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Speaker 1: First, Brandan Last and Milford Accid Management High Brandon Evening, Heather,

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Speaker 1: all Right, we're eleven days into this conflict with Iran.

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Speaker 1: Now the markets have calmed a little, haven't they.

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Speaker 2: Look It's fair to say they have, but there remains,

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Speaker 2: I guess a heightened sense of uncertainty in the market.

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Speaker 2: I mean, last week the escalation did cause some large

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Speaker 2: gyrations and markets, to say the least, so oil obviously

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Speaker 2: the most impacted asset. We saw prices surge to a

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Speaker 2: hive around one hundred and twenty US dollars a barrel.

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Speaker 2: I mean, as a result of this, you know, risky

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Speaker 2: assets broadly came under pressure. We saw the likes of

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Speaker 2: Europe and Asia really heavily impacted, as these regions are

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Speaker 2: particular are net oil importers, meaning that they could face

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Speaker 2: a really large impact on their terms of trade should

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Speaker 2: oil prices remain at these elevated levels. Since this peak,

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Speaker 2: you know, we've seen some signs of the US administration

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Speaker 2: trying to calm markets, speculation of G seven oil reserves

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Speaker 2: being released. You know, it's not yet to eventuate, but

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Speaker 2: it did help calm markets a wee bit. We've also

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Speaker 2: seen the US Administry outline a plan to provide insurance

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Speaker 2: to some of these vessels via the treasury, and outlining

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Speaker 2: things like potential military escorts as well to ensure sort

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Speaker 2: of safe passage through this thread offorms. Despite that, there's

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Speaker 2: not really been a clear understanding of what's actually required

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Speaker 2: to stop this war from from either side. Really. Even

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Speaker 2: as you know, recent as a few hours ago, the

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Speaker 2: dialogue between the US and Iran has remained threatening, so

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Speaker 2: you know, a lot of uncertainty still persists.

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Speaker 1: So how do you see, Brandon, the economic effects of

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Speaker 1: what is going on here?

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Speaker 2: Look, the key question for US is really how long

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Speaker 2: this conflict persists, so that'll be the key driver of

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Speaker 2: the extent of any economic impact. The initial reaction last

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Speaker 2: week was, you know, bond's weakening rather than strengthening like

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Speaker 2: they would in a traditional risk off environment. And the

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Speaker 2: real reason for this is clearly because of oil being involved.

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Speaker 2: So oil prices spiking meant that markets moved to price

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Speaker 2: in a more inflationary dynamic, which would be bad for bonds.

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Speaker 2: So trying to quantify that is difficult, but a standard

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Speaker 2: rule of thumb as a sustained ten percent increase and

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Speaker 2: oil prices results in about a thirty basis point increase

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Speaker 2: in headline inflation globally, and so that would therefore translate

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Speaker 2: into a gdphad of about ten basis points. So you

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Speaker 2: can see how much you could flex his assumptions dependent

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Speaker 2: on how long oil stays at these at these higher levels.

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Speaker 1: I mean, okay, so it's not good for growth, it's

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Speaker 1: not good for inflation, but it's not a disaster. What

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Speaker 1: do you think the central banks are likely to do

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Speaker 1: in response?

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Speaker 2: Look, I think that's right and aggregate. But I guess

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Speaker 2: the way you'd think about it is this will differ

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Speaker 2: materially between regions. The US, for example, was already seeing

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Speaker 2: signs of inflation accelerating prior to this oil shock, and

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Speaker 2: so this could really compound some of their issues. This

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Speaker 2: comes at a time where employment growth in the US

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Speaker 2: is now quite weak, and so it makes the federal

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Speaker 2: reserves job even more difficult, balancing both parts of their

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Speaker 2: dual mandate. In New Zealand, we think our central bank

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Speaker 2: can look through any inflationary impacts. We do have excess

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Speaker 2: capacity in the economy, and Governor Bremen did outline in

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Speaker 2: the last press conference that the central Bank would look

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Speaker 2: through transit free inflation in Australia. We do think the

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Speaker 2: story could be a little bit more different that the

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Speaker 2: Central Bank have already been worried about inflation, and as

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Speaker 2: recently as yesterday their Deputy governor alluded to potentially needing

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Speaker 2: to act on this faster, potentially as soon as next week.

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Speaker 2: So there's a lot of moving parts and plenty of uncertainty.

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Speaker 1: Hy Brendan, thank you so much for talking us through

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Speaker 1: Brandan Last and little Ford Asset Management.

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