Speaker 1: Let's get to our guest, John Woods Asia Pacific CIO
Speaker 1: at credit Sweez Well, John, it appears that we have
Speaker 1: something like three to six months of pain coming up
Speaker 1: if your long risk assets. But after that there will
Speaker 1: be some opportunities. And we've got a couple of big
Speaker 1: catalysts that would be looming, the FED perhaps hinting that
Speaker 1: job done, and maybe a change in the COVID policy
Speaker 1: in China, which one happens first. Gosh, that's a that's
Speaker 1: a complex, um and well judged question. It's a brilliant,
Speaker 1: brilliant question. My my senses, actually, we are quite some
Speaker 1: way from any sense of FED pivot, given the message
Speaker 1: which reverberated from Jackson Hole just a few days ago.
Speaker 1: My senses, the FED will not even consider easing at
Speaker 1: least until we see inflation at or very close to
Speaker 1: that two target or two to three percent target, and
Speaker 1: not only hitting that target but remaining there consistently up
Speaker 1: for a number of months. So I think one of
Speaker 1: the reasons why the markets so aggressively sold off Friday
Speaker 1: was the fact that we are what eight nine currently
Speaker 1: in terms of headline cp A c p I. I
Speaker 1: can't imagine us getting down to that sort of two
Speaker 1: percent area at least for six to nine months. Regarding
Speaker 1: zero COVID, well, um, I think that's an event for
Speaker 1: a post the Party Congress, which is scheduled. I believe
Speaker 1: for October. I suspect that there will be a number
Speaker 1: of months before that's re calibrated UM and repackaged, possibly
Speaker 1: something for the new year three. So on balance, I
Speaker 1: suspected zero COVID rather than UM any sense of a
Speaker 1: pivot by the FED, and just getting back to the
Speaker 1: impact of what we're expecting from the FED on risk assets.
Speaker 1: If you've seen September the second worst month on average
Speaker 1: for the SMP fix over the past two decades, how
Speaker 1: much fur the pain a we're expecting next month? Well,
Speaker 1: I think it was noteworthy that in his short, sharp shock,
Speaker 1: which was that eight minutes speech, FED Chairman Powell made
Speaker 1: zero reference whatsoever to financial conditions and financial markets. That
Speaker 1: says to me that both the economy and the market
Speaker 1: is likely to endure a substantial amount of pain um
Speaker 1: in uh in as an inflation is engineered lower and
Speaker 1: by the way, one of the reasons Credit Swiss unusually
Speaker 1: moved its a tactical allocation to underweight equities for the
Speaker 1: first time in a very long time, in anticipation of
Speaker 1: a deceleration in economic growth, a compression in margins, and frankly,
Speaker 1: a higher ability of recession. I did say three to
Speaker 1: six months of pain, and it seems like you're saying
Speaker 1: it could be more. Well. Absolutely, it's really a function
Speaker 1: of inflation and how enduring and how sticky that is
Speaker 1: likely to be. Investors will want to get out in front.
Speaker 1: Right At some point, they'll be looking perhaps beyond the recession. Yes,
Speaker 1: I guess they will be looking for opportunities and cheapened valuations.
Speaker 1: We're not there yet. We're not anywhere close, I think,
Speaker 1: to these sort of levels which would be attractive, by
Speaker 1: which I mean sort of to threat two or sorry,
Speaker 1: one or two standard deviations below a ten or even
Speaker 1: fifteen year mean. Brian. We're not there yet, and I
Speaker 1: suspect it will take some time for that to happen.
Speaker 1: You touch quickly on China's COVID zero, but just quickly.
Speaker 1: How weaker these pms expected to be when we get
Speaker 1: them in about twenty minutes. Well, I don't think they're
Speaker 1: going to be substantially weaker, although I think they are
Speaker 1: going to tick lower. I mean, one of the big
Speaker 1: problems we have with China right now is the hesitancy
Speaker 1: both of the central government and provincial governments to aggressively
Speaker 1: roll out the stimulus that has already been announced. And
Speaker 1: until that actually happens, until US provincial governments in particular
Speaker 1: step up and aggressively invest, well, then I suspect PMS
Speaker 1: and particularly for PM eyes will remain under pressure. I
Speaker 1: just wanted to get your thoughts though on the PBOC
Speaker 1: setting that stronger than expected, you unfixed for a sixth day,
Speaker 1: getting more aggressive in pushing back against this weekly one. Well,
Speaker 1: I think the p BOC is between a rock and
Speaker 1: hard place right now. You have obviously the FED signaling
Speaker 1: an intention to raise rates, perhaps more aggressively than originally anticipated,
Speaker 1: and yet you have the p BOC at the same
Speaker 1: time seeking to ease rates to support underlying economic conditions.
Speaker 1: And of course the Fed constrains the p BOC's ability
Speaker 1: to do that, and the only way really to offset
Speaker 1: that is through the currency. So we've seen a substantial
Speaker 1: amount of volatility uh remnant b both on shore and offshore.
Speaker 1: I suspect that will continue. The PBOC will seek to
Speaker 1: smooth as much as it can the underlying trend of
Speaker 1: remnin B, but in our view it's likely to weaken further.
Speaker 1: We're calling for around six point nine in the next
Speaker 1: three months or so, but frankly, I wouldn't be at
Speaker 1: all surprised if we get a little more volatility in
Speaker 1: the interim period. So many Asian currencies have weakened even
Speaker 1: more so the comparative advantage is not really that big
Speaker 1: for China. Um I mentioned QT because I am not
Speaker 1: quite sure how to measure it, So I'm hoping to
Speaker 1: get some expertise from you out you know how much
Speaker 1: QT is priced into the markets, and and what is
Speaker 1: the best way to measure it? Well, I mean, I
Speaker 1: think it's certainly the case that Jackson Hole and interest
Speaker 1: rates have captured the attention of the market, but absolutely
Speaker 1: underlying that we have the endure risk of QT. And
Speaker 1: of course, the Federal Reserve this week is set to
Speaker 1: raise that double uh that program from some sixty billion
Speaker 1: to a month to some thirty thirty five billion, So
Speaker 1: there's a substantial increase in the runoff of treasuries being held,
Speaker 1: the extent to which it influences market pricing, market behavior
Speaker 1: again it's less certain, but certainly I think it speaks
Speaker 1: to um the draining of liquidity from the market. The
Speaker 1: type of support that previously existed to both the economy
Speaker 1: and particularly equity markets, I suspect is likely to diminish,
Speaker 1: and again just speaks to a more challenging set of
Speaker 1: circumstances in the next three to six months, and and
Speaker 1: and probably and confirms those investors which are seeking to
Speaker 1: manage and reduce risk in such an environment. John I
Speaker 1: mentioned the weakness that you're seeing in crude headed for
Speaker 1: its longest declining streak in more than two years. Have
Speaker 1: we started to see a little bit of the tightness
Speaker 1: in the crude markets though crude market ease um certainly,
Speaker 1: and I think purely from the fundamentals perspective, we will
Speaker 1: anticipate lower oil prices in the weeks and months to come.
Speaker 1: I mean, it doesn't help that on the supply side
Speaker 1: there seems to be a reluctance to cut production amongst
Speaker 1: certain OPEC members, and that was the message communicated in
Speaker 1: the last few days. But my senses, as we reprice
Speaker 1: growth at the global level, actually underlying premium for crude
Speaker 1: will will diminish and we would anticipate further downward pressure
Speaker 1: on prices. John, how big of a story is the
Speaker 1: reshoring of key manufacturing back home for a lot of
Speaker 1: A lot of countries, particularly United States, have made the
Speaker 1: most noise, but others will likely do so as well.
Speaker 1: And and how much of an impact on China Is
Speaker 1: there going to be a massive medium to long term impact?
Speaker 1: I would suspect over the near term less so, it
Speaker 1: takes decades to set up UM and establish the infrastructure
Speaker 1: for a supply chain UM and unwinding it over the
Speaker 1: near term is very, very difficult. Is it a net positive, Well,
Speaker 1: I mean it's a it's a net positive for the
Speaker 1: reshore that the country is benefiting from that reshoring. I'm
Speaker 1: less convinced it's a it's a positive for countries like China.
Speaker 1: But again, it speaks to the end of globalization, and
Speaker 1: it speaks to a rise in multipolar world. It speaks
Speaker 1: to the geopolitical divisions that are now impacting the political,
Speaker 1: sorry the economic outlook for our global economy, and again
Speaker 1: I don't see that changing anytime soon. So over the
Speaker 1: medium term, absolutely countries in and around the United States,
Speaker 1: for example, Mexico, Canada will all be major beneficiaries of
Speaker 1: reassuring and something similar comparably in the EU as well.
Speaker 1: John always a pleasure. John Woods joining us in Hong Kong, Asia,
Speaker 1: Pacific ce IO at Credit Swiss