WEBVTT - Surveillance: Relative Dollar Strength in 2019, Barth Says 0:00:06.320 --> 0:00:13.800 Yeah, welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jailey. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:32.839 Bloomberg dot Com, and of course on the Bloomberg I 0:00:32.840 --> 0:00:35.040 want to bring in an expert who can help us 0:00:35.159 --> 0:00:39.080 figure out what the Federal Reserve means for investors. Don 0:00:39.200 --> 0:00:43.640 ris Miller is the chief economist for Strategious Research. He 0:00:43.720 --> 0:00:47.280 joins me here in the studio. Don, maybe you could 0:00:47.320 --> 0:00:51.520 explain the relationship between what we did or didn't learn 0:00:51.600 --> 0:00:55.760 from the Federal Reserve and the stock market and bond 0:00:55.800 --> 0:00:59.880 market reaction this week. Yeah. Sure, Well, it's good to 0:00:59.920 --> 0:01:02.720 be here. So let me say a couple of things 0:01:02.760 --> 0:01:06.560 to start out. First, the FED was trying, I really 0:01:06.680 --> 0:01:09.520 do believe that with the statement and what came out 0:01:09.600 --> 0:01:12.280 in the press conference, they were trying to thread the 0:01:12.319 --> 0:01:14.800 needle to say the US economy, when we look at 0:01:14.840 --> 0:01:17.400 things like the labor market is in good shape. So 0:01:17.440 --> 0:01:19.880 if you look at the unemployment rate or jobless claims 0:01:19.959 --> 0:01:22.480 or some of those data series, that part of the 0:01:22.520 --> 0:01:26.120 economy is doing quite well. What I think was Missing 0:01:26.360 --> 0:01:28.800 from the FED statement was some mention of the interest 0:01:28.880 --> 0:01:32.360 rate sensitive sectors that included things like housing. I thought 0:01:32.360 --> 0:01:35.119 it would have been relatively easy to say something like 0:01:35.280 --> 0:01:37.679 housing data was mixed. If you didn't want to say week, 0:01:38.120 --> 0:01:40.520 you could have just acknowledged some of the mixed data 0:01:40.920 --> 0:01:43.920 they're including some of the survey data. Also, there was 0:01:43.959 --> 0:01:47.760 a note that inflation expectations were a little changed, and 0:01:47.840 --> 0:01:50.040 that's hard to square with what you're seeing in some 0:01:50.120 --> 0:01:53.040 of the commodity space, especially the big drop in oil. 0:01:53.320 --> 0:01:56.640 So maybe that's going to be changed in future statements. 0:01:56.680 --> 0:01:59.480 But these are things that the stock market's going to 0:01:59.560 --> 0:02:02.240 pick up on to say, hey, maybe there's a disconnect 0:02:02.280 --> 0:02:04.840 with what I thought could come out of this statement. 0:02:04.920 --> 0:02:07.840 What the Fed's view of what's going on is how 0:02:07.880 --> 0:02:09.640 it differs from my view, and I think that's what 0:02:09.720 --> 0:02:12.119 generated some of the market reaction. All Right, well, don 0:02:12.880 --> 0:02:15.480 just to sort of follow along with that, because it's 0:02:15.480 --> 0:02:19.320 not just a domestic situation, and from Guy Johnson's perspective 0:02:19.400 --> 0:02:22.760 in London, is the Federal Reserve now the central bank 0:02:23.080 --> 0:02:26.799 to the world. So they will never say that, and 0:02:26.840 --> 0:02:30.040 I think they respect the idea that there are a 0:02:30.040 --> 0:02:33.960 lot of differences in different parts of the world. But 0:02:34.960 --> 0:02:38.880 what we do see is a big reaction when the 0:02:38.919 --> 0:02:42.800 balance sheet comments came up, and when share Powell said 0:02:42.800 --> 0:02:46.040 that the balance sheet was declining on this autopilot type 0:02:46.520 --> 0:02:50.239 of trajectory. I do think that mattered to global investors. 0:02:50.280 --> 0:02:54.160 I do think that started off some of the serious 0:02:54.760 --> 0:02:57.520 risk off moves, and I think that was partly the 0:02:57.560 --> 0:03:04.160 global situation that came into play. Good Morning Guy in London. 0:03:04.600 --> 0:03:08.720 Um don has has the President done permanent damage to 0:03:08.760 --> 0:03:12.640 the relationship between the White House and the FED? I 0:03:12.680 --> 0:03:16.120 think that's a little premature. I do think some of 0:03:16.200 --> 0:03:19.119 the techniques here, in terms of how it's come out 0:03:19.200 --> 0:03:22.720 publicly our novel, I think this is a bit different 0:03:22.720 --> 0:03:26.000 than we might have seen in other administrations. But I 0:03:26.080 --> 0:03:28.680 think it's hard to say that this has never happened before, 0:03:29.240 --> 0:03:33.080 that we've never seen a politician interested in what the 0:03:33.080 --> 0:03:36.320 FED is doing. Certainly this is being conveyed in a 0:03:36.440 --> 0:03:39.800 unique way. But if there's permanent damage, I don't think 0:03:39.800 --> 0:03:42.800 it's very large. If the President were to try and 0:03:42.840 --> 0:03:46.120 remove the FED chair, would that cause permanent damage? So 0:03:46.160 --> 0:03:48.440 I think that would rise to a different standard. You 0:03:48.440 --> 0:03:52.840 can remove a FED chair for clause, it's really challenging 0:03:52.880 --> 0:03:56.000 to think of another way that that could be done. 0:03:56.520 --> 0:04:00.160 And so again, barring something out there for cause, which 0:04:00.200 --> 0:04:02.800 I think is something that would be really strange, that 0:04:02.840 --> 0:04:05.720 would start to rise to the standard of more permanent damages, 0:04:07.480 --> 0:04:10.200 don just a little bit more on the connection between 0:04:10.240 --> 0:04:14.160 the Federal Reserve and what happens in markets. You get 0:04:14.160 --> 0:04:17.400 a call from a client that says, I don't understand 0:04:17.480 --> 0:04:20.640 how we can get a one thousand point move in 0:04:20.680 --> 0:04:24.559 the Dow Jones Industrial Average more than one hundred point 0:04:24.640 --> 0:04:27.599 move in the SMP five hundred. I received a text 0:04:27.640 --> 0:04:31.640 message yesterday from a money manager saying President Donald Trump 0:04:31.680 --> 0:04:36.320 had not tweeted during the day. He was obviously on 0:04:36.560 --> 0:04:41.240 his route to Iraq. Can you draw any conclusions that 0:04:41.320 --> 0:04:44.479 if we were to have none of this new messaging 0:04:44.520 --> 0:04:47.400 that you just described from either the Fed or the President, 0:04:47.880 --> 0:04:51.880 that we would see a less volatile market. We might 0:04:51.920 --> 0:04:54.360 see a less volatile market for a while. But the 0:04:54.400 --> 0:04:57.680 information that's coming out, whether it's there's a concern at 0:04:57.680 --> 0:05:00.919 the FED, whether it's there's a concern with how the 0:05:00.960 --> 0:05:03.760 trade situation is going, there's a concern with what's going 0:05:03.760 --> 0:05:06.000 on in China's local economy, there's a big drop in 0:05:06.080 --> 0:05:09.560 oil prices. Those I think are the fundamental drivers of 0:05:09.680 --> 0:05:13.200 some of this risk off trade. So maybe you could 0:05:13.279 --> 0:05:16.279 change where the volatility enters the system. You could change 0:05:16.279 --> 0:05:19.680 how that's going to express itself. But I wouldn't say 0:05:19.680 --> 0:05:23.440 we want to complete blackout. Is the market being overly 0:05:23.440 --> 0:05:25.440 pessimistic about the U S economy? Like I look at 0:05:25.480 --> 0:05:27.600 the U. S. Consumer, and it's always amazing to look 0:05:27.640 --> 0:05:30.159 at the consumer kind of from afar. The U. S 0:05:30.160 --> 0:05:33.719 consumer seems to still be firing on all cylinders. I 0:05:33.760 --> 0:05:37.279 think that's right, And so the challenge is the consumer 0:05:37.360 --> 0:05:39.320 is still the bulk of the economy. There are good 0:05:39.360 --> 0:05:43.159 supports there and that's the labor market story coming through. 0:05:43.360 --> 0:05:48.000 So the consumer should be a support. In twenty nineteen, 0:05:48.440 --> 0:05:51.279 the challenge is going to be if the economy growth 0:05:51.440 --> 0:05:55.480 rate slows, it's probably going to come from the investment 0:05:55.520 --> 0:05:59.279 side rather than the consumption side. And so the pathway 0:05:59.320 --> 0:06:02.720 forward to a long cycle to a sustainable economic expansion 0:06:03.200 --> 0:06:06.320 is you see investment. You see the capital spending that 0:06:06.400 --> 0:06:09.320 gets you productivity. That productivity pays for some of the 0:06:09.360 --> 0:06:12.640 higher wage games that are coming through at full employment. 0:06:12.720 --> 0:06:15.240 So it's capex to productivity too wages that gets you 0:06:15.320 --> 0:06:19.000 the sustainable cycle. So that's where I think the challenges. 0:06:19.080 --> 0:06:21.480 It isn't so much that the economy is in trouble 0:06:21.600 --> 0:06:23.960 right now, but looking forward, we'd like to see more 0:06:23.960 --> 0:06:25.719 on the I part of the C plus I plus 0:06:25.800 --> 0:06:29.200 G equation to make the sustainable economic argument. And do 0:06:29.240 --> 0:06:30.960 you do you have faith in the ability of the 0:06:30.960 --> 0:06:33.760 FED to communicate how it's working through this process. The 0:06:33.800 --> 0:06:36.400 communication over the last few months has been a little 0:06:36.480 --> 0:06:39.359 hit and miss, and I'm just wondering whether or not, 0:06:40.240 --> 0:06:42.360 kind of to circle back to where we sort of started, 0:06:42.400 --> 0:06:44.200 whether or not the FED needs to up the game 0:06:44.240 --> 0:06:46.880 here and find it find a better way of communicating. 0:06:47.760 --> 0:06:51.040 I do think we could get some clarity on a 0:06:51.040 --> 0:06:54.560 couple key items. What do they think of housing? What 0:06:54.600 --> 0:06:58.080 do they think of inflation expectations in a world where 0:06:58.120 --> 0:07:01.719 oil prices have declined? Do they really think the balance 0:07:01.760 --> 0:07:05.920 sheet is on autopilot indefinitely? Could that change? If we 0:07:05.960 --> 0:07:08.520 can answer some of those questions, I think FED communication 0:07:08.520 --> 0:07:12.480 would be a lot better. What is the most undervalued 0:07:12.560 --> 0:07:19.640 asset right now? Don Well, when we look at US equities, 0:07:19.640 --> 0:07:23.320 you're pricing in a good chunk of a recession. When 0:07:23.320 --> 0:07:25.760 you're looking at some of the global equities, you're pricing 0:07:25.800 --> 0:07:29.240 in a good chance of a downturn. So if you 0:07:29.360 --> 0:07:33.120 get a FED pause, if you get a trade deal 0:07:33.160 --> 0:07:36.360 with China in the US, if you get stimulus in 0:07:36.360 --> 0:07:40.360 the local Chinese economy, if you get stability in oil prices, 0:07:40.640 --> 0:07:43.760 and that downturn, that recession does not happen. I do 0:07:43.840 --> 0:07:46.720 think there's a lot of value there, value in equities 0:07:47.120 --> 0:07:50.240 global as well as US equities. Yes, trickier there, but yes, 0:07:50.360 --> 0:07:53.120 all right, thanks very much for being with us. Much appreciated. 0:07:53.200 --> 0:07:57.520 Don ris Miller is the head of economic research at 0:07:57.560 --> 0:08:01.800 Strategious Research. He is their chief economist. Talking about the 0:08:01.840 --> 0:08:16.840 future and the potential for gains in equities, Let's talk 0:08:16.840 --> 0:08:19.559 a little about what impact the trade talks are likely 0:08:19.600 --> 0:08:24.280 to have on the agricultural commodity complex. In talks are 0:08:24.320 --> 0:08:27.560 going to restart, we understand at a relatively low level 0:08:28.160 --> 0:08:31.760 on January the seventh. So how closely will the agricultural 0:08:31.880 --> 0:08:34.960 complex be watching what happens. Let's find out now. Kona 0:08:35.040 --> 0:08:38.480 huck is E. D and F Man's head of commodity 0:08:38.520 --> 0:08:42.120 research and joins us in our London studio. Good morning. 0:08:42.800 --> 0:08:44.679 So let's talk a bit about what the trade story 0:08:44.800 --> 0:08:48.679 is going to mean for for your world in en 0:08:48.880 --> 0:08:50.920 Is it going to be the kind of the dominant theme. 0:08:51.040 --> 0:08:54.360 Is the trade story going to set the narrative? Yes, 0:08:54.480 --> 0:08:57.320 in the sense at least for the sentiment, because it's 0:08:57.400 --> 0:09:00.920 had a massive negative bearing on the market. Um. The 0:09:00.960 --> 0:09:05.600 fact that the US is not able to shift its 0:09:05.800 --> 0:09:09.360 massive crops this year because China is not buying mixed 0:09:09.440 --> 0:09:11.360 on the on the back of these tariffs has meant 0:09:11.400 --> 0:09:15.680 that the U s docks are really really heavy. Um. 0:09:15.720 --> 0:09:19.000 And ultimately what happens in the US has a massive 0:09:19.080 --> 0:09:22.679 underpinning on the Chicago futures markets because that's what sets 0:09:22.679 --> 0:09:25.760 a down there. So the US supplied amount of balances 0:09:25.800 --> 0:09:29.319 are really key here and um, Ultimately, the US supplied 0:09:29.320 --> 0:09:32.160 amound bounces will only start shifting if they're able to 0:09:32.160 --> 0:09:36.320 start exporting a lot more of their excessive volumes of soybeans, corn, 0:09:36.440 --> 0:09:39.520 and wheat, none of which have happened this year, all 0:09:39.559 --> 0:09:43.920 of which has huge potential the following year if they're 0:09:43.920 --> 0:09:47.360 able to come to some kind of deal. Okay, so 0:09:47.720 --> 0:09:49.400 kind of let's talk about risk. I'm trying to figure 0:09:49.400 --> 0:09:51.320 out how if I'm a trader. Am I making money 0:09:51.360 --> 0:09:54.280 in the risk sounds quite asymmetric. There's a lot of 0:09:54.280 --> 0:09:56.640 negative news by the sounds of things already priced into 0:09:56.679 --> 0:09:59.880 the market, into into the various crops. Is the kind 0:09:59.880 --> 0:10:02.520 of is the easier trade there for to look for 0:10:02.559 --> 0:10:04.880 the upside? Is that kind of what we're looking at here? 0:10:05.320 --> 0:10:07.560 Is all the negative news priced in? Am I going 0:10:07.600 --> 0:10:12.000 to get a pop? Not necessarily? The reason being is UM. 0:10:12.040 --> 0:10:15.319 Although the US farmers will probably look at this year's 0:10:15.360 --> 0:10:20.280 dismal price action and think about reducing their planted acres 0:10:20.400 --> 0:10:24.080 for next year. UM. That might sound good for US 0:10:24.040 --> 0:10:29.439 supply demand balances UM. But on the world market spectrum, 0:10:29.480 --> 0:10:32.600 you have a situation where Brazilian and Argentinian crops are 0:10:32.720 --> 0:10:36.160 likely to become massive. In fact, we're talking about a 0:10:36.200 --> 0:10:39.000 record Brazilian crop. And Brazil, if you remember, have been 0:10:39.040 --> 0:10:44.600 the biggest beneficiaries of this trade trade tariff dispute because 0:10:44.640 --> 0:10:47.679 they have been the beneficiaries of massive amounts of Chinese buying. 0:10:47.920 --> 0:10:50.679 So they're gonna they're planting like crazy. They're going to 0:10:50.760 --> 0:10:53.360 have a record crop. It's an anne your year, which 0:10:53.400 --> 0:10:58.280 actually helps some of the the soil moisture levels there 0:10:58.400 --> 0:11:01.280 so even if the US as its part in terms 0:11:01.320 --> 0:11:05.520 of reduction reducing production South America could more than offset 0:11:05.559 --> 0:11:09.000 that corner. Are we entering a new commodity cycle or 0:11:09.040 --> 0:11:13.120 are we already in it? No, We're already in it. 0:11:13.360 --> 0:11:17.040 Um I think if we're looking at commodities as an 0:11:17.080 --> 0:11:22.040 asset class, generally, I think key will be the U. S. Dollar. Obviously, 0:11:22.080 --> 0:11:25.000 two thousand and eighteen was all about a strong U. 0:11:25.080 --> 0:11:27.320 S dollar, at least the second half was, and that 0:11:27.600 --> 0:11:31.959 massively um led to a sell off in commodities, whether 0:11:32.000 --> 0:11:35.040 it's grains or soft or metals or a crude all 0:11:35.520 --> 0:11:38.319 it is so massively important how the dollar trades. And 0:11:38.400 --> 0:11:41.720 I think if two thousand nineteen brings a peak dollar 0:11:41.880 --> 0:11:44.800 story on the back of you know, slow down in 0:11:44.840 --> 0:11:47.640 the U. S. Economy or FED reducing the amount of 0:11:47.679 --> 0:11:52.600 times it hikes rates, and any resulting reduction in the 0:11:52.720 --> 0:11:57.080 in the US dollar strength will support commodities, so fundamental decide, 0:11:57.720 --> 0:11:59.960 I think you know that that is something I would 0:12:00.000 --> 0:12:01.880 look at them on more positive lighting the fact that 0:12:01.920 --> 0:12:05.880 the dollar could start to um softened by a second 0:12:05.920 --> 0:12:08.520 half of two thousand nineteen and that would ultimately help 0:12:08.760 --> 0:12:13.120 commodities AGGS included. Is there a specific commodity that you 0:12:13.200 --> 0:12:18.800 believe is the most over sold right now? Um. One 0:12:18.920 --> 0:12:22.280 commodity that I followed closely as sugar, and that has 0:12:22.400 --> 0:12:25.920 fallen massively on the back of two years of very 0:12:26.080 --> 0:12:29.760 big surpluses. It's also suffered on the back of a 0:12:29.880 --> 0:12:34.320 very weak Brazilian real. Now two thousand nineteen should see 0:12:34.320 --> 0:12:38.200 the market move into a deficit number one and number 0:12:38.240 --> 0:12:40.720 two the Brazilian real on the back of the election 0:12:40.760 --> 0:12:45.520 of both Sonaro in Brazil could start bringing some positive 0:12:45.559 --> 0:12:48.679 influence into the Brazilian real, and so both of those 0:12:49.240 --> 0:12:53.000 factors could help sugar prices recover quite nicely in two 0:12:53.000 --> 0:12:55.640 thousand nineteen, but not necessarily the first half the second half. 0:12:56.080 --> 0:13:00.120 Just very briefly, Technology is playing an increasingly large hole 0:13:00.200 --> 0:13:03.680 in this sector. How how easy is it to understand 0:13:03.679 --> 0:13:06.240 how that's going to affect pricing going forward. You look 0:13:06.280 --> 0:13:07.800 at the big car girls and all the sort of 0:13:07.800 --> 0:13:11.440 these companies. They are increasingly focusing on the technology aspects 0:13:11.440 --> 0:13:14.600 of farming, and this is kind of an area it's 0:13:14.679 --> 0:13:19.640 right for this right for disruption. Yeah, no, absolutely, Um, 0:13:20.240 --> 0:13:22.960 the ways in which we'll actually you know, if you 0:13:23.000 --> 0:13:26.240 look about if you if you think about why agricultural 0:13:26.400 --> 0:13:29.520 commodities have done so badly price wise in the last 0:13:29.559 --> 0:13:33.000 five years. We've had surpluses year after year. One massive 0:13:33.000 --> 0:13:36.800 reason is because agriculture has spent a huge amount of 0:13:36.840 --> 0:13:41.680 money in developing seeds the kind of drought resistance seeds, 0:13:41.880 --> 0:13:44.880 flood resistant, pastris resistant. And so despite all of this, 0:13:44.920 --> 0:13:47.439 you've you've seen record deals. Been great to see you. 0:13:47.440 --> 0:13:49.040 Thank you very much indeed for coming to see us 0:13:49.040 --> 0:13:51.679 both on Bloomberg Television and on Bloomberg Radio. Kind of 0:13:51.720 --> 0:13:55.079 hack E D and F Man's head of commodity research. 0:14:04.640 --> 0:14:06.560 So what do we make of the price action over 0:14:06.600 --> 0:14:10.280 the last couple of days, massive rally in US stocks 0:14:10.360 --> 0:14:14.839 yesterday today, fading. What lessons can we learn from all 0:14:14.880 --> 0:14:17.160 of this? Well, let's find out. Marvin Bath is the 0:14:17.160 --> 0:14:20.720 head of FFX and EM macro strategy research at Barclay's 0:14:20.960 --> 0:14:23.000 and joins us now on the line. Marvin, what do 0:14:23.120 --> 0:14:27.160 you make of the price action? Well, I think it's 0:14:27.240 --> 0:14:32.160 a typical holiday liquidity, right, Um. So you combine that 0:14:32.320 --> 0:14:35.960 with some of all a toy from US policymakers in 0:14:36.040 --> 0:14:41.000 terms of the risk that people had felt with said tampering, 0:14:41.120 --> 0:14:45.440 and that seemed to be evistrated yesterday by the comments 0:14:45.440 --> 0:14:50.560 from Haszard as well as Secretary Manu nu Chin and UH. 0:14:50.760 --> 0:14:53.480 Today we go back to well, people are still worried 0:14:53.520 --> 0:14:57.080 about earnings going forward. Does that tell us anything about 0:14:57.080 --> 0:14:59.080 how we're going to make money in twenty nineteen or 0:14:59.120 --> 0:15:02.680 is this just a kind of of idiosyncrassic I would 0:15:03.240 --> 0:15:08.800 I would definitely avoid in extrapolating this into the new year. 0:15:08.960 --> 0:15:11.240 My guess is that you will see some of it 0:15:11.280 --> 0:15:13.880 in the first couple of weeks of of the new year. 0:15:13.960 --> 0:15:18.080 This is the typical pattern people do extrapolate patterns UH 0:15:18.400 --> 0:15:22.560 forward UH, and we roughly around the second or third 0:15:22.560 --> 0:15:25.200 week of January we get some sort of major reversal. 0:15:25.320 --> 0:15:29.520 So look, the underlying fundamentals here are still quite good. 0:15:29.960 --> 0:15:32.840 The U S economy is tracking about three in the 0:15:32.880 --> 0:15:35.840 fourth quarter. It looks like the fundamentals are quite good 0:15:35.880 --> 0:15:41.000 for the year ahead. The reactions we've seen so far 0:15:41.480 --> 0:15:44.040 seem to be a bit over the top end our view. 0:15:44.800 --> 0:15:47.920 Marvin Barth, you and your team a roup chatter Ge 0:15:48.240 --> 0:15:51.080 and Hamish Pepper. You've done a great job putting together 0:15:51.120 --> 0:15:55.800 the FFX and Emerging Market Macro Strategy Forecast update. Tell 0:15:55.920 --> 0:16:03.160 Us does it describe dollar strength continue wing in Yeah, 0:16:03.160 --> 0:16:06.760 so we are looking for relative dollar strength. I mean 0:16:06.800 --> 0:16:09.760 if you look at it in in fact, it's mostly 0:16:10.480 --> 0:16:13.920 range trading versus the G ten, but continue strength versus 0:16:13.960 --> 0:16:17.880 emerging markets. I think relative to where I understand consensus 0:16:17.920 --> 0:16:20.080 to be. That does put us at the upper end 0:16:20.480 --> 0:16:23.720 spectrum for dollar strength. But again this comes back to 0:16:23.840 --> 0:16:25.800 where do we see weakness in the world. It's in 0:16:25.880 --> 0:16:28.040 the rest of the world, not in the US. The 0:16:28.120 --> 0:16:31.360 US is actually doing quite well despite the sell off 0:16:31.360 --> 0:16:35.320 in US equity markets, uh, and the underlying fundamentals are strong, 0:16:35.400 --> 0:16:38.160 so you're going to get a continued carry divergence. The 0:16:38.240 --> 0:16:43.080 reason why we have that rough flat profile versus G ten, however, 0:16:43.240 --> 0:16:47.640 is the dollar does look um pretty excessively valued at 0:16:47.680 --> 0:16:51.440 these these levels um and so it's a balance between 0:16:51.520 --> 0:16:53.720 carry on one side and valuation on the other that 0:16:53.800 --> 0:16:56.240 keeps you in a Raine trade. You've got to help 0:16:56.280 --> 0:16:58.600 guide and tell him whether he should be converting all 0:16:58.640 --> 0:17:01.680 of his pounds sterling into US dollars. Now, what happens, 0:17:01.680 --> 0:17:04.200 and that happens if we don't get a Brexit deal, 0:17:04.680 --> 0:17:08.639 do we still trade around one the pounds sterling against 0:17:08.640 --> 0:17:12.679 the dollar now, I think if if if we failed 0:17:12.760 --> 0:17:14.879 to get a deal, we would see a significant self 0:17:14.920 --> 0:17:17.800 in sterling. Now a lot of that's increasingly in the 0:17:17.800 --> 0:17:22.200 price before increasingly expecting that. What I think is important 0:17:22.240 --> 0:17:25.959 here is that once you get to about one twenty, 0:17:26.240 --> 0:17:28.879 that's that's our our our view, you are going to 0:17:28.880 --> 0:17:32.280 see a lot of long term buyers coming because at 0:17:32.280 --> 0:17:34.440 the end of the day, this is still an economy 0:17:34.480 --> 0:17:37.720 of the UK that has a highly educated workforce, lots 0:17:37.720 --> 0:17:42.399 of technical skills, top universities, um, a tremendous amount of 0:17:42.560 --> 0:17:45.600 value in it, and you've got sterling trading near fifty 0:17:45.680 --> 0:17:49.040 year lows on a real trade weighted basis. So as 0:17:49.080 --> 0:17:52.040 we get down to those levels, you're gonna see a 0:17:52.080 --> 0:17:55.320 lot of long term buyers come in to scoop the 0:17:55.560 --> 0:17:58.159 that up. So, yeah, could we trade below one twenty 0:17:58.200 --> 0:18:00.200 on an inter day basis, maybe even for a couple 0:18:00.200 --> 0:18:03.280 of days, sure, But will we sustainable of that? I 0:18:03.280 --> 0:18:05.560 think that's highly unlikely. Well, do you really want to 0:18:05.600 --> 0:18:08.200 get directional? This is like the volatility in the pound 0:18:08.200 --> 0:18:10.480 has been eyewatering, and I appreciate that we've been going 0:18:10.560 --> 0:18:12.800 down for a very long period of time, but getting 0:18:12.800 --> 0:18:15.200 directional the pound seems like it seems like a difficult 0:18:15.200 --> 0:18:17.960 thing to do right now. Well, I think I think 0:18:18.040 --> 0:18:20.080 you've got it right on there, guy. This is one 0:18:20.080 --> 0:18:23.440 of the reasons why we've avoided putting out trade recommendations 0:18:23.480 --> 0:18:27.800 in Sterling right now. Um, I don't think that it 0:18:27.880 --> 0:18:31.080 makes a lot of sense given the amount of alatility 0:18:31.119 --> 0:18:32.720 that you have in there, and that's on top of 0:18:32.720 --> 0:18:35.680 all the other volatility in markets. But I would say that, yeah, 0:18:35.760 --> 0:18:39.240 if if you do get down towards one, that's just 0:18:39.400 --> 0:18:42.679 such a good value that you should be coming in 0:18:42.720 --> 0:18:45.560 to buy there. Let's take it back to the States. Um, 0:18:45.680 --> 0:18:50.280 has President Trump done lasting damage to the relationship with 0:18:50.359 --> 0:18:54.120 the FED? I don't think so. I mean, I think 0:18:54.320 --> 0:18:59.199 people get a little bit exercised with these things, in 0:18:59.320 --> 0:19:02.439 part because as President Trump does cause such a vicial 0:19:02.560 --> 0:19:06.440 reaction in many people, um, but also because memories are short. 0:19:06.520 --> 0:19:10.520 I mean, there was no more institutional president, uh than 0:19:10.720 --> 0:19:15.360 the late President George H. W. Bush who just passed 0:19:15.520 --> 0:19:19.359 passed away. And let's recall that back in he too 0:19:19.960 --> 0:19:26.720 decides to FED for hiking raids, right. Um, so uh, 0:19:26.840 --> 0:19:30.560 he he was. He was pretty aggressive in talking about 0:19:30.960 --> 0:19:36.560 HUM president or chair chairman Greenspan at the time. Look, 0:19:36.640 --> 0:19:39.360 I think that President Trump made a mistake. I think 0:19:39.400 --> 0:19:42.080 that he and his advisors have learned in the last 0:19:42.119 --> 0:19:45.680 couple of days that that is a mistake to undermine 0:19:45.720 --> 0:19:49.879 people's confidence in the US institutions. That's the whole reason 0:19:49.960 --> 0:19:52.800 why people invest in the US, because the institutions are 0:19:52.840 --> 0:19:57.040 stronger than anywhere else. Um And uh, my guess is 0:19:57.080 --> 0:20:00.720 they'll take this this this lesson home. Marvin. Are many 0:20:00.800 --> 0:20:04.760 people driving all across the United States. They're interested in 0:20:04.880 --> 0:20:08.680 things such as gasoline prices. Tell us about the US 0:20:08.760 --> 0:20:13.879 dollar versus commodity currencies. The Australian dollar has dropped about 0:20:13.920 --> 0:20:17.000 ten percent in value against the green back, and if 0:20:17.000 --> 0:20:19.560 you take a look at the Canadian dollar, the looney 0:20:19.720 --> 0:20:22.359 down seven and a half percent year today against the 0:20:22.400 --> 0:20:26.879 US dollar. Yeah. Well, this is something that uh, um, 0:20:27.000 --> 0:20:30.720 my colleagues Hamish Pepper and Nick s Aropolis wrote about 0:20:31.320 --> 0:20:33.760 a year or two ago about the effects of Dutch 0:20:33.800 --> 0:20:37.920 disease um. Uh in terms of we saw this massive 0:20:37.960 --> 0:20:42.040 commodity supercycle in the last decade. Um. You saw a 0:20:42.119 --> 0:20:45.960 tremendous expansion of these economies over this over that period, 0:20:46.320 --> 0:20:49.280 and now you're seeing the downside effects of this, and 0:20:49.320 --> 0:20:51.119 this is one of the reasons why people keep pushing 0:20:51.160 --> 0:20:54.200 back their expectations for the RB eight uh to hike 0:20:54.720 --> 0:20:58.920 um uh. You know, the Bank of Canada is hiking, 0:20:58.960 --> 0:21:01.159 but only because it's a atch, you know. Can This 0:21:01.240 --> 0:21:03.320 attached to the strongest economy in the world right now, 0:21:03.400 --> 0:21:06.560 the US, but even there people have tempered their expectations. 0:21:06.920 --> 0:21:11.000 All of these things are associated with a UM long 0:21:11.119 --> 0:21:15.320 term structural Dutch disease issue that they had overvalued currencies 0:21:15.440 --> 0:21:18.480 during a commodity boom and they're starting to see the 0:21:18.680 --> 0:21:21.840 after effects of that. Marvin, is there an emerging market 0:21:21.920 --> 0:21:29.920 currency that, in your mind is currently undervalued against the dollar? Yeah, well, 0:21:29.960 --> 0:21:33.520 I think that, um some of the East Asian currencies 0:21:33.560 --> 0:21:39.159 are are are looking more interesting at this point um uh. 0:21:39.200 --> 0:21:41.720 You know, especially if we look at um krean Wan, 0:21:42.320 --> 0:21:45.240 Thailand dollar. These are all these are all currencies um 0:21:45.440 --> 0:21:50.040 that are well positioned uh um relative to others in 0:21:50.119 --> 0:21:53.120 terms of their their balance sheet profiles. Unfortunately, they are 0:21:53.240 --> 0:21:59.679 really uh exposed to um trade issues more so than others. 0:22:00.119 --> 0:22:01.720 UM to the extent that does have been priced in. 0:22:01.760 --> 0:22:03.840 I think there's some value there if you want to 0:22:03.880 --> 0:22:08.040 get uh and this gets the guys directional point in volatility. 0:22:08.160 --> 0:22:11.639 If you want to uh get a lot more hairy, 0:22:11.680 --> 0:22:14.440 you could go for the Turkish laera. It does look 0:22:14.480 --> 0:22:18.359 like it's adjusted quite a bit um, but given the 0:22:18.440 --> 0:22:22.120 underlying institutional issues there, you're in for a volatile ride 0:22:22.160 --> 0:22:24.400 if you want to pick up that. Kerry, thanks very 0:22:24.440 --> 0:22:27.639 much for being with us. As always, Marvin Barth of Barclays. 0:22:27.680 --> 0:22:30.720 He is the head of X and Emerging Market macro 0:22:30.960 --> 0:22:36.760 Strategy Research, calling for a continued strength a US dollar 0:22:36.840 --> 0:22:53.040 relative to those G ten currencies. We're going to talk 0:22:53.040 --> 0:22:56.240 a little bit about currencies. We've got Mark McCormick, t 0:22:56.400 --> 0:23:00.520 D Securities, North American, head of f X Strategy. Mark, 0:23:00.640 --> 0:23:03.639 always a pleasure. Thanks for being with us. We're in 0:23:03.640 --> 0:23:07.119 the Bloomberg Interactor broker's studios. You're here to tell us 0:23:07.400 --> 0:23:10.639 what is going to happen with the US dollar in 0:23:11.840 --> 0:23:14.840 is it going to maintain its strength against its G 0:23:15.119 --> 0:23:19.280 ten trading partners? Sure? Thanks for having me so that. 0:23:19.400 --> 0:23:21.119 I guess the one thing I'd like to highlight on 0:23:21.200 --> 0:23:23.520 that is that we think that the strength is the 0:23:23.600 --> 0:23:26.199 strength of dollar is going to reverse next year. So um, 0:23:26.240 --> 0:23:27.600 I think the way you have to kind of think about, 0:23:27.720 --> 0:23:29.960 is there's a there's a couple of different dollars in play. 0:23:30.080 --> 0:23:33.040 You've got your emerging market US dollar basket, you've got 0:23:33.040 --> 0:23:37.399 a dollar block ausy Kiwi cat dollar dollar basket, and 0:23:37.440 --> 0:23:41.600 then you also have the reserve currencies like the euro, Sterling, Swiss, Yen. 0:23:42.080 --> 0:23:44.520 So our biggest conviction view for next year is those 0:23:44.520 --> 0:23:47.920 reserve currencies start to strengthen again, and it's partly reversal 0:23:47.960 --> 0:23:50.560 of the what we've been calling the Maga teme where 0:23:50.760 --> 0:23:53.320 make America great again as a kind of momentum trade 0:23:53.320 --> 0:23:56.760 in US assets, whether it be corporate bonds, equities, US 0:23:56.800 --> 0:23:59.600 dollar is going to give way back towards a little 0:23:59.600 --> 0:24:01.399