mystery contract that was backed not by NIKKEI in a warehouse by a bunch of stones. The contract was worth about one point three million dollars. So no big deal in terms of the size. But the LME contracts, they're viewed as generally beyond question. There's almost a sanctity to it. JP Morgan has declined to comment on the matter of the five days. We are down one point one percent to get to the markets more broadly in Asia. Rishaad Salamat has all the angles from our Hong Kong Sunni rish. Yeah, I mean, we've got a bank deposit zone and we just came out of the gate for my lunch here in Hong Kong with the Asian side. Now to two tenths of 1 percent to the upside. It's been declining off the highs of the day. But certainly whatever's happening in this part of the world, it's been all about the banks and certainly the moment, a bit of a relief that some of the gyrations that we've been seeing may have dissipated at least. They may not be actually a immediate threat to the global financial system. On top of that, we've got the US studying ways of perhaps guaranteeing all deposits here as well. And also aiding the rebound here is that the addition of Tier 1 bonds that we've been talking is about as well, which wiped out of that Credit Suisse takeover, 37. I'm just checking now of the 38 eight. Eighty one dollar bills up at the moment with Westpac, Perpetual has rising by a record. So there we go. That's supporting the Australian market as we're heading to that lunch break. Nine tenths of one percent, again, off the highs of the day. The RBA minutes, Reserve Bank of Australia minutes as I'm indicating that they were considering a pause at that next meeting that did a lot as far as we saw with regards to the bond market there as well with seeing, what, 10 year yields dropping to seven month lows of the rally that if March continue. Couple of other bits and bobs here as well. Certainly the this is what the banks are looking like at the moment with HSBC in terms of its weighting. The second biggest gainer on the Hang Seng at the moment, a kind of the financial, of course, also doing things there as well. Now, banks should also be looking at Highball, their Hong Kong interbank offered rate, because it's have been soaring here as well. A borrowing cost, of course, surging ahead of the Fed. But by this, I mean, we haven't seen an increase like this since January of 2006. We saw highball for three months, 253 basis points up four point one percent there to be exact. And overnight, we saw some credit conditions in China playing out to the interbank funding goes the repo rate. They're at levels haven't seen for a couple of years, February 20, 21, to be exact. It's really short term liquidity perhaps is coming more scarce as far as that interbank market goes. Final word, though, Vanguard is abandoning China. It is going to shutter its remaining business there as it closes in in in Shanghai and abandons what is a three point nine trillion dollar market. The wealth products and their sales have essentially dissipated or disappointed, I should say. So it's a state of caveat emptor for those who are ramping up them during the likes of BlackRock and Fidelity International. So there you go. But the sun, its banks, and it's about perhaps this global banking shakedown behind us for the time being, at least, Yusef. Maria Tadeo is good to see you. Thanks for that. That's a Rishaad Salamat. I want to get to the UBS story and a bit more detail. The shares made gains as investors weigh the pros and cons of its takeover of Credit Suisse. UBS chair Colm Kelleher commented again on any potential job cuts as part of the restructure. Take a listen. As regards job cuts, it's just too early to say. I mean, we have to now we are clearly cognizant of Swiss societal and economic factors. We will be considerate employers, but we need to do this in a rational way thoughtfully. And while we've sat down and analyzed what we need to do, Michael Bloomberg also learned that risky credit's response that are set to be written down to zero by regulators are being quoted at prices of a few cents on the dollar. Bloomberg's finance report on the. Ahmed joins us now from Sydney. Maybe we've had a much better understanding of which entities have exposure and the scale of potential contagion. What is your conclusion? Yes, a lot of this is still to play out in the market, right? So you see investors sort of liking the deal, sort of not liking the deal. UBS shares ended up about a percent higher for the day. But investors are still figuring out just how this will play out. So when you talk about contagion, I mean, let's look at what UBS has to do now that this deal has been announced. They have to identify what a non core assets they have to get rid of those non core assets. They have a massive job cut program coming up. I know Colm Kelleher there was sort of saying that they don't know yet the numbers, what will be and they'll be respectful employees. But what we're hearing is that the cuts will be multiples of the 9000 that Credit Suisse has already announced. So there's a lot to play out here and there's a lot of due diligence to be noted that, remember, this deal came together in a matter of days and normally deals of this size take months and months to figure out. So I think it will be a while yet before we find out how things shake out. One market that we know has been affected is that 81 bond market. Obviously, you know, the regulators decided to wipe that out altogether. But we are hearing that those bonds haven't been written down all the way to zero just yet by the market. People are still trading them at between two and five cents in the dollar because there is some hope that in the event that litigation eventually happens, once the deal closes, these bonds will give them a way to make some claims against Credit Suisse. Yeah, we see that charred with the stunning movement and price. Just in terms of the staffing issues, Nabila, headhunters across the globe are being flooded by requests from some staff. Credit Suisse clearly seeing if they can jump ship early on. What are you hearing? He's the as you could imagine. It's a really tense time for staff at Credit Suisse. They're trying to figure out whether they will be part of the non core assets that UBS wants to get rid of. So what we're hearing is, as you say, headhunters are being flooded with calls. One Asian headhunter I thought was very interesting, this anecdote said that got a call from a director in Asia from Credit Suisse, asking if this is the right time to move or where this staff will be seen as distressed assets. Right now, while the deal is still being worked on. So that just tells you how much tension and nervousness there is among staff. Private wealth is an area that UBS is obviously very keen on. But there are a lot of overlaps here in Asia. So that perhaps we know that one headhunter said that they had calls from as many as 30. Credit Suisse Private Wealth Bank has in just a day or in just a few days to figure out whether there are other job opportunities. But as you know, yes, if it's a really tough market for jobs, most Wall Street banks have come out and said that they won't be hiring. There's a hiring freeze. So it's going to be really difficult and it be interesting to see how this plays out. Yeah, and it's really hard to watch the villa. All of us will have a friend or an acquaintance, a credit squeeze, and they have a fabulous pool of talent. So we hope, of course, that it all gets worked out for everybody's interest. Nabila Ahmed, thank you for that. Joining us live from Sydney now, declines in most US regional banking stocks have slowed or reverse, but investors remain on edge. And a sell off in shares of embattled lender First Republic continues. Meanwhile, Bloomberg sources tell us that U.S. officials are studying ways to temporarily guarantee all deposits. Bloomberg Simone Foxman has more similar. A lot of the efforts that the regulators have allowed to play out should have already implied that they're willing to backstop pretty much everything. Why does it need to be explicit? Well, I mean, this is the call coming from mid-sized banks themselves, coming from the likes of hedge fund manager Bill Ackman, and the fear here is that if another regional bank or to collapse, that would send investors fleeing, moving their deposits to the main U.S. banks, to the big a couple of banks, to JP Morgan's cities, et cetera, and then that would cause problems for the regional banks. Now, we understand that U.S. authorities are studying this, but they in fact, according to reporting from Syria, Amazon Shery Ahn are not to Rajan believe they have done enough at this point to kind to stem this banking crisis. But part of the reason they are probably studying this is because it's unclear exactly how this would work. Congress is not probably one to back some moves like this. Republicans in particular have been very concerned about the moral hazard risk. So this would likely have to come from the Treasury, come from the executive branch and exactly how to do that. The mechanics in play. One thing I should note, though, is there's been a lot of commentary around it. Two hundred fifty thousand dollar limit to the FDIC guarantee. That's has been the backbone of the banking system. I think there is acknowledgement on both sides of the aisle politically that this number may need to be raised because, you know, small businesses. This is, you know, not much less than the kind of payroll that they have to pay out every month, not to mention, you know, private investors, even middle income people that have, you know, their retirement in the bank. And then the investors are worried that there doesn't seem to be any anxiety fading around First Republic Bank shares just dropping short of twelve dollars a stock. What's the latest there? Yeah, I mean, stunning to see these declines and frankly, First Republic is probably the reason that we have regulators and authorities looking at potentially some sort of broader deposit guarantee at the moment. We understand that the likes of Jamie Diamond from JP Morgan are leading the charge to potentially change over that 30 billion dollar deposit commitment from JP Morgan and 11 major U.S. banks into a capital infusion. Bloomberg Economics believes that this might help send a vote of confidence for First Republic stem the 90 percent decline in shares that we have seen so far this month. But we saw that decline of 47 percent yesterday, even after this news saw a brief retracement of some of the losses. But then, you know, markets clearly not super excited about that. We'll see if that, you know, as they digest that today changes. You know, we've also heard there's a story on the terminal options. Traders particularly active at five and ten dollars, seeing some downside ahead. But now I guess there is a bit. Is that a good thing? Well, the market will decide. That's what I will say. Seven. I will not make that call. Not right now. Foxman at the Carter Financial Center in Doha. Now, let's talk about Vladimir Putin, because he has welcomed China's Xi Jinping to Moscow for three days of talks. It's kind of aimed at boosting their relationship and allowing XI to present Beijing's Ukraine peace plan. Our chief North Asia correspondent Stephen Engle is in Hong Kong. Steve, I looked at the Chinese president sitting beside the Russian president, and the energy seemed quite positive. I mean, they had chemistry, that's for sure. Well, sure. I mean, they share ideological aspirations, if you will. They both have their disdain for NATO and of what the former Chinese foreign minister has said. NATO like expansion plans. The U.S. has for the Asia-Pacific, so they share an ideological bond. But at the same time, Xi Jinping is trying to kind of cast himself as a global statesman and a neutral party, if you will, a good, honest broker in the Ukraine side. I understand that they need to boost commercial ties, especially Russia needs China's support, obviously, given their his isolation and the sanctions against him. The problem comes down to this peace plan, which is fairly vague and does not resolve the very sticky issues of sovereignty. In other words, the territory that Russia has already taken. How do you resolve that in Ukraine? Is that turn out to be a freeze in the gains that they've already made, which Anthony Blinken, the U.S. secretary of state, says is essentially unacceptable. That's why the US already has rejected, as have U.S. allies in Europe and has Kiev rejected that Chinese initial twelve point plan. Now, here's where the conflict of interest for Xi Jinping comes and his credibility perhaps comes into question when he wants to be the honest broker. He says, according to state media, developing bilateral relationship with Russia is a strategic choice China has made on the basis of its own fundamental interests and prevailing trends of the world. Obviously, the perceived pressure from the United States. Now Putin, for his sake, said Russia and China have many common tasks and aims. And yet they're trying to pitch some sort of neutral peace plan. It's a hot it's a it's a tall order. Let me just put it that way. Yeah. And then on top of all of that, you have the Japanese prime minister visiting the Ukraine and we'll see what kind of reactions we get to some of the peace plans coming through from China. Steve, great catching up. Thank you very much. That's our chief North Asia correspondent, Stephen Engle there. Let's get to the first word headlines from around the world. Menace Mills has those. Madison, thanks. You said ECB President Christine Legarde says there is no conflict between the central bank's inflation targeting mission and its responsibility to stave off financial system threats. She told EU lawmakers that there was no tradeoff between price stability and financial stability. In her capacity as chair of the European Systemic Risk Board, Lagarde assured that Europe's banking sector remains strong. Take a listen. We are very confident that the capital and liquidity positions of the euro area bank are very satisfactory, with significant capital ratio and liquidity coverage ratio way in excess of requirements. And the world's leading climate science body is warning that deep, rapid and sustained emissions cuts are urgently needed to keep climate change within liberal livable limits. A new report from the UN's IPCC has summarized five years of its own research. It says ensuring the stability of much of life on earth is fast moving and out of reach unless climate efforts are fast tracked by every country and sector. And Bloomberg has learned that U.S. asset management giant Vanguard is planning to complete its exit from China. Sources say it has notified the Chinese government of its intentions to shutter its only remaining unit in Shanghai. It's also considering exiting a robo advisory joint venture with an group. The company began its retreat from Beijing back in 2021. Global news powered by more than twenty seven hundred journalists and analysts and more than 120 countries and Madison Mills. And this is Bloomberg. Thank you very much. Let's get you a preview of what else is still to come. We'll discuss the outlook for oil as traders ISE the Fed's rate path and where its MVD. Edward Bell joins us later this hour. But first, Lombardo is Sami Shah will give us his investment thesis. His bank fears start to ease. This is Bloomberg. The real trouble starts when the upper reaches, because that's essentially the bond market saying the Fed is going to have to be cutting here at some point. So the two year no, no rallies in a way where the Volcker Rule. STEVENS That's exactly what's going on at the bond market effectively is pricing some sort of out of recession at this point in the equity market is still in the Dow. Morgan Stanley's Mike Wilson on what he thinks is the start of a vicious end to the bear market in U.S. stocks. Meanwhile, JP Morgan's Marco Kalina Vic says the bank failures, market turmoil and economic uncertainty have increased the chances of a Minsky moment. Joining us now is Sami Shah. He's the chief economist at Bank Lombard Odierno Chee Sami. I mean, the reality is that we're counting down to a Fed decision against the backdrop of these uncertainties in the financial system. If treasuries are getting bid as a haven and the FDIC is promising more support more broadly, maybe the Fed and the regulator knows something that we don't. We'll we'll we'll know soon enough, as soon as as tomorrow evening. But I guess for now, we might still give the benefit of the doubt to the authorities in their ability to contain the financial stress. And potentially we're still below the breaking point where all bets are off and the Fed has to cut rates and reignite QE. Potentially, they can still favor a two pronged approach trying to deal with inflation by mildly raising rates. And on the other hand, stopped quantitative tightening provide liquidity. We can still be in that kind of environment rather than the wild fires spreading and the financial crisis just continuing. So I think we should give the benefit of the doubt to the authorities in their very rapid response. I mean, you know, you could take issue with that, with some of the events and how they've unfolded in the last few weeks in terms of giving the benefit of the doubt. But Sammy, I'm looking at a tweet from Bill Ackman just in terms of what the Fed might or might not do. He's saying that the Fed should pause on Wednesday. We have had a number of shocks to the system. Three U.S. bank closures in a week, wiping out equity in bond holders. The demise of Credit Suisse and Ziering of its junior bondholders gets factored into that as well. Is that a scenario that you're entertaining, something that we don't get anything from the Fed? No, for now, we're expecting still a 25 basis points increase tomorrow evening. Again, we do expect that they will favor that dual track approach to monetary policy. I mean, there are still obliged by the inflation outlook, so they cannot simply drop that down. Now they need to be cautious, obviously. So a quantitative tightening probably has to stop making sure that there is liquidity is also sent to something that they will have in mind. But, you know, for now, we've seen specific stories. We've seen a major difference to the previous financial crisis, which is extremely rapid response by authorities. Now, you might doubt that, but when a fire is spreading but makes the whole difference is basically having the authorities stepping and preventing that from from extending. And, you know, for now, even in Switzerland, the reaction function has been extremely rapid. So that, I think keeps the inflation outlook as still being present in domain of central banks. So probably something balanced with a 25 basis point increase and liquidity facilities is what we would expect for tomorrow evening. It's something I'm looking at. The news flow and I see the Chinese president meeting his Russian counterpart in Moscow. I hear of BlackRock or not BlackRock, Vanguard pulling out of China. Geopolitical risks, are there going to come back to the fore even more in the coming weeks? And I think everyone agrees with the idea that we're in a polarized world now, and it was basically two blocks right to us. BLOCK And a Chinese block where we might not all agree is actually how disruptive that is. Right. You can have a two block approach that leads to a world war, which was the case in the run up of the First World War at the beginning of the 20th century. But then we also had a block logic after the Second World War. And that was a time, you know, despite the military tensions, when it comes to market performance, when it comes to economic performance, it was a race between those two blocks. So there was a lot of prosperity investment behind that reality. And I think we have more in that kind of logic. Right. The Chinese block competing with the US. BLOCK And it's not just all about geopolitical disruptions, it's also about promoting your model. Sammy, I love getting the big picture with you. That's Sammy Shery Ahn, the chief economist at Lombardy. And I wish we could continue this conversation beyond this segment and we'll have to catch up outside of the program. So much more to come. This is Bloomberg. Here's a quick look at how a Middle East equity markets perform broadly negative. We'll dig deeper into some of the important themes around that. Lots more ahead. This is Bloomberg. This is DAYBREAK Middle East. Our top stories this morning. PIMCO and Invesco were among the largest holders of Credit Suisse's riskiest bonds wiped out by the UBS takeover. Meanwhile, recruiters across the world are getting an unprecedented flood of calls from Credit Suisse bankers seeking new jobs. U.S. officials are studying ways to expand federal insurance to all bank deposits temporarily. Lenders argue cover is needed to head off a potential financial crisis. Russian President Vladimir Putin says he will discuss China's Ukraine peace plan as he welcomes his counterpart, President Xi Jinping, to Moscow for a three day visit. And Russia surpasses Saudi Arabia as China's biggest oil supplier, with refiners taking advantage of cheap barrels to feed rebounding demand in Asia's biggest economy following the end of Covid 0. I want to get back to your equity markets because on this Tuesday, a little bit of a stalling in the upside momentum on the S & P 500. Many were barely above the flatline here by roughly a tenth of 1 percent. Treasuries at the moment closed in terms of the cash trade because of a holiday in Japan. We lean on futures and treasuries are getting a bend. The dollar slides or trades close to a one month low. And then Brent crude currently at seventy three dollars, 24 cents a barrel traffic forcing strong commodity demand from China. That's not enough to lift crude as we speak. I want to get to the credit default swaps and reflect and put in context with you. This is your five year CBS and we compare it to peers. So BNP Paribas, UBS, Morgan Stanley, the blow and credit risk is limited to see us. First conclusion. Right. Most banks credit default swap spreads are still below the pandemic level, with the exception maybe of Deutsche Bank. And the contagion risk is much lower than was in 2008. Conclusion too. But it is not zero. Contagion is not very logical all the time. Credit Suisse Tier 1 capital ratio, for example, was higher than Deutsche Banks, and investors are now going to focus on a potential placement of 80 ones. We see 81. This is a new note on from Goldman Sachs. And that's going to lead to more capital build requirements and that means higher funding costs. I want to talk about NIKKEI briefly, not because there's a huge move in price, but because Bloomberg has on earth the entity that is behind the mysterious contract that is backed up by NIKKEI in the warehouse, backed by a bunch of stones. Contract is not worth much. It's one point three million in the grand scheme of things. But given that LME contracts are genuinely viewed as beyond question, there is a certain sanctity. This matter and this is huge. JP Morgan has declined to comment on this issue. Now let's talk about broader commodities, because Russia surpassed Saudi Arabia as China's biggest oil supplier, with refiners taking advantage of cheap barrels to feed rebounding demand in Asia's biggest economy following the end of Covid 0. The Asian nation imported 2 million barrels a day. That's according to Chinese customs data and then flows. Here's another interesting bit from Saudi Arabia slipped to the lowest level since June. That's down 29 percent from January to get to. Edward Bell, he's the senior director for market economics at Emirates NBC. And there was this growing competition between Russia and Saudi Arabia to feed the energy, enthusiasm in China at an inflection point today. Yeah, I think this is part of a long term trend of Russia being a critical energy supplier to China. And I can imagine that energy flows will be a big topic of the conversation between the Russian and Chinese presidents that they've held a bilateral meeting this week. It's not entirely surprising. It doesn't necessarily change the overall fundamentals of the calculus of the oil market, but still probably a long term trend that we'll see more reliance from China on Russian energy flows, whether that's in the form of crude oil or increasingly natural gas in the longer term as a big supplier. What about the ability of Russia to maintain oil sales and sort of refined product sales? Are you surprised by how that's not come down as much as maybe the Russians have even communicated? Yeah, that's been remarkably resilient. If you look at it just from a purely volumes point of view, basically since the war began last the end of first quarter last year, total volumes have been pretty much stable as Russia has been able to successfully find other avenues to export crude oil and products apart from markets like the US or the EU, which are now pretty much blocked off to them by their husbands from participation within the oil price cap plan. So countries across a lot of the world have been buying under the 60 dollar limit. Russia, of course, not arguing that it's not necessarily participating with a deal or not selling it to countries that are participating in the 60 dollar cap plant. But nevertheless, it is still able to find markets out there. And that resilience, I think, was part of the reason that we had oil markets holding to a fairly narrow range for much of the year until the last week or so. Also looking at the forward curve for crude oil and it's starting to get ugly. Run me through what you can extrapolate from your years of experience, sort of the frontlines of covering. Leonard? Yeah, I think we've come into a real shock for the market we've had for most of 2023 this kind of dance between whether or not oil prices would rebound on the reopening China trade, as you you've seen China consumption is growing very strongly. Got to pick up very, very well in the second half of the year against fears of tighter monetary policy from the U.S., risk of a recession in big markets like the US or the Eurozone. And that kept us in this kind of tight range. But now we've had this additional financial stress in the markets and that's put more downward pressure on the oil market. So the hope that we would have a sustained backwardation, which is a good sign for strong demand growth, going to evaporate quite quickly, although we still hold that oil fundamentals remain pretty constructive this year. We have a pretty strong demand outlook from Q2 onwards. We don't have a lot of additional supply out there to meet that extra demand. And also, we have inventories that have been run down quite a lot in the last year. I mean, everybody is if you know what the Fed's going to do, even eat on Musk's chipping in on Twitter, saying a 50 basis point cut is when it's needed to avert a further deterioration of the U.S. economy. Ed, what are you looking for specifically in the coming hours? Well, we expect the Fed is going to stick with a 25 basis point hike at their meeting that ends tomorrow. But what we're going to be watching out for specifically is going to be coming from the summary of economic projections. The lessons we had were in December. An enormous amount has happened since then. In particular, I think the dots plot will give us a good indicator of who is leaning more dovish, who wants to continue the fight against inflation, and whether the Fed is choosing to go more on an accommodative stance to deal with the stress in financial markets or whether inflation remains the primary concern for them. You think dance is even still relevant? I mean, you look at where Dots were a year ago. I mean, why? Why? Why should we use it? Yeah, there certainly has been a rapid reevaluation from the Fed policymakers themselves how much faster they've needed to go with rate hikes. And of course, that's contributing to a lot of the volatility that we're seeing in financial markets. But to give us a signal as to what is the primary concern for them, I think it is going to be important. I think if the Fed comes out with some way not to use too aggressive language, some panicky language about what's going on in financial markets. In the statement or in the press conference could add a lot of unease, but we might get some more clues from the dots. BLOCK Yeah. The dots go function on the Bloomberg gets into the finer details in terms of some of the other commodity calls. I'm looking at gold every time there's a big debate about the viability of global financial structures. Gold comes into the fore and we flirted with 2000 dollars announced we were briefly above it. What do you see on a technical level? Yeah, I think the conditions for gold could be quite positive if we get a signal that, hey, the Fed can do one more hike, but then after that it's going to be much more circumspect about sending a strong signal that rate hikes are going to go on and on and on. And also, the market now is pushing for rate cuts. That's a fairly positive outlook, I think, for gold prices in the next couple of months. So we've been relatively constructive on gold for a change for 2023. So we do expect that it could perform pretty well going forward. We think commodities is always one particular trade that's an outlier and it stands out at the upside of the downside. What's the one that's going to come to the fore, you think, in the next three to six months? I think for us, it's going to be a surprise from the energy market that, yes, there's a lot of noise right now in markets that everything is negative for oil prices. But once those inventory draw start to hit in the second half this year, we're still holding that oil prices can recover quite strongly. We actually downgraded our oil price forecast recently, but we're still holding for an average of eighty eight dollars a barrel. So it's quite some way away from where we're at in the market right now. But it does mean the really of a solid recovery in H2. Always appreciate our chance. Edward Bell, senior director of market economics at Emirates and BD with the lowdown on commodities and what to expect from the Fed. Now on a state with the region, because a member of the Khatami royal family set to make a second bid for Manchester United by the end of Wednesday. That's according to Sky News. Lindbergh's minus mills has more. So we've really seen one bid from one royal. And what's the second one? So this is the same royal. This is Sheikh Yassin bin Hamad al-Thani coming back in with a second bid. Now, I wish I could tell you the details of that first venues. If we don't we don't have those numbers. We do know that the Glazer family was looking for six billion pounds. So if you want to look at what people are saying on Twitter, they're betting on a 7 billion pound sale here coming from this Katori Royal. But the reason for this conversation bubbling back up again is that the second round of deadlines for these next bids is end of day tomorrow. So according to this journalist from Sky News, he's got the scoop for us that this second bidding from Sheikh al-Thani is coming in by end of business day tomorrow. This comes after he was meeting with Manchester United officials last week for a meeting that lasted 10 hours. The other player in this space, as well as Jim Ratcliffe, he is still in the game here. The British billionaire. But he has made it very clear he only wants to get in on a sale if he feels. The price is fair. So whatever that whatever that means to him as well. What he's like. Yeah. I love the language in terms of some of the market moves. I'm looking at Egypt and we're seeing a further deterioration around what investors and specifically 12 month forward traders are expecting for the currency, 40 against the U.S. dollar. I mean, I heard people joking, potentially 40, you know, a year ago. Now it looks like it might actually be one of the scenarios. And you made the point earlier that I thought was so apt that nobody got this right. Nobody was anticipating us getting to this space. There is an implied 33 percent potential downside. It's already the world's worst performing currency. We've had three devaluations, potentially a fourth. And we've been talking about calls for a fourth devaluation. And I think I'm interested to see whether those calls continue to get louder as we keep facing these macro headwinds amid the banking crisis. We already know that these emerging markets struggle in the midst of those macro headwinds. And so it's likely to only continue. I mean, if you look at that chart right there, you see just the vast increase since October on that. Also there in the middle of a cash crunch, looking to Saudi Arabia to cash in on that 10 billion dollar promise in an influx in cash. Over the past year, they've only gotten one point three billion. There were talks of Saudi buyer buying the Cairo based United Bank. Those have stalled amid those currency worries as well. Yeah, and I was making auto on Amazon, Egypt for some of my family there. And most of the stuff isn't in stock because there's no foreign currency to get new supply. And it's quite shocking to see that. Of course, the real stories from on the street are much more dramatic and troubling. But in terms of the EU sanctions, I want to get to that against some of the Iranian officials. What differentiates that from previous round of sanctions, sixth round of sanctions here? This is eight new officials in Iran. Well, I think what stands out to me is that these sanctions are specifically against the Supreme Council of Cultural Revolution. I want to get this quote from the EU saying that this cultural body, this Cultural Revolution body, quote, promoted projects that undermine the freedom of girls and women. This brings the total number of people blacklisted in Iran to 200 and for 34 entities with these sanctions as well. These sanctions involve the freezing of assets, travel bans to the EU and of course, the context here. This comes after months of protests on the ground following the death of Masha Meany in police custody. And a very interesting contrast to the moves we've seen from other Gulf powers that we've been talking about this week. Saudi Arabia interacting with Iran, for example, looking to kind of calm geopolitical tensions in order to increase investor interest in the region. But with these protests, it doesn't seem like that attention is going to slow anytime soon. Martin, thank you very much for that. That's Bloomberg's Madison Mills. Want to get straight to some breaking news, some commentary from a member of the European Central Bank Governing Council. This is also the Bank of Latvia, governor. So this is Martin Kazakhs. And he says that bank capital is higher than in 2008. It's not possible to say that we've stopped hiking. No reason to compare the situation with 2008 and Europe. Authorities are following markets very, very closely if things stabilized and inflation is still very high. This is a wide ranging set of comments there from the ECB Governing Council member. Your dollar intraday holding on to a very tight range throughout the session with cooling off by just a tenth of 1 percent. Much more ahead. This is Bloomberg. After a week of turmoil, what's the Fed's next move? The job of reducing inflation is not only worried about the signal it would send if they get nothing. Trust Bloomberg for the fastest coverage and exclusive analysis. Central banks groping their way through a dark room looking for Schrödinger's cat. Does this indicate that the Fed is petrified at bank supervision? Take precedent. If you want to fight inflation, you'd better sort out your financial system. Bloomberg Surveillance. The Fed decides Wednesday on Bloomberg your Global Business Authority. We have this self-induced crisis by irresponsible fiscal monetary policy. I think this is a very different situation. The financial crisis very different than this situation we saw back in 2008. This is just the beginning of us trying to make sense of this is how systemic this can get. We think this is closer to the beginning than the end. And that's going to be a problem for markets. We need to see some backstops in place in the weeks ahead. We'll see more regulation of banks, both mid-sized and large, a lot more regulatory change, especially in the banking system. We need more supervision, not necessarily regulation. We're facing a big Fed meeting this week. We're still discussing if they're going to do 25 or not. Market is giving them 25 basis point twenty five and done gold at twenty five. Wait and watch what happens. There is an opportunity there, we think, for the Fed to step in and really add a bit of confidence to this situation. TV guys selling the global bank fallout and its impact on the fence rate decision. Meanwhile, Morgan Stanley CEO Mike Wilson is out with a new note and he says, quote, The bond market is pricing. Some sort of recession in the equity market is still in denial. He spoke to Bloomberg earlier. I think that this has been a bit of a bug in the saddle, if you want to call it that, earn the saddle for folks who are fundamentally driven like ourselves, because it's like Waiting for Godot. You know, you're saying, okay, well, when is the market going to kind of reprice or price some of these risks that we think are fairly obvious, for example, the earnings risk that we've been talking about. And now you have this catalyst with the banking issues and the regional banking system, which seems to be really another sort of, you know, issue that will accelerate the earnings risk. So the equity risk premium essentially at the very end and typically in these bear markets, we have a meaningful earnings correction like we're expecting the equity risk premium usually spikes right at the end as the market can no longer deny where we're going on earnings. And so we think that moment is closer now because of this unforeseen advantage. You want to call it that. But I mean, the yield curve is kind of telling you that there is something we're going to break. And so here we have it. Well, when you look at some of the moves that we've seen in the yield curve over the past few days, going from negative 1 percentage point to something like half a percentage point on lease on one of the key metrics here. What does that signal telling you? Well, that's the unfortunate thing. I mean, you know, the yield curve goes when it goes negative. It has high predictive ability that a recession will be coming within 12 months. But twelve months is a long time. The real trouble starts when the yield curve restatements, because that's essentially the bond market saying the Fed is going to have to be cutting here at some point. So the 2 year note rallies in a way where the yield curve restatements, that's exactly what's going on at the bond market effectively is pricing some sort of out of recession at this point in the equity market is still in denial. Now, we don't know which one's going to be right and that's what makes the market. But, you know, the longer we steepening, it's typically not a great signal for stocks. And just to put some numbers on that yield curve is steepening. If you look at the two tenths curve, we got below 100 basis points of inverted net last week. Now we're at negative forty five or so. So quite a dramatic move. And to your point that that typically signals that the market is pricing in cuts. We're seeing that now. If you think about the data that we're getting, what's happening in the banking sector, what Jerome Powell we might get on Wednesday. Do you think that now is the time to be pricing in cuts for the end of 2023, or is that a little bit premature? Well, it's all dependent on the data, right? So obviously we have a recession, they'll be cutting. And as for the bond market, is is betting on that. Of course, the bond market isn't omnipotent. It doesn't know for sure, but that's what it's saying. But I think I think what the equity market is assuming is that that's always good. The equity market for the last 30 years, never. The Fed's cutting. Don't fight the Fed. That's always helpful. And they've also viewed this recent infusion of capital into the banking system as a mini QE program. We disagree with that. And so until proven guilty, the equity market will believe in the soft landing scenario. Morgan Stanley chief U.S. equity strategist and CIO Mike Wilson there still much more to come. This is Bloomberg. I wanna dive deeper into Middle East equity markets with our resident expert fund, how we find out why did Saudi National Bank shares kind of bucked the trend? Cuz we saw upsides despite them losing a lot of money on their credit we spent. It was a very interesting session yesterday with S & P so far as much as two point three percent closer to the open, but very swiftly recoup these losses causing about 4 percent higher. Seems that the market is sort of just looking past everything that's happened with Credit Suisse, but it's just starting to. I mean, if we look at what happened with Saudi National Bank, it actually lost a third of its value after investing in Credit Suisse. So those shares have been dragged down significantly. And a lot of the investors and strategy or analysts are saying that the bank is actually quite solid. And certainly this investment was maybe not the best when they did lose about a billion dollars of their investment in credits or at their loss of a billion dollars from the investment it from the peak. But still, the bank the bank is still solid, according to investors. And Citi is saying is that if there is a risk of further capital call from Credit Suisse, that's now overhang that's gone from the stock. And investors can start looking past this at two and actually what they think is a solid bank. If anybody is looking for further analysis, check out the latest Bloomberg intelligence piece, which looks at the cost income ratio for Saudi National Bank. Definitely worth a read just in terms of some of the analyst calls this one from Credit Suisse. If we initiated on Saudi Aramco, what's the thesis now? It's a neutral rating. What they said is that around cause profits will actually be weighed down by the pullback in energy prices. Certainly oil has slumped significantly and that has that will be weighing on the net income of Aramco. But overall, the picture is actually still pretty solid for Aramco. It is you know, it has an incredible upstream portfolio mix and it's very diverse, has very low cost. And again, it's benefiting from government initiatives. And again, very low competition ways. So they say that the premium to peers is fully justified for Aramco is just, they're saying neutral because of where energy prices are standing right now. Finally, 90 medical slumped after its results for our global investing audience watching from all corners of the globe. Why is this important? This is one of the newer names coming to the Saudi market. It's not a company that has been trading in Saudi RIA for a long time. So investors are just, you know, starting to know more about their earnings. DAX took a little bit of a hit. We're towards the close of the earnings season in Saudi Arabia. And the margins of this health care company have actually been under pressure, just as we've seen across the world. Margins are the key concern for analysts, for corporates and these reporting seasons. The revenue growth was the key positive, according to S & P Capital. But they're saying that this company and you're asking why should investors care about this? The government initiatives, again, in Saudi Arabia will benefit come from this company, according to S & P capital, especially in the developments in health care that we're seeing in the kingdom. But I thank you for the round that this photo had behind me there. I want to get back to your equity futures on this Tuesday. This is what we're looking at on the S & P 500, many a steadying of risk appetite following assurances from regulators in the United States and of course, reporting by Bloomberg News that a broader deposit guarantee scheme may be in discussion. So we're clearly a tenth of 1 percent higher on the S & P 500 many, but the equities advance has been moderated somewhat. Financial concerns broadly easing the market's life team makes it clear that even though 80 ones are beginning to stabilize, we are far from being out of the woods. I want to flip the board. Get to your treasury, the treasury futures. Japan is on holiday. So that means at this particular juncture, in the 24 hour news cycle and trading cycle, there is no cash to rate the cash. Treasuries trading. That's a hard to pronounce. But we do have the futures. Havens are getting a little bit of a bid. Let's check the board again and talk about crypto currencies, which, despite the firming of risk appetite, are actually showing a little bit of losses on bitcoin. We are back below twenty eight thousand dollars. That's across the board once again. And reflect on energy, which is such an important metric to understand how investors feel about global demand and the China recovery story. So in Brent and WTI, we're giving back again, and that is despite a bit of a rebound. So we have moved lower on Brent crude to seventy three dollars a barrel now. We had Emirates NBC earlier out with their call, 88 dollars potentially by the end of the year or a rebound in the offing. The coverage continues from London and the rest of the world. This is Bloomberg.

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'Bloomberg Daybreak: Middle East' Full Show (03/21/2023)

"Bloomberg Daybreak: Middle East" live from Dubai, connects Asian markets to the European opens. The show focuses on global macro issues with a Middle Eastern context. (Source: Bloomberg)

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