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Speaker 1: Let's get to our guest. It's John Vale, chief global

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Speaker 1: strategist at NICO Asset Management. So this is a very

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Speaker 1: tough climate here that we're in. John. Uh, you know,

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Speaker 1: we we'd like to sort of just think of getting

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Speaker 1: out the the umbrella and just hiding out while the

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Speaker 1: rain does its thing. Um, what kind of strategy are

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Speaker 1: you employing given this new sort of hawkish turn by

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Speaker 1: the Fed. Well, to be honest, not bragging, but we

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Speaker 1: actually predicted that that would be more hawkish than consensus.

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Speaker 1: And uh, we thought that equities would rallied, but they

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Speaker 1: rallied a lot more than we thought they would. So

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Speaker 1: we're actually quite content to be sort of neutral at

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Speaker 1: this point. It was slightly cautious outlook for equities for

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Speaker 1: the time being. They probably got ahead of themselves. It

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Speaker 1: looks like, well that's it at the moment. And you know,

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Speaker 1: the point is what are they actually pricing in? Because

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Speaker 1: that's being questioned, Well, um, good point. I mean, the

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Speaker 1: market at least in my experience over the many years,

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Speaker 1: has been that my experience has been that the market

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Speaker 1: really doesn't pay attention to the Fed until the chairman

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Speaker 1: says it. And there were lots of hawkish commentators out

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Speaker 1: there warning the market, and they didn't pay heed to it.

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Speaker 1: But now I think they really realized now since Powell

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Speaker 1: said it so firmly, that the market is not going

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Speaker 1: to be cutting rates next year to all. In fact,

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Speaker 1: it will be probably hiking them next year. We were

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Speaker 1: just chatting with Eric Baltunis, ore et F specialists at

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Speaker 1: Bloomberg Intelligence and and he was drawing some comments about

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Speaker 1: the way people look at inflation, and this was quoted

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Speaker 1: to our our Jersey. Uh, it's still a year on

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Speaker 1: year and so even if you get kind of a

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Speaker 1: month on month pull back and inflation that it may

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Speaker 1: not be enough to actually encourage investors that the Fed

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Speaker 1: will follow suit. Your thoughts on that level, Uh, I

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Speaker 1: think the Fed is looking at shorter term changes. I

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Speaker 1: think it is looking at the six months um annualized rate,

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Speaker 1: and that's already calmed down quite a bit UM, but

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Speaker 1: it's still got quite a ways to go until it

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Speaker 1: hits two percent. It probably won't be well into next

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Speaker 1: year until it gets down to say two percent on

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Speaker 1: a sixth month rate, and I think the Fed will

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Speaker 1: start talking about that more. Um and John, do you

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Speaker 1: think the market like will the market take heart if

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Speaker 1: they see several months on months declines or do we

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Speaker 1: really have to wait until we get year on year declines?

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Speaker 1: So that's kind of the question. Oh, that's another good point. Yes,

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Speaker 1: the market will probably be quite assuage, although they realized

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Speaker 1: that the Fed won't be happy with just one or

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Speaker 1: two months. But yeah, a couple of very good prints

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Speaker 1: on the c p I would be very heartening for

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Speaker 1: the market. And I think, in fact, Friday's move would

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Speaker 1: have been a lot worse and equities and certainly in

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Speaker 1: bonds if the PC deflator hadn't been under such great

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Speaker 1: control and the University of Michigan five to ten year

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Speaker 1: survey hadn't down to two point nine percent for the

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Speaker 1: five to ten year um forecast. Yeah, this is just

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Speaker 1: a business. I mean, where does one then ultimately look

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Speaker 1: for value? And you know, how does your has your

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Speaker 1: outlook changed, has your strategy changed? Uh? No, not too much. Actually,

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Speaker 1: since we met in less uh June, things are going, uh,

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Speaker 1: you know, relatively close to plan. Other than the fact

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Speaker 1: that equities went much further up than we expected. I

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Speaker 1: think the Fed is also quite happy to see the

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Speaker 1: market going sideways. You know, they talked about financial conditions

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Speaker 1: and how they want it to be tighter, and that

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Speaker 1: basically means they want the stock market to be under control.

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Speaker 1: And Uh, I don't think they targeted so much, but

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Speaker 1: it seems like they're paying a lot of attention to it. John.

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Speaker 1: The bond market seemed to approach this with you know,

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Speaker 1: we we got what we knew was there. You know

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Speaker 1: that the chairman was probably slightly misinterpreted at the previous

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Speaker 1: meeting in July, and and this is where we knew

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Speaker 1: he was. Uh. The stock market, on the other hand,

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Speaker 1: fell out of bed. Uh. Which one do you think

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Speaker 1: is more correct? Well, there's always this interplay between stocks

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Speaker 1: and bonds that's kind of impossible to analyze fully. But

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Speaker 1: I think the bond market would have fallen a lot more,

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Speaker 1: um uh if it was wasn't for the stock market

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Speaker 1: falling quite a lot. I mean, the bond market might

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Speaker 1: be thinking that, you know, the Fed's gonna push the

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Speaker 1: economy into a recession, and that would tend to keep

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Speaker 1: on yields down. John. One of the interesting headlines really

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Speaker 1: from the weekend is that Sichuan has now restored most

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Speaker 1: of its industrial power after a two week crisis, and

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Speaker 1: I wanted to ask you about China and Japan to

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Speaker 1: places where you don't see hawkish central banks at the

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Speaker 1: moment um. Of course, we've highlighted a lot about China's difficulties.

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Speaker 1: Does Japan look slightly more attractive to you now than

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Speaker 1: maybe it did before? Well, it's certainly always look relatively attractive,

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Speaker 1: especially relative to Europe. Um the States is always sort

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Speaker 1: of the primary market, but Japan is very low valuations.

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Speaker 1: It's been slow to come out of its uh COVID

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Speaker 1: sort of state tourism looks like it's about ready to

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Speaker 1: to boom again as soon as they sort of open

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Speaker 1: the doors more fully. So things look actually pretty decent

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Speaker 1: for for Japan, although of course it's not unaffected by

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Speaker 1: what's happening in the rest of the world. The other

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Speaker 1: thing exactly, with the end being absolutely battered this year,

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Speaker 1: you could also, perhaps if you believe that the end

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Speaker 1: may make a comeback, certainly make it on the currency too. Well.

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Speaker 1: We're not confident about the END making much of a comeback,

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Speaker 1: but we think it could stabilize, in which case you'd

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Speaker 1: be investing in Japan at a point where the currency

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Speaker 1: is already depreciated and you wouldn't lose any money going forward,

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Speaker 1: but you took it the benefit in terms of corporate

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Speaker 1: profit growth from the preceding yen depreciation. And that's what's

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Speaker 1: happening right now. For profits in Japan are still hanging

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Speaker 1: in there quite uh well in terms of the forward

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Speaker 1: twelve month earnings, whereas in Europe and well especially in

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Speaker 1: the States, they're following up quite a bit. Yeah. The

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Speaker 1: problem I suppose with Japan, one big problem is that

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Speaker 1: It's companies really do feed into the sort of mechanized

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Speaker 1: to mechanized universe of companies around the world, and slowing

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Speaker 1: global growth can't be good for the thinking that Japan

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Speaker 1: is like a call warrant on on strong global growth

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Speaker 1: UM and and there isn't There isn't as much domestic

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Speaker 1: consumption in Japan as let's say a bull would like. Yeah,

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Speaker 1: it's a pretty slow domestic consumption market here, um, you

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Speaker 1: know overall UM. But now it's still coming back, especially

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Speaker 1: the auto sector UM, which globally to to a large extent,

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Speaker 1: will be UM rebounding quite a bit as the chip

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Speaker 1: shortages wayne and so Japan is gonna benefit from that

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Speaker 1: especially UM much not not only their domestic sales, but

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Speaker 1: also there their exports. Um, but you're right, you know,

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Speaker 1: Japan is definitely not immune to what's happening to the

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Speaker 1: rest of the world. Yeah, there's often talking of will

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Speaker 1: Japan come back find its mojo? You know the thing?

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Speaker 1: It's had so many full stools, hasn't it. And you've

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Speaker 1: got to be really quite a risk taken to say

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Speaker 1: this time it's real. I love your term mojo. Yeah,

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Speaker 1: I don't think I've ever heard the term Japanese mojo

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Speaker 1: for quite a while. And uh, I don't think it

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Speaker 1: might not get back it's mojo. Ever, I don't know.

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Speaker 1: But certainly the spirits here are are fairly uh you know,

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Speaker 1: reasonably good and um, nobody gets over excited in Japan

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Speaker 1: about the future that's been whipped out of them. Yeah.

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Speaker 1: Why do you think we have Rishan? You know he

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Speaker 1: is very colorful. Um, what about China, Let's let's try

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Speaker 1: to dissect where there might be opportunities there obviously a

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Speaker 1: lot of issues. Can you see past them? Well, it

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Speaker 1: is tough and it's not my special team market. I

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Speaker 1: tend to cover developed markets, but we obviously, even in

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Speaker 1: my Bailey Wick, we have to cover China because it

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Speaker 1: is so important UM, and certainly the market there's held

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Speaker 1: up reasonably well. It didn't spike like the rest of

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Speaker 1: the world, so it's not vulnerable UM to a large extent,

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Speaker 1: and it's not as correlated with what happens to the

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Speaker 1: uh the developed markets, especially the US markets, so we

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Speaker 1: can tend to provide some UM anti zero correlation sort

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Speaker 1: of benefits for global diversification, UH corporate profits there. You know,

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Speaker 1: it's a tough call. I mean, there's they're facing so

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Speaker 1: many issues right now, some of their own making, some

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Speaker 1: of them not. And uh, it certainly doesn't look very

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Speaker 1: bright there for the coming quarters in terms of the

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Speaker 1: macro view, UM consumption is probably going to be quite

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Speaker 1: muted because people think they are really quite concerned, especially

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Speaker 1: about the value of their home, which is like seven

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Speaker 1: or eight percent of personal savings or something like that

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Speaker 1: in China. So there's some wealth effect there that's going

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Speaker 1: to be negative. Overall. It's it's a it's a you know,

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Speaker 1: pretty worrisome situation, although not a dire one. I guess

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Speaker 1: i'd say I'm thankically John as well, okay, you know,

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Speaker 1: as I want to just get back to the the

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Speaker 1: end and is the end just being battered because the

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Speaker 1: speculation is where the end is right now, of course,

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Speaker 1: partly down to where the dollar is, but also perhaps

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Speaker 1: the reflection of Japanese economic fundamentals. Well, those are all

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Speaker 1: tied in together, aren't they. Yes, I mean Japan's growth

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Speaker 1: is quite slow, so interest rates tend to be quite

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Speaker 1: slow and relative to the dollar. If the if the

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Speaker 1: interest rates on on tenure treasuries and the Fed funds

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Speaker 1: rate rise, it it does put pressure on capital flows.

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Speaker 1: There's no doubt. It's uh, they're all connected, to be honest,

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Speaker 1: all right, Thank you so much for joining us. John Vale,

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Speaker 1: the chief Global Strategist at Nikko Asset Management, getting his

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Speaker 1: take on what's going on market wise in the wake

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Speaker 1: of Chairman J. Powell's speech at Jackson Hole on Friday.

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Speaker 1: This has been the