1 00:00:00,080 --> 00:00:03,040 Speaker 1: Let's get to Thomas Pollock. Thomas is our guest for 2 00:00:03,040 --> 00:00:05,200 Speaker 1: the half hour, or I should say for the segment. 3 00:00:05,280 --> 00:00:08,840 Speaker 1: My apologies. Thomas is head of multi asset Solutions for 4 00:00:08,920 --> 00:00:11,600 Speaker 1: the A Pack at t row Price. He joins from 5 00:00:11,600 --> 00:00:16,640 Speaker 1: our studios in Singapore. Thomas, welcome. Always a pleasure. I'll 6 00:00:16,840 --> 00:00:19,640 Speaker 1: look like in the US at any rate, the market 7 00:00:19,800 --> 00:00:23,520 Speaker 1: was comfortable with taking on risk. A little bit of 8 00:00:23,600 --> 00:00:26,960 Speaker 1: uncertain here where we are with respect to inflation in 9 00:00:27,000 --> 00:00:30,000 Speaker 1: the wake of that really hot pp I print that 10 00:00:30,080 --> 00:00:32,080 Speaker 1: we had in the States on Friday. Are are you 11 00:00:32,159 --> 00:00:34,919 Speaker 1: likely to join in and and take on risk right 12 00:00:34,960 --> 00:00:37,120 Speaker 1: now or do you think we need to kind of 13 00:00:37,159 --> 00:00:40,320 Speaker 1: back off and let the dust settle a little bit 14 00:00:40,440 --> 00:00:44,839 Speaker 1: when it comes to the inflation narrative. Hi, Yes, we 15 00:00:44,880 --> 00:00:47,600 Speaker 1: are still canstious on the on the markets. We are 16 00:00:47,640 --> 00:00:50,199 Speaker 1: not joining into your specific question. I think there was 17 00:00:50,240 --> 00:00:53,120 Speaker 1: also a period of weakness prior to that, so there 18 00:00:53,200 --> 00:00:56,040 Speaker 1: is a bit of a relief rebound that we are 19 00:00:56,040 --> 00:00:59,279 Speaker 1: seeing here that can be shot lived. The CPI UH 20 00:00:59,760 --> 00:01:03,640 Speaker 1: is definitely the key metric to to watch for. Job 21 00:01:04,080 --> 00:01:07,280 Speaker 1: openings have been going down, but we have seen wage 22 00:01:07,319 --> 00:01:10,920 Speaker 1: growth still pretty strong. So as inflation is moving from 23 00:01:11,000 --> 00:01:15,280 Speaker 1: goods to services. We see that being a bit stickier 24 00:01:15,360 --> 00:01:17,880 Speaker 1: and the FED is likely to be higher for longer. 25 00:01:18,440 --> 00:01:21,440 Speaker 1: So Tom when we look at them next year. Of 26 00:01:21,480 --> 00:01:23,400 Speaker 1: course we can talk about terminal rates and the life 27 00:01:23,400 --> 00:01:25,600 Speaker 1: but the point is that we also have base effects 28 00:01:25,600 --> 00:01:28,520 Speaker 1: coming through. They may take the edge of what may 29 00:01:28,520 --> 00:01:32,800 Speaker 1: be seen as more belligerent inflation. What's your take on that. Yes, 30 00:01:32,840 --> 00:01:36,319 Speaker 1: So if you think about inflation at six seven eight 31 00:01:36,360 --> 00:01:41,280 Speaker 1: percent as we experienced this year, for for sure this level, 32 00:01:41,440 --> 00:01:44,440 Speaker 1: this kind of level would come down next year. But 33 00:01:45,560 --> 00:01:48,640 Speaker 1: the experience is that inflation is also quite sticky, as 34 00:01:48,680 --> 00:01:52,440 Speaker 1: we have seen in prior episodes of higher inflation, and 35 00:01:52,560 --> 00:01:57,400 Speaker 1: especially given that the workforce has been losing some people 36 00:01:57,480 --> 00:02:01,240 Speaker 1: coming from immigration. They part the lack of one million 37 00:02:01,280 --> 00:02:04,200 Speaker 1: in the US. You have seen also long COVID having 38 00:02:04,240 --> 00:02:07,240 Speaker 1: effect of people going back to the workforce. So we 39 00:02:07,800 --> 00:02:12,640 Speaker 1: expect wedge growth to be continued to be strong, and 40 00:02:12,720 --> 00:02:15,280 Speaker 1: that means that inflation is likely to remain higher than 41 00:02:15,320 --> 00:02:18,440 Speaker 1: the two percent which has been the target. So if 42 00:02:18,480 --> 00:02:19,880 Speaker 1: what you're saying is that the FED is going to 43 00:02:20,080 --> 00:02:23,480 Speaker 1: keep rates higher for longer, it would follow logically, and 44 00:02:23,480 --> 00:02:25,480 Speaker 1: maybe I've got this wrong that the dollar is going 45 00:02:25,520 --> 00:02:28,960 Speaker 1: to remain stronger for longer, and we had someone challenging 46 00:02:29,000 --> 00:02:30,839 Speaker 1: me on that at the end of last week saying, 47 00:02:30,919 --> 00:02:34,360 Speaker 1: now no dollar has peaked, We're going to see dollar 48 00:02:34,440 --> 00:02:37,119 Speaker 1: weakness going forward. What's your view on the green back 49 00:02:37,200 --> 00:02:41,119 Speaker 1: relative to the major currencies here? So when I say 50 00:02:41,560 --> 00:02:44,160 Speaker 1: the FED higher for longer, that doesn't mean that they 51 00:02:44,160 --> 00:02:47,080 Speaker 1: would continue to hike. What the point is that they 52 00:02:47,160 --> 00:02:49,840 Speaker 1: might not start easing as what the market is pricing. 53 00:02:50,280 --> 00:02:52,880 Speaker 1: So if they stay put, that means that the interest 54 00:02:52,880 --> 00:02:57,720 Speaker 1: is right differentially with the other soundtrack, banks might start 55 00:02:57,760 --> 00:03:01,120 Speaker 1: to decrease because there's some as are also picking up 56 00:03:01,160 --> 00:03:03,880 Speaker 1: their fight against inflation. So in that case, if the 57 00:03:03,919 --> 00:03:07,120 Speaker 1: interest rate differentially is not expanding but my stabilize or 58 00:03:07,160 --> 00:03:11,320 Speaker 1: even decreasing, that could be headwind for the U. S. Dollar. 59 00:03:11,840 --> 00:03:15,120 Speaker 1: But the US dollar is also sensitive to the growth differential, 60 00:03:15,720 --> 00:03:18,200 Speaker 1: and we will see what will happen in terms of 61 00:03:18,960 --> 00:03:22,239 Speaker 1: economic growth. Our projection is that the reciation is likely 62 00:03:22,760 --> 00:03:25,160 Speaker 1: and that means that could be also a headwind for 63 00:03:25,200 --> 00:03:29,240 Speaker 1: the U. S. Dollar. So, so how much growth do 64 00:03:29,280 --> 00:03:32,720 Speaker 1: you think theort of Reserve is prepared to sacrifice in 65 00:03:32,800 --> 00:03:34,880 Speaker 1: order to bring inflation down? That's going to be key 66 00:03:34,920 --> 00:03:38,000 Speaker 1: here and can they avoid a hard landing. And that's 67 00:03:38,200 --> 00:03:41,920 Speaker 1: a question which is a many people's minds. I think 68 00:03:41,960 --> 00:03:46,080 Speaker 1: the answer that fat Chaman Paul gave the last time 69 00:03:46,120 --> 00:03:50,400 Speaker 1: is that he was not sure soft landing was really possible. 70 00:03:50,600 --> 00:03:55,080 Speaker 1: I forgot his exact words, but that means that it's 71 00:03:55,120 --> 00:03:58,080 Speaker 1: a difficult job. The job for them is to really 72 00:03:58,080 --> 00:04:00,520 Speaker 1: look at the job openings. As I said before, they 73 00:04:00,520 --> 00:04:04,960 Speaker 1: want john openings to be reduced fasters and uh destruction 74 00:04:05,160 --> 00:04:08,640 Speaker 1: of job and um this is we are starting to 75 00:04:08,680 --> 00:04:10,560 Speaker 1: see some sign of that, but we have seen that 76 00:04:10,600 --> 00:04:14,920 Speaker 1: also the job market remain quite strong still until now. 77 00:04:14,960 --> 00:04:18,480 Speaker 1: So it's a it's a tough balance to to strike 78 00:04:18,680 --> 00:04:22,920 Speaker 1: and it's unlikely that the soft lanking can be um 79 00:04:23,279 --> 00:04:27,040 Speaker 1: can be executed. So we are most seeing that as 80 00:04:27,080 --> 00:04:29,400 Speaker 1: a mild recission as a base case. Well, one of 81 00:04:29,400 --> 00:04:31,400 Speaker 1: the words he did use was I think pain if 82 00:04:31,400 --> 00:04:33,839 Speaker 1: I'm not mistaken. So the FED seems to be willing 83 00:04:33,880 --> 00:04:36,640 Speaker 1: to inflict a little bit of it on the American economy. 84 00:04:36,640 --> 00:04:39,520 Speaker 1: But I want to pivot to China next major shift 85 00:04:39,600 --> 00:04:43,159 Speaker 1: when it comes to COVID zero. We had the ambassador, 86 00:04:43,279 --> 00:04:47,640 Speaker 1: China's ambassador to the us Chin Gang saying that the 87 00:04:47,680 --> 00:04:51,520 Speaker 1: country will continue to relax strict COVID measures and China 88 00:04:51,560 --> 00:04:55,120 Speaker 1: will welcome more international travelers in the near future. This 89 00:04:55,279 --> 00:04:58,120 Speaker 1: cuts both ways, right, the economy is beginning to reopen, 90 00:04:58,480 --> 00:05:01,320 Speaker 1: but we could see all lot of stress and healthcare 91 00:05:01,440 --> 00:05:05,520 Speaker 1: system which then could trigger more lockdowns, and the penchuelont 92 00:05:05,560 --> 00:05:10,039 Speaker 1: could swing many other directions. Which do you think is likely? Look, 93 00:05:10,080 --> 00:05:13,560 Speaker 1: I don't think lockdown the way they experience over the 94 00:05:13,560 --> 00:05:16,160 Speaker 1: past two years will will be the case. But definitely 95 00:05:16,240 --> 00:05:19,400 Speaker 1: people will be cautious in going in going out if 96 00:05:19,480 --> 00:05:23,599 Speaker 1: they have the risk of being infected. So we have 97 00:05:23,720 --> 00:05:26,800 Speaker 1: seen that in all other countries. All other countries had 98 00:05:27,680 --> 00:05:31,440 Speaker 1: quite a difficult time to exit the zero COVID, the 99 00:05:31,520 --> 00:05:34,719 Speaker 1: COVID restrictions and to move to live with COVID in 100 00:05:34,760 --> 00:05:38,920 Speaker 1: a normal way. Each country took their own path to that, 101 00:05:39,279 --> 00:05:43,800 Speaker 1: and of course, given that China is experiencing that during winter, 102 00:05:44,360 --> 00:05:48,320 Speaker 1: which is perhaps not the best time to to execute that, 103 00:05:48,440 --> 00:05:52,320 Speaker 1: it can be even more um shaky in in how 104 00:05:52,400 --> 00:05:57,160 Speaker 1: it is done. So the good news is that it's 105 00:05:57,200 --> 00:05:59,640 Speaker 1: likely that six months from now, nine months from now 106 00:06:00,000 --> 00:06:01,960 Speaker 1: now is reopened. So that's what we are looking at. 107 00:06:02,000 --> 00:06:04,840 Speaker 1: When we invest for the next three to six months, 108 00:06:04,920 --> 00:06:08,040 Speaker 1: it is likely to be a difficult time and there 109 00:06:08,080 --> 00:06:12,080 Speaker 1: would be not the rebounding. The economic activity is will 110 00:06:12,160 --> 00:06:15,240 Speaker 1: be more pronounced in the second or third quarter. So 111 00:06:15,440 --> 00:06:19,480 Speaker 1: what about if you look at let's say Asian credit UH, 112 00:06:19,720 --> 00:06:23,360 Speaker 1: does this represent the buying opportunity? And if so, you know, 113 00:06:23,400 --> 00:06:25,200 Speaker 1: if you're looking for Jews, you're certainly getting it, but 114 00:06:25,400 --> 00:06:27,680 Speaker 1: do you want to buy that in local currency or 115 00:06:28,040 --> 00:06:33,359 Speaker 1: dollar dollar denominated? That look in terms of credit. What 116 00:06:33,480 --> 00:06:36,960 Speaker 1: we have seen is that the Asian sentiment was all 117 00:06:37,080 --> 00:06:39,719 Speaker 1: driven by this your COVID policy. So we have seen 118 00:06:39,760 --> 00:06:44,840 Speaker 1: a rebound in a risk appetite for investors foreign and 119 00:06:44,920 --> 00:06:50,320 Speaker 1: local investors to UH the Asian assets, especially China. I 120 00:06:50,360 --> 00:06:54,359 Speaker 1: would say there is definitely there were some pricing of 121 00:06:54,880 --> 00:07:00,000 Speaker 1: assets that were quite extreme, especially in dollar dominated debt UH. 122 00:07:00,040 --> 00:07:02,800 Speaker 1: As it relates to property, and we have seen property 123 00:07:02,880 --> 00:07:08,280 Speaker 1: sector also being helped by some recent easing of policies 124 00:07:08,320 --> 00:07:12,840 Speaker 1: by local officials. So I would say the first first 125 00:07:12,880 --> 00:07:17,120 Speaker 1: try could be to go into Asian dollar dominated debt 126 00:07:17,920 --> 00:07:20,080 Speaker 1: and that's how we have positions also help for you. 127 00:07:20,280 --> 00:07:23,240 Speaker 1: We were talking earlier about the Japan and the Netherlands 128 00:07:23,280 --> 00:07:27,240 Speaker 1: agreeing in principles to join the US and tightening controls 129 00:07:27,320 --> 00:07:30,960 Speaker 1: over the export of certain chip making technology to China. 130 00:07:31,040 --> 00:07:34,640 Speaker 1: I'll give you twenty seconds to answer the question. Will 131 00:07:34,720 --> 00:07:38,120 Speaker 1: we see more in terms of US China political risk 132 00:07:38,640 --> 00:07:43,600 Speaker 1: or geopolitical risk in the new year. Look, the geopolitical 133 00:07:43,720 --> 00:07:47,360 Speaker 1: risk will remain. It's um for US. It's it's quite 134 00:07:47,360 --> 00:07:50,400 Speaker 1: a long horizon on that, so you don't want to 135 00:07:50,400 --> 00:07:52,840 Speaker 1: to play that on a On the short term, there 136 00:07:52,880 --> 00:07:56,160 Speaker 1: will be a divergence of supply chain and there are 137 00:07:56,200 --> 00:07:59,200 Speaker 1: opportunities for investors to benefits or not to thank you 138 00:07:59,240 --> 00:08:02,080 Speaker 1: as so much for being with a stomach Pulo ec 139 00:08:02,400 --> 00:08:05,520 Speaker 1: who is the head of Multi Asset Solutions, it's for 140 00:08:05,600 --> 00:08:08,040 Speaker 1: the a pack at t ro price joining us here 141 00:08:08,040 --> 00:08:10,920 Speaker 1: on daybreak Asia, as we look at markets and see 142 00:08:10,920 --> 00:08:14,480 Speaker 1: positivity after a pretty good rally here in US risk 143 00:08:14,800 --> 00:08:17,840 Speaker 1: ahead of tomorrow's cp I print in the US details 144 00:08:17,880 --> 00:08:19,040 Speaker 1: coming up. 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