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>> good morning welcome to daybreak australia. >> the top stories this hour, u.s. stocks fall as jay powell -- his hopes the fed will cut rates this year. the fomc hiking by 25 basis points and stressing its commitment to fighting inflation. >> banks leading declines as janet yellen says she is not considering blanket insurance to cushion the banking system. >> let's get a quick check on wall street. going to take a little bit of time for futures to figure out what is happening. we had a round-trip just a few hours ago in the u.s. session with the s&p 500 soaring after

the statement from the fomc then taking a nosedive after the press conference. at one point, we were down more than 1.6%. the other major indices were lower as well. real estate, financials took it on the chin today. treasuries soared. the 10 year yield is at 3.93%. the dollar index slumped. it looks like that will continue into the next session. janet yellen said we are not going to protect all deposits and that is something potentially wall street have been anticipating. jay powell taking the stand on that saying that bank deposits

were safe but he did not promise to do anymore. the kbw banking index also down 4.7%. first republic is down 90% this month. coinbase after the wells notice that the exchange received meaning there is a potential to sue, the stock was down after hours. the ceo did say they welcomed the ability to tackle this in a legal manner. annabelle: checking also bitcoin how that is trading. it is under a little bit of pressure. we had seen it benefiting from the turmoil in the market but that is going to be the big driver of stocks in asia today. we are looking lower in futures. kiwi stocks trading down half

percent. janet yellen commented they are not going to be protecting all depositors today and that has impacted sentiment. jay powell said he doesn't see cuts this year. bond traders don't quite believe him because we saw treasuries rallying. the dollar is around a five week low and we are seeing currencies steady in the early moments of trading. it is deftly want to be watching. -- one to be watching. vonnie: we continue to watch signaling from the fed. it was a delivery of the commitment to cool inflation. 25 basis points instead of pause that somewhere calling for. the dot plot signal set the fed

isn't done yet. jay powell says it still too early to determine the economic impact of the banking turmoil. the confidence in the fight against inflation is not being shaken by this banking crisis. vonnie: fed funds futures down almost one percentage point from where the fences interest rates are going to be at the end of the year. this is the median. that has not changed. the gap is just getting wider. there's only going to be one more jobs report before the next fed meeting so there will be that much data for the fed to go on.

>> let's get more on the rate hike. i want to bring in our guest a professor of economics along with kathleen hays. i had to laugh about we said earlier that it was meekly looking at a 25 basis point hike or a potential pause. do you think they struck the right balance in terms of doing the 25 basis point hike acknowledging that there are financial stability risks at play? guest: no, i don't want to exaggerate this. we don't want to make too big of a deal out of 25 basis points. i think very much firmly that the right decision today would

have been a pause with words thank heaven the fed talks now instead of just mumbling with great incoherence. with words saying we are waiting to see the dust clears and how it clears and we may be going up higher depending on if this crisis doesn't look too serious. we still have an inflation fight on our hands. i think that would have been a much better choice. the statement and jay powell's press conference made very good case for that. if you came down from mars and listened to the words, you might have thought they paused today. >> what struck me is the emphasis on the tools they have used. he didn't say the crisis is over. there was very little sense of what some have said banking crises have a way of popping up and popping down and up again. is the fed underestimating how

bad the crisis could be, how long it could last? >> the key thing is they may be underestimating which is why if i were in his shoes, i would've favored a pause. maybe they are not. maybe this is no big deal and there won't be any more banks to save and six months from now most of us will have forgotten this happened. or maybe not. in the maybe not case, you want to be prepared for the worst. pray for the best and prepare for the worst. >> in a sense, a lot say the damage has already been done because so many bonds were purchased at very low yields. the fed did 400 basis points of rate hikes in no time. a lot of people are sitting on losses. when i say people, i mean banks, other financial related companies as well. what is the fed going to do about that and particularly if

they keep hiking interest rates, what does that mean in terms of the losses that get deeper and more underwater? guest: let me say a couple of things. there aren't too many banks that have as deep a position in long bonds and therefore as big a capital wash as silicon valley bank. i wouldn't say there are zero such banks. i think the fed needs to be ready and i think they are ready to deal on an emergency basis with more banks that get into that sort of trouble. they have already shown what they will do. they can do it again if silicon valley bank and merit a risk exception so can some other bank comparable size. janet yellen just said, i'm glad she said it but anyway she just said they are not going to put the fdic insurance blanket over every single dollar and the banking system. they don't have to do that.

you can look on an ad hoc basis at places were little emergencies, forest fires are popping up and try to put out those fires which is what has been done so far. vonnie: how much work will credit conditions tightening do for the fed? jay powell mentioned a couple of times today and basically said he's not sure. guest: that's exactly right and that's why i say a pause would be very appropriate. a number have tried to estimate that, i have seen numbers ranging 150 basis points worth [indiscernible] not coming out of the fed because of this potential credit crunch. those sound ballpark right to make. if that is the case, why should the fed be doing more?

vonnie: if that is the case and the fed doesn't need to do more, will we see the gap narrowing between 4.2% that the market is seeing right now for a terminal rate and a 5.1% that the fed is clearly seeing? guest: maybe but not necessarily. that depends a lot on how the rest of this year unfolds. you could have a few more of these putting out the forest fire episodes without a recession. that kind of forecast seems to be implicit in the market now that there's going to be substantial rate cutting in the year 2023 is predicated i believe or rationalized by a recession in 2023. that is certainly possible. it's also possible we won't have one and if we don't, i think the market expectations of 100 basis points of cutting this year will

be proven false if we don't have a recession. if we do have a recession, we might get even more rate cutting. >> what do you think needs to be done from a regulatory point of view? there's lots of talk about more investigations, tightened regulations. you think a different regulatory regime would have changed the outcomes we have seen over the past couple of weeks? >> yes and no. a bank the size of silicon valley bank should have been above the threshold for enhanced supervision which in 2018 congress lowered, putting them making silicon valley bank to small, not too small to pay attention to, but too small to pay enhanced attention to and put them through the rigors of the really big banks.

i think that was a mistake. what we don't know is what's the real story? the fed is going to get to the bottom of this as jay powell said today in his press conference. what is the real story on the san francisco fed, the front line supervisor pointing out material weaknesses to the bank? did they rectify this material weaknesses? did they ignore the fed? these are crucial questions about the supervisory regime and we don't know the answer. the public doesn't know the answers to this. maybe people in the same with his go fed do, but i don't know. depending on the answers to that, may some changes are needed. >> a final question on inflation, they did raise their inflation forecast.

is this warranted and does this mean the fed is still going to be tilted toward higher rates not asymmetric if they are that worried about inflation not coming down from their forecast but actually getting worse again? >> i think the answers are yes and yes. building went up a little and i don't think the adverse inflation data was that serious. it would not merit a wholesale revision in the forecast. inflation is still too high. it doesn't show any signs that it's going to hit 2% or even within spitting distance of 2% anytime soon. the fed should be biased in the old lingo we used to use years ago, it should be biased toward tightening. whether it actually tightens depends on events. what i have described before is what i thought would be the

right decision today which is a pause, with a bias toward further tightening in that language. vonnie: wonderful to have you on. also thank you to kathleen hays. let's get to su keenan. >> we start with world bank president who says a global recession is still not off the table. the lender is reviewing its global growth forecast following china's lifting of the covid lockdown. he told bloomberg the last of investment -- lack of investment in economies is a concern. >> the latest we have seen is advanced economy growth expectations had gone up late last year. as the u.s. and china in particular as china lifted the embargo, the lockdown. as we are looking at it now, the

growth is slow but positive in advanced economies but in developing countries, not much investment taking place. that i think is the big challenge. >> china and russia have reached a long-term deal to develop key nuclear technology. is part of a series of agreements that were signed during xi jinping's visit to moscow. the u.s. has raised over what it says beijing's ambitions to strengthen its weapons arsenal. china evergrande group has announced its restructuring plan. the developer says it will give creditors the option to swap their debt into new bonds and equity linked notes. evergrande has become the poster child for china's property crisis. it seeks to return to normal operations which will require additional financing of up to $43 billion.

global news powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. >> still ahead, coinbase getting an sec notice warning of potential securities charges. we get the latest on the challenges in the crypto space. plus customers pull 20% of their deposits out of pac west. this is bloomberg. ♪ go. go brain. no, not that one. go this one. go optimizing data. go efficiency. go results. emerson's plantweb digital ecosystem is the brain for smarter, safer and more sustainable performance. go plant go. go boldly. emerson.

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>> it's important to be clear shareholders and debt holders of the failed banks are not being protected by the government and no losses from the resolution of these banks are being borne by the taxpayer. deposit protections provided by the deposit insurance fund which is funded by fees on insured banks. >> we are doing a review of supervision and regulation. my only interest is that we identify what went wrong. how did this happen is the question. try to find that, we will find that then make an assessment of what are the right policies to put in place so it doesn't happen again. it's clear we need to strengthen supervision and regulation.

>> shares of banks including first republic and pacwest falling after the statements by janet yellen and jay powell. we had a report suggesting we can seek full deposit insurance. how did the janet yellen comments go down? >> she is not new to any of this committee case and -- any of this communication. it is clear there is still a struggle. the market is clearly struggling with her communication as well. for her to come out and say that, the idea of not having the blanket cover, it's substantial and they are strong words. she clearly thought about them a lot. it's interesting to see the difference between her power how that was articulating -- the difference between how jay

powell was articulating during his conference. the market is torn because investors need to know to janet yellen's point, they need to know that the depositors have the backing when they need it. of course, she has to make the public statement this is not about bailing out equity shareholders and bondholders. clearly, it is a message that needed to come out from the government but the way it came out and the committee case and leaves a few questions around when you have certain instances where depositors need to be back, how does that play out practically? >> pacwest, what has it done to shore up liquidity and what does this tell us in all the ongoing regional bank stress? >> this is a classic case of what we have seen in recent weeks and months. this is a bank that is clearly struggling with the fact that rates have gone up so quickly and a lot of those bond

investments that have lost value has suddenly become an issue. as you get customers withdrawing funds, they have to sell those assets which of lost value quickly. this creates the liquidity issue that we are seeing. you can see it in the stock price pacwest. down 58% this month. they're trying to get this liquidity injection of $1.4 billion. it's what we have seen at a lot of these regional lenders the try to get this, enough liquidity to see them through and establish a little bit of confidence in the lender. vonnie: thank you. wall street traders bracing for the unusually unnerving fed decision and they got a double dose of stress. it's quite the round-trip today. how are markets sizing up the ongoing bank turmoil plus another interest rate increase? >> it was another volatile day

and janet yellen's comments did not help the stock market. around 3 p.m. when jay powell was talking and i think most traders were watching jay powell's speech, janet yellen said they are not going to be increasing deposit insurance and that's when you saw the s&p 500 fall further. it had rallied a little bit after the initial 25 basis point decision. and we also saw bank stocks, the s&p regional bank etf falling 6% after the janet yellen comments. then throughout jay powell's meaning, he was talking about how they are not planning a rate cut. a lot of traders i spoke to said it was both janet yellen and jay powell. bonds are in their own world pricing more cuts, years -- yields falling even though jay powell said we are not going to be cutting rates. >> adam touched on this earlier. the gap between janet yellen's comments and jay powell's comments when it comes to deposit insurance, how the

restoration of confidence would play out. that did not go down very well. >> traders are trying to parse through how much of this banking turmoil that we have already seen, how much tightening is that already creating beyond the rate hikes the jay powell is focused on, how much of a credit crunch are we going to see continue and will that translate to a bit of monetary tightening? we have one saying he sees 150 basis points of tightening happening not through the fed rate hikes, but more through the ongoing credit crunch and the banking issues. haidi: more to come here on daybreak australia. this is bloomberg. ♪ of up to $26,000 per employee. all it takes is eight minutes to get started.

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>> let's take a look at the picture across australia and new zealand bond markets. stocks rose and the aussie outperformed against demand and also the kiwi as well. we are seeing bond yields declined across asia. also more significantly the fed pushing back against bets for rate cuts later this year. much more to come here on daybreak australia, this is bloombe when people come, they say they've tried lots of diets, nothing's worked or they've lost the same 10, 20, 50 pounds over and over again. they need a real solution. i've always fought with 5-10 pounds all the time. eating all these different things and nothing's ever working. i've done the diets, all the diets.

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>> inflation remains too high and the labor market continues to be very tight.

we no longer state that we anticipate that ongoing rate increases will be appropriate to quell inflation. if we need to raise rates higher, we will. we remain committed to bring inflation back down to the 2% goal and to keep longer-term inflation expectations well anchored. the system is strong and -- resilient. we are doing an overview review of supervision and regulation. i want to identify what went wrong. when a bank fails, there are investigations and we welcome that. we will continue to closely monitor positions and we will use our tools to keep it safe and sound. we will do enough to bring inflation down to 2%. no one should doubt that. >> jerome powell on the bank's decision to raise rates by 25 basis points. our next guest has been saying the recent u.s. banking crisis

is a capstone of the fed raising rates. we know there was a debate in the coming days up to the meeting on whether to pause. ultimately, it was a unanimous decision not to pause. is this the caps on rates? have we seen the peak? guest: i think it depends on what the banks do. he made that perfectly clear at least to me in the press conference that he said afterwards that banks may have diminished capacity to give out loans. they're probably going to be tighter with the loans. that may do some of the fed's work for them. we are thinking this is probably the last raise. >> if that's the case, wire markets pricing in a decline because the fed chair also made it very obvious the fed is going to stay where it's at for some

time. guest: i think that we are not convinced we being investors in the u.s. are not convinced that the banking crisis is thoroughly finished. nor do we believe that we are going to hang out here as an economy. i saw a lot of talk today that the 10 year is much lower or forecast to be lower at the end of the year than it is today. that would say the fed might have to reverse the raises and actually start cutting a couple of times before the end of the year if the economy sours quickly. i don't think it was sour quickly, i think we will limp along where we are and we are having rolling recessions go through industries not necessarily throughout our

entire economy alone once. >> if you think rates have peaked or that we potentially get cuts this year which jay powell was saying that's not his expectation, does that mean it is full steam ahead when it comes to the bounce we see in tech? >> i think so, but i think you don't really have to bank on this if you are a long-term investor which we are. the reason we love tech so much is that it is the thing that provides productivity to businesses and to some extent, to consumers. we use technology for fun, which is anti-productive. if you're looking further out, this is what companies are going to be buying. ai has cut everyone's imagination so everyone is going to be playing with that and that will soak up dollars from

businesses. >> when it comes to the opportunities potentially in u.s. banks at the moment, big banks or regional banks or even international exposure, is that compelling to you or is it too risky? >> i think the smaller banks are really risky unless you know them. by that i mean do the homework, see what is on their balance sheets and what industries they lend to. i think that is key. the international seemed tricky at this point as well. i would just have a nice basket full of longer-term plays and not try to leverage this banking crisis to see who will benefit in the short term. >> it's difficult to talk to clients and investors in an environment such as this especially when you have plenty coming out telling you what to

do drugs take advantage of this. our people listening to you and saying put my money in semiconductors and i'm going to take a vacation for a while? >> i don't think anybody takes a vacation, but we do have a longer term view and the people that we manage money for building to that. they have seen our results in the past and we know that there are lots of lots of opportunities, but that can turn quickly on the investor. for example, you can look backwards to a few years ago when peloton was the biggest thing going. now they are languishing because environment changed. that's the thing. everybody can be the market timing hero if they know it's good to happen in the future, but no one does.

>> what else is being said about this decision? annabelle: a lot of focus as well on the commentary we got on tighter financial conditions that came through. that was something that jay powell and colleagues took into considerations when they were revising the dot plot projections. what they were focusing on with bank of america is that we could be near the end of the aiken process that we thought and they are expecting a fed terminal rate of 5%-5.25%. it really comes down to the tighter credit conditions we have seen and this index you can see we are in very steep territory. with that tells me is perhaps the tighter financial conditions also stemming from access to credit. the banking sector has played on that. that could be something that does some of the tightening work on behalf of needing to hike

rates. vonnie: exactly and the fed chair talking about that today. what are we hearing from ing? annabelle: they said the decision was more dovish than the expected. again they are focused on these tighter credit conditions coming through and they are cautious on that. overall, they are saying this raises the risk of a hard landing for the u.s. economy. the banking sector turmoil we have seen has raised the possibility because just a few weeks ago, we had the idea that jay powell, his colleagues would be able to engineer a soft landing instead. >> continued to watch how asia reacts to the 25 basis point move from the fed with the implication there is more to come. coming up, we look at earnings. tencent revenue growth.

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>> coinbase ceo says he welcomes the sec plan to take enforcement action against the exchange. we got this after the market was closed and we saw coinbase post market dropped 10% on this news. this is upping the ante on the exchange. what happens next? >> it looks like we might be facing -- coinbase has been very clear they want to defend that position. the sec has been aggressive and since the collapse of ftx in november, it has been charging people with breaching security rules. it believes the platforms that offer trading services crypto

coins should be registered and it is pursuing that aggressively. coinbase and others that support its position field is not giving crypto space to evolve. >> as you say, this has been an escalating story. how significant is this it seems to be a very complete set of potential enforcement actions and investigations. >> yes i think it is an indication of the fact that the regulatory pushback against crypto in the u.s. shows signs of intensifying. the question is what coinbase and others will do in response. we have already seen indications that firms are looking at other jurisdictions potentially a friendlier environment for them to operate in.

i think the u.s. crackdown on crypto is significant. it is had a whole bunch of consequences and implications for the sector. i think we will carry on seeing that play out through the course of the year. >> let's get over to su keenan with first word headlines. >> we start with janet yellen she says regulators have no plan to provide blanket deposit insurance for u.s. banks in her testimony to lawmakers she referred to raising the current fbi see cap and what she called a special one-time assessment. she also said shareholders and creditors of failed banks will be held accountable. >> it's important to be clear shareholders and debtholders of the failed banks are not being protected by the government. no losses from the resolution of these banks are being borne by the taxpayer. deposit protection is provided

by the deposit insurance fund which is funded by fees on insured banks. >> antony blinken told senators the state department needs its full budget request to tackle threats from china and russia. senators said 11% budget increase sought by the department will be a tough sell in the republican-led house. he decided immediate cute -- acute threats from russia. >> the budget contains discretionary proposals and we are happy to talk about why we proceeded this way. for new innovative investments to outcompete china including increased presence in the region and ensuring what we and fellow democracies are able to offer. that it is more attractive than any alternative. >> the sec is suing a man for

violating securities rules. regulators separately accuse him of breaking antifraud and market manipulation rules. the sec named lindsay lohan among salute -- celebrities who illegally promoted the tokens without revealing compensation with most paying a fine to settle the charges. rishi sunak has emerged unscathed from a day of parliamentary drama after convincingly winning a key brexit vote. lawmakers backed a crucial element of his new northern ireland deal with the eu but 515 votes. leadership may also have been bolstered as boris yeltsin sorry oris johnson faced a grilling over a series of downing street gatherings during covid

lockdowns. global news powered by more than 2700 journalists and analysts in over 120 countries. >> tencent returns to growth. stephen engle joins us for more from hong kong. what jumped out to you? >> i think it is encouraging. they were not stellar numbers, pretty much in line with expectations. revenue growing just 1% and net income was up also attributed to one-off gains. it was not a stellar blowout report like we used to get before the regulatory crackdown before covid zero and the like. where we would regularly see high double-digit revenue gains. this chart tells it all.

look at the revenue quarterly gains over the last how many years. you have to squint to see the 1% rise in revenue after two consecutive quarters of contraction. overnight the adrs did go up and we will be watching them today in the hong kong session because investors seem to be hardened by what the executives had to say. they saw and improving economy toward the end of the fourth quarter. they affirmed the hopes they will see the regulatory crackdown which is pressured all platform economy companies like alibaba and tencent over the last couple of years, that the regulatory pressure is starting to ease. international gaming, they saw strength there and also the potential for ai. putting ai into all of its applications from wechat to gaming to online videos and the like. that is more future products, but cloud and fintech showed weakness because of weaker

consumer demand as we sought the disruptions from the covid zero dismantling then the wave of infections. >> calling ai a growth multiplier which would be exciting. on the regulatory crackdown, that is still front of mind for most investors. is it possible that these platform companies may be out of the woods on that? >> it's tough to say. everything beijing has been saying has been the right thing. they got rid of the moratorium on new game approvals. tencent got approvals for new games which should improve the pipeline for games which used to be their bread-and-butter. again there's always a threat of regulatory action. they talked that the regulatory pressure has improved the situation. xi jinping has talked about beijing needs to give support to the private sector.

it's probably a big reason why tencent shares have gained 160 billion dollars in market value since the october low. again once bitten twice shy. we are not necessarily going to see the explosive business model of growth the tencent did to gain market share and to gain investment in a lot of startups because of the anti-monopoly crackdown that coincided with the crackdowns on games and of the economy. there is some encouragement especially when the chairman from the conference call said we need to trim the fat and build muscle. there could be more cost cutting down the pike. not necessarily good for the explosive growth, but good for investors as they see trimming wasteful spending. >> stephen engle, thank you for joining us. be sure to 20 into -- to turn

into bloomberg radio. now broadcasting live from our bloomberg studio in hong kong. plenty more ahead, stay with us. ♪ online personal styling? what's that? that's stitch fix. and how can you help me? we do the shopping for you. how do you know what i like? and what fits? you tell us your size, budget and style. wait, is it a subscription? no commitment required here. and i only pay for what i keep? yup. i live in denim, can you send me jeans? we've got you. what about shoes? mhhm. styled for me? for me? always. we'll pick the clothes. you enjoy the great fit. stitch fix.

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diplomatic broadside against australia's plans to acquire nuclear powered submarines in its defense deal with the united states and the u.k.. this is just after the deal. what more have they said? >> china doesn't like the subs plan. they are saying this is going to undercut efforts to stop the proliferation of the of nuclear fuel and material. it's going to open the path for other countries and to an extent, it is true. we have south korea iran and brazil announcing they are going to be pursuing nuclear summary technology. this relates to the announcement we had last week where australia is going to get three possibly five nuclear power submarines while building the next generation of nuclear submarines for us till you come at the u.k., and the u.s.. those be ready by the 20 40's. china says august -- august

coerced them into signing the deal. >> what is the plan to get nuclear submarines? >> the director general put out a statement last week saying the process involves serious legal and complex technical issues as well. they do concede a number of points. to point out australia is not going to be pursuing its own nuclear fuel program. it will be processing nuclear fuel or enriching it and the subs will not be nuclear armed either. the propulsion units are going to made in the united states and will arrive in australia fully sealed ready to go for installation. the iaea exempt inspections of weapons grade uranium used to power ships and provided the material can be accounted for at the end of the submarines life. it is a complicated matter and the director general will be putting in a report for this to

be delivered in a few months. >> a quick check of the latest business flash headlines. the u.k. antitrust watchdog will conduct an in-depth review of broadcom's proposed takeover of vmware. that is unless the company offers remedies to deal with agencies concerns. regulators say the deal will likely lead to a substantial reduction in competition. renault is reportedly prepared to ipo its arm listing. it is aiming for evaluation of nearly $11 billion. >> some of the stocks we are watching, bancshares and focus again.

janet yellen says the u.s. is not considering providing blanket the positive insurance to stabilize the banking system. we had a slightly different view from jay powell. he also dashed hopes the fed will be cutting rates this year. we will be looking for the bank reaction especially as we get more volatility across the u.s. banking sector. gold miners could see a boost. take a look at how we are setting up thursday as asia awakes to the fed decision to go 25 basis points rather than a pause and more significantly flagging that this is not the end of the road when it comes to the battle against inflation that more tightening is to come. ruling out the idea that we could see rate cuts this year. cindy futures we are up .6%. the fed pushing back against

dovish expectations. we are looking at declines in sydney and also when japan gets underway. could see some gains when hong kong comes online. the aussie is trading stronger when it comes to the broader g10 and against the kiwi dollar as well. also watching the dollar yen. the dollar yen holding steady at the moment. we are getting more commentary when it comes to financial sector risk. hearing from south korea urging the financial sector to enhance risk management to take market stabilization risks when needed. this is a south korean finance ministers speaking. this is bloomberg. ♪

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