WEBVTT - Max Lin on the Markets (Radio)

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<v Speaker 1>Thank you so much, Denise. Let's get to our guest,

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<v Speaker 1>Maxillen as Asia EFTs and rate Strategistic Credit Sweet joining

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<v Speaker 1>me in the Singapore studio. Max, Let's start with the yen.

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<v Speaker 1>I mean, pushing to this fresh twenty four year low.

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<v Speaker 1>This is on the divergence between the US and Japan

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<v Speaker 1>policy action, and we're looking now at a level of

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<v Speaker 1>one forty. When do we see that and does that

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<v Speaker 1>trigger intervention? I do think that that one forty level

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<v Speaker 1>will break fairly soon. It's difficult to predict when, and

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<v Speaker 1>I think overall the market sort of understands that fundamentally,

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<v Speaker 1>because the BOJ is not signaling any monetary tightening anytime

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<v Speaker 1>soon and the FED is on this very steep rate

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<v Speaker 1>hiking cycle, that the yen should get weaker. The question

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<v Speaker 1>for the market is where not the Ministry of Finance

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<v Speaker 1>will make good on these threats to intervene. So obviously

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<v Speaker 1>they don't want to test the m OF But I

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<v Speaker 1>think eventually the carry flows will push yen three one forty,

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<v Speaker 1>and that the Ministry of Finance will stick to Japan's

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<v Speaker 1>G twenty commitments and not intervened. So it's just a

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<v Speaker 1>matter of time of when the market can test that

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<v Speaker 1>is there a pain point? Is one forty five the

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<v Speaker 1>the absolute pain point here? Do you think? I'm not

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<v Speaker 1>sure if there's actually an absolute pain point. I think

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<v Speaker 1>if you asked me six months ago or asked the

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<v Speaker 1>Japanese consumer six months ago that Darren would be at

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<v Speaker 1>one forty, they will probably tell you absolutely not. So

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<v Speaker 1>I think the way the Bank of Japan the Ministry

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<v Speaker 1>of Finance look at it is how quickly doesn't move right?

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<v Speaker 1>Once we get to one forty, you get to one

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<v Speaker 1>forty two. If you know one looms on the horizon

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<v Speaker 1>three d six months from now, that shouldn't be such

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<v Speaker 1>a psychological shock given that we're already in the one

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<v Speaker 1>forty range. It's not just what we're seeing in currency markets,

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<v Speaker 1>but also in the bond market. On the back of

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<v Speaker 1>that very hawkish commentary that we had from j. Powell

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<v Speaker 1>last week benchmark treasury yields up three three, we're also

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<v Speaker 1>looking at that EUROSA and inflation data to how much

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<v Speaker 1>I guess for the pain do you see here in

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<v Speaker 1>some of these market moves. Well, we do think that

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<v Speaker 1>the bond market should basically start pricing out or not

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<v Speaker 1>pricing in any sort of cuts in and that's what

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<v Speaker 1>Mester and Powell and you know, whole slew of FED

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<v Speaker 1>speakers are basically arguing for So I think until you

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<v Speaker 1>start seeing some um of the inversion in the US

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<v Speaker 1>curve going away, you're probably going to see further sell

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<v Speaker 1>offs in the bond market and for the dollar stream.

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<v Speaker 1>Our Kathleen Hayes was at the Jackson Hole Symposium and

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<v Speaker 1>she sat down with the head of the Bank of Korea,

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<v Speaker 1>and I thought it was very telling the fact that

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<v Speaker 1>he said, you know, in a situation that we're in

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<v Speaker 1>right now where the FED is being very aggressive and

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<v Speaker 1>the dollar is strong, that in the case of the

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<v Speaker 1>b okay, they may have no choice but to raise

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<v Speaker 1>interest rates as a way of defending a currency. Are

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<v Speaker 1>more and more central bankers in asiare going to be

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<v Speaker 1>confronted with this challenge, I do think so, and I

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<v Speaker 1>think the currency of altility is probably one reason that

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<v Speaker 1>pushed Bank Indonesia to high rates unexpectedly last week. Uh,

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<v Speaker 1>but even currency effects aside, I do think that the

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<v Speaker 1>direction to travel for all of these economies except for

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<v Speaker 1>China in emerging markets were basically for higher rates to

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<v Speaker 1>combat inflation. The b Okay, obviously cares about what the

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<v Speaker 1>Fed does and what dollar create is. But the b

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<v Speaker 1>OKA has been hiking for twelve months now, right. They

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<v Speaker 1>moved before the Fed. They moved before a central banks

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<v Speaker 1>because they were more alert about these inflationary effects sooner

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<v Speaker 1>than others. Well, let's talk about China. It's about five

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<v Speaker 1>minutes now until we get the PBOC fixed. Do you

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<v Speaker 1>think we'll see it stronger for a seventh session? Well,

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<v Speaker 1>when you say stronger, I think it's important to clarify

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<v Speaker 1>what stronger means. It's been stronger relative to the estimate,

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<v Speaker 1>but for the last week or so it's still been

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<v Speaker 1>weaker than the previous days fixing. So in my view,

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<v Speaker 1>the PBOC is allowing you on weakness, but it's basically

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<v Speaker 1>slowing that process. So for day's fix it should be

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<v Speaker 1>interesting because the model calculation is only actually twenty one

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<v Speaker 1>picks higher than previous so there's no real need to

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<v Speaker 1>adjust as stronger versus the calculation today. If they do

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<v Speaker 1>choose to do so for a seventh consecutive session, then

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<v Speaker 1>would probably suggest that six ninety is a short term

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<v Speaker 1>red line for the CNY fix in my view, though, however,

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<v Speaker 1>they're going to match the calculation. We'll see what happens

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<v Speaker 1>our currency markets in any way reflecting some of the

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<v Speaker 1>geopolitical risk that we talk about, whether it's US, China, Beijing, Taipei.

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<v Speaker 1>I mean, are you seeing fun flows that that maybe

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<v Speaker 1>represent a bit of a haven trade these days? I

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<v Speaker 1>think in the short term. Two weeks ago, during Pelosi's

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<v Speaker 1>visit to Taipei, you did see uh, you know, toose

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<v Speaker 1>geopolitical headlines driving UH dollar Taiwan and dollar c But

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<v Speaker 1>now I definitely think the market's kind of refocused away

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<v Speaker 1>from those headlines and back onto fundamentals. We all know

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<v Speaker 1>that China is slowing down in terms of the Taiwan

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<v Speaker 1>market today. You mentioned earlier that Taiwan equities are are

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<v Speaker 1>are sharply lower. I think that has a lot to

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<v Speaker 1>do with the fact that the career export data probably

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<v Speaker 1>showed a very weak chip shipment. And we all know

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<v Speaker 1>that China or Taiwan is hugely exposed to semi connector exports,

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<v Speaker 1>and t SMC has already kind of warned that uh

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<v Speaker 1>it would be or customers are cutting some orders a

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<v Speaker 1>mid weaker demand. So obviously I think those are the

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<v Speaker 1>main headlines for dollar time one. Max Juliette was talking

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<v Speaker 1>about the PBOC yesterday and the yuan or the moments ago,

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<v Speaker 1>I should say, and you want fixing. So now we

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<v Speaker 1>have indications that China has set a stronger than expected

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<v Speaker 1>fix for a seventh straight session. Give me your sense

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<v Speaker 1>to what is operating in the minds of p PBOC

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<v Speaker 1>officials right now as it relates to the currency. Sure, well,

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<v Speaker 1>I think overall that there's still kind of keep a

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<v Speaker 1>longer term eye on c n Y stability, and that's

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<v Speaker 1>what we saw before the August fifteen MLF rate cut

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<v Speaker 1>in China, where it's basically range bound between like six

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<v Speaker 1>sixty five to six seventy five. So now after these

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<v Speaker 1>PBOC rate cuts to the MLF and to the LPR,

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<v Speaker 1>now we've gone from six seventy five to basically six nine.

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<v Speaker 1>So I think in the pbocs do maybe they think

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<v Speaker 1>that's enough for now, but we still recommend investors will

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<v Speaker 1>hold a long dollar position against the offshore you want,

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<v Speaker 1>because we think that the uneven growth characterists of China's

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<v Speaker 1>economy means that at some point either in you know,

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<v Speaker 1>neit September, mid October, mid November, they could see another

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<v Speaker 1>UH monetary policy move towards the downside, which should push

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<v Speaker 1>dollars c n H higher. Those are always difficult to predict.

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<v Speaker 1>So overall, I think that even though you have stability now,

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<v Speaker 1>it's still a good position to hold. And a large

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<v Speaker 1>part of this is the economy that recovery from COVID.

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<v Speaker 1>If we continue to see these very strict border controls,

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<v Speaker 1>and that means Chinese tourists aren't traveling, you're looking at

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<v Speaker 1>long dollar against BOT as well. Tell us why sure, Well,

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<v Speaker 1>before COVID, Chinese tourists basically accounted for of the total

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<v Speaker 1>tourist arrivals in Thailand, and now that's basically zero because,

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<v Speaker 1>as you said, COVID zero means there's basically no outbound

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<v Speaker 1>travel uh from China to Thailand. So even though you're

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<v Speaker 1>seeing some recovery and other markets for tourists, you know,

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<v Speaker 1>tours from the US, tours from Europe going back to Thailand,

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<v Speaker 1>tours from Acon, but you're still going to have this

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<v Speaker 1>massive excess capacity for tourism in Thailand. So they're gonna

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<v Speaker 1>want to keep policy loose. The Bank of Thailand said

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<v Speaker 1>as much yesterday, and I think that from their perspective,

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<v Speaker 1>they think a weaker BOT, uh kind of helps usher

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<v Speaker 1>in those tourism inflow, so we expect the boat to

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<v Speaker 1>weekend further. I actually initiated a trade idea three weeks

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<v Speaker 1>ago and now it's at thirty six point six, which

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<v Speaker 1>is my target. But based on the BOT comments recently,

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<v Speaker 1>I do think that there's further outside towards you know, uh,

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<v Speaker 1>thirty seven, thirty seven point five. We were talking about

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<v Speaker 1>the yield differential story a short while ago. Is there

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<v Speaker 1>what is the house few at credit suite on the

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<v Speaker 1>inflation story? Well, from a strategy perspective, we think that

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<v Speaker 1>inflation is much stickier than what the market wants to believe,

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<v Speaker 1>and we think that the FED officials are actually starting

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<v Speaker 1>to recognize this now. But there's kind of still this

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<v Speaker 1>belief in markets that you know, there is a FED

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<v Speaker 1>put that the FED is targeting the stock market, that

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<v Speaker 1>the FED is targeting financial markets. And because inflation is

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<v Speaker 1>so high and so entrenched, it doesn't really sound like

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<v Speaker 1>the FET is too concerned with a hard landing these days, right.

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<v Speaker 1>Ummester basically said as much. You know, if you have

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<v Speaker 1>a recession, uh in the US, that's not necessarily a

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<v Speaker 1>reason to to lower rates because the Feed is mostly

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<v Speaker 1>focused on inflation, and Powell also said, you know there

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<v Speaker 1>will be some pain for businesses and households in his

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<v Speaker 1>jackson Hole remarks. So to us, that means that the

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<v Speaker 1>Fed understands that inflation is now sticky. It's just a

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<v Speaker 1>matter of when the market will understand that we have

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<v Speaker 1>parody for your dollar where we see moves changing from that,

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<v Speaker 1>If you're going to see the e c B have

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<v Speaker 1>a seventy five basis point, right, hunk, Sure, well, I

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<v Speaker 1>think if the e c B does kind of hike uh,

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<v Speaker 1>seventy five basis points, obviously the market's gonna be debating

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<v Speaker 1>that after all these you know, hawkish comments by Nagle

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<v Speaker 1>and some of the other e c B officials. I

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<v Speaker 1>think that it's probably not gonna break far below parody

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<v Speaker 1>in the next two to three weeks. But I think

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<v Speaker 1>thereafter you still have to focus on the overall hawkers

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<v Speaker 1>message of the Fed versus the e CBS. We have

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<v Speaker 1>to remember that the Fed is still also debating a

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<v Speaker 1>seventy five versus fifty basis point move at the September

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<v Speaker 1>fl MC meeting, and the Fed has already hiked many

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<v Speaker 1>magnitudes more than the ECB has prior to this, and

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<v Speaker 1>you know, the carry differential and the dollar versus the

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<v Speaker 1>year is already still quite high and that's not going

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<v Speaker 1>to reverse uh no matter how hawkish the e c

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<v Speaker 1>B is. So I do think that overall the year,

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<v Speaker 1>dollars should still head lower. On our medium term target

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<v Speaker 1>for the year end is ninety seven cents max. I

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<v Speaker 1>can give you twenty seconds for your best trade right now.

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<v Speaker 1>In the foreign exchange market. I think long dollar scene

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<v Speaker 1>H is a is a good trade these days because

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<v Speaker 1>even with this stronger fix, you haven't seen dollar scene

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<v Speaker 1>H kind of go back below the six eighty four

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<v Speaker 1>to six five level. It has trouble breaking below six ninety.

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<v Speaker 1>So in the event of dollar weakness, in the event

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<v Speaker 1>of a weak payrolls, miss, I do think that dollar

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<v Speaker 1>scene H will still be UH stable and that you

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<v Speaker 1>can still basically collect the upside for the future rate

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<v Speaker 1>cut six ft nine one at the moment, Maxile and

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<v Speaker 1>Asia Effects and Rates strategist Credit Switz in our Singapore studio.

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<v Speaker 1>This is Bloomberg