Speaker 1: Thank you so much, Denise. Let's get to our guest,
Speaker 1: Maxillen as Asia EFTs and rate Strategistic Credit Sweet joining
Speaker 1: me in the Singapore studio. Max, Let's start with the yen.
Speaker 1: I mean, pushing to this fresh twenty four year low.
Speaker 1: This is on the divergence between the US and Japan
Speaker 1: policy action, and we're looking now at a level of
Speaker 1: one forty. When do we see that and does that
Speaker 1: trigger intervention? I do think that that one forty level
Speaker 1: will break fairly soon. It's difficult to predict when, and
Speaker 1: I think overall the market sort of understands that fundamentally,
Speaker 1: because the BOJ is not signaling any monetary tightening anytime
Speaker 1: soon and the FED is on this very steep rate
Speaker 1: hiking cycle, that the yen should get weaker. The question
Speaker 1: for the market is where not the Ministry of Finance
Speaker 1: will make good on these threats to intervene. So obviously
Speaker 1: they don't want to test the m OF But I
Speaker 1: think eventually the carry flows will push yen three one forty,
Speaker 1: and that the Ministry of Finance will stick to Japan's
Speaker 1: G twenty commitments and not intervened. So it's just a
Speaker 1: matter of time of when the market can test that
Speaker 1: is there a pain point? Is one forty five the
Speaker 1: the absolute pain point here? Do you think? I'm not
Speaker 1: sure if there's actually an absolute pain point. I think
Speaker 1: if you asked me six months ago or asked the
Speaker 1: Japanese consumer six months ago that Darren would be at
Speaker 1: one forty, they will probably tell you absolutely not. So
Speaker 1: I think the way the Bank of Japan the Ministry
Speaker 1: of Finance look at it is how quickly doesn't move right?
Speaker 1: Once we get to one forty, you get to one
Speaker 1: forty two. If you know one looms on the horizon
Speaker 1: three d six months from now, that shouldn't be such
Speaker 1: a psychological shock given that we're already in the one
Speaker 1: forty range. It's not just what we're seeing in currency markets,
Speaker 1: but also in the bond market. On the back of
Speaker 1: that very hawkish commentary that we had from j. Powell
Speaker 1: last week benchmark treasury yields up three three, we're also
Speaker 1: looking at that EUROSA and inflation data to how much
Speaker 1: I guess for the pain do you see here in
Speaker 1: some of these market moves. Well, we do think that
Speaker 1: the bond market should basically start pricing out or not
Speaker 1: pricing in any sort of cuts in and that's what
Speaker 1: Mester and Powell and you know, whole slew of FED
Speaker 1: speakers are basically arguing for So I think until you
Speaker 1: start seeing some um of the inversion in the US
Speaker 1: curve going away, you're probably going to see further sell
Speaker 1: offs in the bond market and for the dollar stream.
Speaker 1: Our Kathleen Hayes was at the Jackson Hole Symposium and
Speaker 1: she sat down with the head of the Bank of Korea,
Speaker 1: and I thought it was very telling the fact that
Speaker 1: he said, you know, in a situation that we're in
Speaker 1: right now where the FED is being very aggressive and
Speaker 1: the dollar is strong, that in the case of the
Speaker 1: b okay, they may have no choice but to raise
Speaker 1: interest rates as a way of defending a currency. Are
Speaker 1: more and more central bankers in asiare going to be
Speaker 1: confronted with this challenge, I do think so, and I
Speaker 1: think the currency of altility is probably one reason that
Speaker 1: pushed Bank Indonesia to high rates unexpectedly last week. Uh,
Speaker 1: but even currency effects aside, I do think that the
Speaker 1: direction to travel for all of these economies except for
Speaker 1: China in emerging markets were basically for higher rates to
Speaker 1: combat inflation. The b Okay, obviously cares about what the
Speaker 1: Fed does and what dollar create is. But the b
Speaker 1: OKA has been hiking for twelve months now, right. They
Speaker 1: moved before the Fed. They moved before a central banks
Speaker 1: because they were more alert about these inflationary effects sooner
Speaker 1: than others. Well, let's talk about China. It's about five
Speaker 1: minutes now until we get the PBOC fixed. Do you
Speaker 1: think we'll see it stronger for a seventh session? Well,
Speaker 1: when you say stronger, I think it's important to clarify
Speaker 1: what stronger means. It's been stronger relative to the estimate,
Speaker 1: but for the last week or so it's still been
Speaker 1: weaker than the previous days fixing. So in my view,
Speaker 1: the PBOC is allowing you on weakness, but it's basically
Speaker 1: slowing that process. So for day's fix it should be
Speaker 1: interesting because the model calculation is only actually twenty one
Speaker 1: picks higher than previous so there's no real need to
Speaker 1: adjust as stronger versus the calculation today. If they do
Speaker 1: choose to do so for a seventh consecutive session, then
Speaker 1: would probably suggest that six ninety is a short term
Speaker 1: red line for the CNY fix in my view, though, however,
Speaker 1: they're going to match the calculation. We'll see what happens
Speaker 1: our currency markets in any way reflecting some of the
Speaker 1: geopolitical risk that we talk about, whether it's US, China, Beijing, Taipei.
Speaker 1: I mean, are you seeing fun flows that that maybe
Speaker 1: represent a bit of a haven trade these days? I
Speaker 1: think in the short term. Two weeks ago, during Pelosi's
Speaker 1: visit to Taipei, you did see uh, you know, toose
Speaker 1: geopolitical headlines driving UH dollar Taiwan and dollar c But
Speaker 1: now I definitely think the market's kind of refocused away
Speaker 1: from those headlines and back onto fundamentals. We all know
Speaker 1: that China is slowing down in terms of the Taiwan
Speaker 1: market today. You mentioned earlier that Taiwan equities are are
Speaker 1: are sharply lower. I think that has a lot to
Speaker 1: do with the fact that the career export data probably
Speaker 1: showed a very weak chip shipment. And we all know
Speaker 1: that China or Taiwan is hugely exposed to semi connector exports,
Speaker 1: and t SMC has already kind of warned that uh
Speaker 1: it would be or customers are cutting some orders a
Speaker 1: mid weaker demand. So obviously I think those are the
Speaker 1: main headlines for dollar time one. Max Juliette was talking
Speaker 1: about the PBOC yesterday and the yuan or the moments ago,
Speaker 1: I should say, and you want fixing. So now we
Speaker 1: have indications that China has set a stronger than expected
Speaker 1: fix for a seventh straight session. Give me your sense
Speaker 1: to what is operating in the minds of p PBOC
Speaker 1: officials right now as it relates to the currency. Sure, well,
Speaker 1: I think overall that there's still kind of keep a
Speaker 1: longer term eye on c n Y stability, and that's
Speaker 1: what we saw before the August fifteen MLF rate cut
Speaker 1: in China, where it's basically range bound between like six
Speaker 1: sixty five to six seventy five. So now after these
Speaker 1: PBOC rate cuts to the MLF and to the LPR,
Speaker 1: now we've gone from six seventy five to basically six nine.
Speaker 1: So I think in the pbocs do maybe they think
Speaker 1: that's enough for now, but we still recommend investors will
Speaker 1: hold a long dollar position against the offshore you want,
Speaker 1: because we think that the uneven growth characterists of China's
Speaker 1: economy means that at some point either in you know,
Speaker 1: neit September, mid October, mid November, they could see another
Speaker 1: UH monetary policy move towards the downside, which should push
Speaker 1: dollars c n H higher. Those are always difficult to predict.
Speaker 1: So overall, I think that even though you have stability now,
Speaker 1: it's still a good position to hold. And a large
Speaker 1: part of this is the economy that recovery from COVID.
Speaker 1: If we continue to see these very strict border controls,
Speaker 1: and that means Chinese tourists aren't traveling, you're looking at
Speaker 1: long dollar against BOT as well. Tell us why sure, Well,
Speaker 1: before COVID, Chinese tourists basically accounted for of the total
Speaker 1: tourist arrivals in Thailand, and now that's basically zero because,
Speaker 1: as you said, COVID zero means there's basically no outbound
Speaker 1: travel uh from China to Thailand. So even though you're
Speaker 1: seeing some recovery and other markets for tourists, you know,
Speaker 1: tours from the US, tours from Europe going back to Thailand,
Speaker 1: tours from Acon, but you're still going to have this
Speaker 1: massive excess capacity for tourism in Thailand. So they're gonna
Speaker 1: want to keep policy loose. The Bank of Thailand said
Speaker 1: as much yesterday, and I think that from their perspective,
Speaker 1: they think a weaker BOT, uh kind of helps usher
Speaker 1: in those tourism inflow, so we expect the boat to
Speaker 1: weekend further. I actually initiated a trade idea three weeks
Speaker 1: ago and now it's at thirty six point six, which
Speaker 1: is my target. But based on the BOT comments recently,
Speaker 1: I do think that there's further outside towards you know, uh,
Speaker 1: thirty seven, thirty seven point five. We were talking about
Speaker 1: the yield differential story a short while ago. Is there
Speaker 1: what is the house few at credit suite on the
Speaker 1: inflation story? Well, from a strategy perspective, we think that
Speaker 1: inflation is much stickier than what the market wants to believe,
Speaker 1: and we think that the FED officials are actually starting
Speaker 1: to recognize this now. But there's kind of still this
Speaker 1: belief in markets that you know, there is a FED
Speaker 1: put that the FED is targeting the stock market, that
Speaker 1: the FED is targeting financial markets. And because inflation is
Speaker 1: so high and so entrenched, it doesn't really sound like
Speaker 1: the FET is too concerned with a hard landing these days, right.
Speaker 1: Ummester basically said as much. You know, if you have
Speaker 1: a recession, uh in the US, that's not necessarily a
Speaker 1: reason to to lower rates because the Feed is mostly
Speaker 1: focused on inflation, and Powell also said, you know there
Speaker 1: will be some pain for businesses and households in his
Speaker 1: jackson Hole remarks. So to us, that means that the
Speaker 1: Fed understands that inflation is now sticky. It's just a
Speaker 1: matter of when the market will understand that we have
Speaker 1: parody for your dollar where we see moves changing from that,
Speaker 1: If you're going to see the e c B have
Speaker 1: a seventy five basis point, right, hunk, Sure, well, I
Speaker 1: think if the e c B does kind of hike uh,
Speaker 1: seventy five basis points, obviously the market's gonna be debating
Speaker 1: that after all these you know, hawkish comments by Nagle
Speaker 1: and some of the other e c B officials. I
Speaker 1: think that it's probably not gonna break far below parody
Speaker 1: in the next two to three weeks. But I think
Speaker 1: thereafter you still have to focus on the overall hawkers
Speaker 1: message of the Fed versus the e CBS. We have
Speaker 1: to remember that the Fed is still also debating a
Speaker 1: seventy five versus fifty basis point move at the September
Speaker 1: fl MC meeting, and the Fed has already hiked many
Speaker 1: magnitudes more than the ECB has prior to this, and
Speaker 1: you know, the carry differential and the dollar versus the
Speaker 1: year is already still quite high and that's not going
Speaker 1: to reverse uh no matter how hawkish the e c
Speaker 1: B is. So I do think that overall the year,
Speaker 1: dollars should still head lower. On our medium term target
Speaker 1: for the year end is ninety seven cents max. I
Speaker 1: can give you twenty seconds for your best trade right now.
Speaker 1: In the foreign exchange market. I think long dollar scene
Speaker 1: H is a is a good trade these days because
Speaker 1: even with this stronger fix, you haven't seen dollar scene
Speaker 1: H kind of go back below the six eighty four
Speaker 1: to six five level. It has trouble breaking below six ninety.
Speaker 1: So in the event of dollar weakness, in the event
Speaker 1: of a weak payrolls, miss, I do think that dollar
Speaker 1: scene H will still be UH stable and that you
Speaker 1: can still basically collect the upside for the future rate
Speaker 1: cut six ft nine one at the moment, Maxile and
Speaker 1: Asia Effects and Rates strategist Credit Switz in our Singapore studio.
Speaker 1: This is Bloomberg