WEBVTT - Surveillance: Flight to Quality With Rabobank's Foley 0:00:09.840 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jailey. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.200 Bloomberg dot Com, and of course on the Bloomberg Try 0:00:27.320 --> 0:00:30.960 Ask joining us now Skybridge Capital Coucy I Troy, big 0:00:30.960 --> 0:00:34.000 news out of Europe, a second wife, potentially a second 0:00:34.000 --> 0:00:36.040 dip looking at the restrictions coming out of the continent 0:00:36.080 --> 0:00:39.479 as well. How are you processing the news this morning, Troy? Yeah, well, 0:00:39.560 --> 0:00:42.080 clearly it's bad. I mean from a standpoint of the 0:00:42.159 --> 0:00:45.880 pandemic you know, resurging over Europe, which as you guys 0:00:45.960 --> 0:00:49.040 remember back in March led the u S resurgence at 0:00:49.040 --> 0:00:51.920 the time, and and remember the big left tail risk 0:00:51.960 --> 0:00:54.400 for markets for quite some time now has been a 0:00:54.440 --> 0:00:59.880 significant resurgence above expectations, coupled with the potential for a 0:01:00.120 --> 0:01:03.400 more stimulus right. And so you know, up until today, 0:01:03.480 --> 0:01:05.720 most of the selling we've seen from the two kind 0:01:05.720 --> 0:01:08.640 of tops we had in late August in mid September 0:01:09.200 --> 0:01:12.000 have been tied to the fact that fiscal stimulus was 0:01:12.040 --> 0:01:14.039 being priced out of the markets, and one day was 0:01:14.120 --> 0:01:16.800 the day where it was effectively priced out completely prior 0:01:16.840 --> 0:01:19.800 to the election, and now with a combination and resurgence 0:01:20.240 --> 0:01:22.319 and any of I mentioned this, equities are only off 0:01:22.360 --> 0:01:25.479 six from the recent high. We were about twenty three 0:01:25.560 --> 0:01:28.080 times earnings. You know, there could be more downside as 0:01:28.120 --> 0:01:31.640 we closed the month into early next month UM, prior 0:01:31.680 --> 0:01:34.480 to the election UM, and then hopefully post election will 0:01:34.520 --> 0:01:38.319 get more clarity on the stimulus side and the pandemic 0:01:38.360 --> 0:01:41.279 will be at somewhat under control at that point, Troy, 0:01:41.360 --> 0:01:44.120 your charm is to know what people are doing with 0:01:44.200 --> 0:01:48.320 their money. What are alternative investors doing right now with 0:01:48.440 --> 0:01:51.600 their money? Are they loading up on growthiness, are they 0:01:51.640 --> 0:01:56.040 making rotations? And is anybody making alpha? Well? I think 0:01:56.040 --> 0:01:59.800 I think in general right prior to the past two months, 0:02:00.280 --> 0:02:03.680 risk on was very much the mantra of the day 0:02:03.680 --> 0:02:06.040 for hedge funds. There was quite a bit of risk 0:02:06.120 --> 0:02:09.040 being taken in tech in particular, but not only they 0:02:09.040 --> 0:02:11.640 are broader beta and as we've moved closer to the election, 0:02:12.120 --> 0:02:14.919 managers of de risk modestly they've taken down their growth 0:02:15.000 --> 0:02:18.680 in their net exposures. But directly to your point, Um, 0:02:18.720 --> 0:02:22.240 the biggest concern arguably for the industry right now is 0:02:22.280 --> 0:02:24.960 how crowded techniques have been because that's been such a 0:02:25.000 --> 0:02:28.200 significant profit driver. But the problem there is that no 0:02:28.240 --> 0:02:30.920 one really knows when that reversal will come. Will be 0:02:31.040 --> 0:02:34.200 driven by higher interest rates which look unlikely, will be 0:02:34.280 --> 0:02:38.200 driven by a more significant reopening of the economy hard 0:02:38.240 --> 0:02:41.680 to say so. In the meanwhile, growth still favored over value, 0:02:42.000 --> 0:02:44.079 although that's starting to change a little bit. And then 0:02:44.240 --> 0:02:47.560 within regard to alpha, you know, it depends on the strategy. 0:02:47.680 --> 0:02:50.160 Right In general, the hedgeman industry has had the best 0:02:50.240 --> 0:02:54.000 alpha year really since two thousand thirteen, if not before 0:02:54.040 --> 0:02:57.080 the crisis, because you've had so much dispersion in the 0:02:57.120 --> 0:03:00.160 equity market in particular, which is still a very heavy focus, 0:03:00.320 --> 0:03:03.320 and you have had big sector winners and big sector losers. 0:03:03.760 --> 0:03:05.440 And then on top of that, many of the credit 0:03:05.440 --> 0:03:08.200 managers that got hit back in March have really made 0:03:08.200 --> 0:03:10.800 a significant portion of their losses back and the outlook 0:03:10.840 --> 0:03:13.160 there looks good. So it has been a fairly strong 0:03:13.200 --> 0:03:16.880 healtha year for the hedge fund industry. Troy David Ironhorne 0:03:16.880 --> 0:03:19.960 of green Light Capital yesterday at the conference has been 0:03:20.280 --> 0:03:23.080 going on the Robin Hood Conference, said that tech was 0:03:23.120 --> 0:03:26.040 in a bubble, that it probably already peaked in September, 0:03:26.360 --> 0:03:29.040 and that he is shorting a certain overpriced I p 0:03:29.160 --> 0:03:30.920 o s as he sees them as well as other 0:03:31.400 --> 0:03:36.080 more peripheral tech companies. Are you getting on that train? Well, look, 0:03:36.560 --> 0:03:39.160 we don't have a lot of growth or tech exposure 0:03:39.240 --> 0:03:41.520 right now. Um, we do have it through some long 0:03:41.600 --> 0:03:45.800 short multi strategy exposures. The problem is is really not 0:03:45.920 --> 0:03:48.119 in a bubble per se. It's nothing like the late 0:03:48.200 --> 0:03:51.640 nineties where you had these weak, dramatically overvalued companies, many 0:03:51.640 --> 0:03:54.200 of the case, in many cases had no business case. 0:03:54.560 --> 0:03:57.600 We're at a period where the strong techniques are very 0:03:57.600 --> 0:04:01.080 good businesses and continue to grow margins for the most part. 0:04:01.200 --> 0:04:04.080 But but you do have very elevated valuations, right and 0:04:04.160 --> 0:04:06.960 so when the SUPs at twenty three times four earnings 0:04:06.960 --> 0:04:10.920 in the NASTACS five seven multiple points higher, that just 0:04:11.000 --> 0:04:13.680 set yourself up for for near term weakness. But in 0:04:13.760 --> 0:04:17.760 terms of having some significant bear market over the short term, 0:04:17.800 --> 0:04:20.320 we think is unlikely. So with all due respect to 0:04:20.480 --> 0:04:22.479 Mr Iron Moore, and we could be in for you know, 0:04:22.480 --> 0:04:25.640 a prolonged correction, but we're in for nothing like we 0:04:25.720 --> 0:04:28.040 had you know, two thousand o two, which was you know, 0:04:28.160 --> 0:04:30.600 fifty down Beau the trot for the SNP with the 0:04:30.680 --> 0:04:33.000 NASDAC down to eighty. We just think that's very unlikely. 0:04:33.320 --> 0:04:35.240 But you have to be very careful if you're over 0:04:35.279 --> 0:04:38.440 your skis in terms of tech exposure. You know, the 0:04:38.480 --> 0:04:41.880 next two three months can be pretty painful. But I 0:04:41.880 --> 0:04:43.480 think the point that on Hones, Mike and Osa you 0:04:43.560 --> 0:04:45.840 bring up the nineties, that the ninet nineties shouldn't be 0:04:45.880 --> 0:04:47.600 the bench amount for whether we're in a bubble or 0:04:47.640 --> 0:04:50.719 not because it was sub Cristy thirty years ago. Troy. 0:04:50.720 --> 0:04:52.640 The question is asking is whether we are moving just 0:04:52.720 --> 0:04:56.720 in terms of sentiment from great towards complacency. You look 0:04:56.760 --> 0:04:59.240 at across fixed income and the universe right now, can 0:04:59.279 --> 0:05:02.039 you identify I that shift from great to complacen? Say, 0:05:02.040 --> 0:05:04.960 what would that look like? Well, look, in terms of 0:05:04.960 --> 0:05:08.760 fixed income, I think you're starting to see prices adjust 0:05:08.880 --> 0:05:12.360 for worst growth, lower probability of stimulus, and that's why 0:05:12.400 --> 0:05:16.240 you're seeing the curve flat and combined with the pandemic complacency. 0:05:16.279 --> 0:05:18.679 I mean, I would say the term would be more 0:05:18.920 --> 0:05:21.240 exuberance like we had in August. I mean August was 0:05:21.279 --> 0:05:23.719 a month where you had very frothy behavior in markets. 0:05:23.720 --> 0:05:27.920 You had many parable behavior, not only in broader indices, 0:05:27.960 --> 0:05:29.960 but also in some of the larger cap tech names 0:05:29.960 --> 0:05:32.520 in particular, many of them type of the pandemic. So 0:05:32.920 --> 0:05:35.839 that was arguably the peak froth, and then you started 0:05:35.880 --> 0:05:37.680 to build it back up a little bit last week, 0:05:37.720 --> 0:05:39.400 and now you're seeing some of the froth come out. 0:05:40.120 --> 0:05:43.160 We just don't see complacency in terms of you know, 0:05:43.279 --> 0:05:46.359 managers being very comfortable with their risk and not factoring 0:05:46.360 --> 0:05:49.400 in all the various risks that are coming about. You know, again, 0:05:49.480 --> 0:05:52.240 people have been de risking modestly going into the election. 0:05:52.360 --> 0:05:56.000 So I don't think it's necessarily complacency. Um, it's just 0:05:56.040 --> 0:05:58.440 that the froth that was built up in August has 0:05:58.480 --> 0:06:00.600 not quite come out, and we might need to have 0:06:00.680 --> 0:06:03.720 three to five percent more downside and SMP to kind 0:06:03.720 --> 0:06:07.400 of clear out some of that excess. Getting about half 0:06:07.400 --> 0:06:09.320 of that right now, Troy right to catch up, so 0:06:09.520 --> 0:06:13.680 get to see its capital. Thank you, Troy. I appreciate it, 0:06:13.720 --> 0:06:22.400 said like, do you want to mention gold hammered down 0:06:20.240 --> 0:06:25.360 one eight oil cannot find a bit. Daniel Morris has 0:06:25.400 --> 0:06:28.800 seen this before with BMP, Perry Bond. We notice service 0:06:28.839 --> 0:06:31.720 to t I A craft over the years. The chief 0:06:31.720 --> 0:06:35.360 market strategies for BMP, Perry bout Daniel. I like what 0:06:35.400 --> 0:06:38.359 you're say in your note about the Transatlantic partition. The 0:06:38.440 --> 0:06:43.920 p m I numbers are different. Is Europe in recession? Well, 0:06:43.960 --> 0:06:46.400 certainly the risk of that happening in the fourth quarter 0:06:46.680 --> 0:06:49.359 has gone up, is going up. You know, we had 0:06:49.400 --> 0:06:52.520 talked about the different shapes of the recovery several months ago, 0:06:52.720 --> 0:06:54.800 and it does look more and more likely that you 0:06:54.839 --> 0:06:57.239 may well see a W in Europe, if not necessarily 0:06:57.320 --> 0:07:00.440 in the US. If we do get that W, that 0:07:00.600 --> 0:07:02.600 W double dip down, what does that mean for your 0:07:02.640 --> 0:07:07.559 allocation to Europe in the next few quarters. Well, currently 0:07:07.640 --> 0:07:11.440 we're we're overweight US and emerging markets as opposed to 0:07:11.480 --> 0:07:14.240 Europe in our multass or portfolios. I think that you know, 0:07:14.360 --> 0:07:17.360 simply reflects that risk that you see in Europe. Uh 0:07:17.400 --> 0:07:20.920 And in addition to that, the relative lack of tools 0:07:21.040 --> 0:07:25.560 options in Europe to compensate for that being monetary stimuluspit 0:07:25.640 --> 0:07:28.400 fysical similar cities don't have as many lovers as you 0:07:28.480 --> 0:07:31.040 see in China or in the US for that matter. 0:07:32.120 --> 0:07:33.640 The fear that I think a lot of people have 0:07:33.800 --> 0:07:36.640 this morning, Dan, And I'm not saying what the probability 0:07:36.640 --> 0:07:39.200 of it happening is you can talk to me about that, 0:07:39.520 --> 0:07:42.400 is that Europe's present right now is in America's near 0:07:42.480 --> 0:07:44.640 term future. Does it have to be that way? Dan, 0:07:46.840 --> 0:07:48.360 I think there's two things we really need to keep 0:07:48.360 --> 0:07:51.000 in mind. When there's just the evolution of the pandemic itself, 0:07:51.080 --> 0:07:53.800 number of infections, number of deaths and so on. Uh. 0:07:53.920 --> 0:07:55.920 And from that point of view, I think it is 0:07:56.000 --> 0:07:59.280 certainly a possibility that Europe is just ahead of the 0:07:59.320 --> 0:08:00.960 curve in this and so this is what we're going 0:08:00.960 --> 0:08:03.400 to see in the US. But what's really going to 0:08:03.480 --> 0:08:05.480 matter more for the markets is a reaction to and 0:08:05.520 --> 0:08:08.040 that's really been the story all along. It's the restrictions 0:08:08.040 --> 0:08:10.080 that are driving the reaction in the market today. We've 0:08:10.080 --> 0:08:13.680 had the increase in infections, frankly in France since August, 0:08:14.160 --> 0:08:16.680 but the markets are relatively blase about that because the 0:08:16.760 --> 0:08:19.600 assumption had been no more lockdown has been there done 0:08:19.600 --> 0:08:22.720 that they just can't go back to nationwide lockdowns is 0:08:22.760 --> 0:08:25.400 too costly, except what we're seeing now in the face 0:08:25.480 --> 0:08:28.160 of these just very high numbers in terms of daily 0:08:28.200 --> 0:08:32.520 infections that governments are kind of stepwise moving in that direction. Now, 0:08:32.559 --> 0:08:35.160 of course they still want to avoid that, but the 0:08:35.200 --> 0:08:37.720 pressure is building and the markets are pricing, and now 0:08:37.960 --> 0:08:40.280 that that's the ultimate endpoint that we reach, maybe not 0:08:40.360 --> 0:08:42.880 full nationwide lockdowns, with something a lot closer to that 0:08:42.920 --> 0:08:45.120 than they would have thought a month ago. Janue, is 0:08:45.160 --> 0:08:47.120 this a buying opportunity then if there's more of a 0:08:47.160 --> 0:08:50.560 pullback in the in the face of restrictions and lockdowns, 0:08:50.559 --> 0:08:52.600 given the fact that people are still expecting some sort 0:08:52.600 --> 0:08:57.160 of fiscal support bill next year, well we're not allocated 0:08:57.200 --> 0:09:00.360 that way currently. We have a modest overweight to aquities 0:09:00.360 --> 0:09:02.440 in general. You know, I think you're always waiting for 0:09:03.120 --> 0:09:05.960 a goodbye the day opportunity. Our medium term outlook is 0:09:06.000 --> 0:09:08.840 constructed partly based on the anticipation of some sort of 0:09:08.840 --> 0:09:12.560 fiscal stimulus, certainly in the US UH anticipating that you 0:09:12.600 --> 0:09:14.680 know in Europe even you know, there will be a 0:09:14.720 --> 0:09:17.079 point where stocks just look so attractive and you want 0:09:17.080 --> 0:09:19.120 to move in. But we'd probably say it's premature to 0:09:19.120 --> 0:09:20.920 be making that type of change right now. What do 0:09:20.960 --> 0:09:22.880 you make of the fact that earnings have been coming 0:09:22.920 --> 0:09:25.679 in broadly better than expected, and yet people have just 0:09:25.720 --> 0:09:29.720 been punishing anyone who's underperformed, and even those like Microsoft 0:09:29.960 --> 0:09:35.000 that have outperformed but not crossed the high enough bar. Well, 0:09:35.040 --> 0:09:37.560 I think it's you know, the refrain, what have you've 0:09:37.600 --> 0:09:39.560 done for me lately? Partly, and I think the fact 0:09:39.559 --> 0:09:42.480 that you've had such a swing and sentiment over the 0:09:42.559 --> 0:09:45.400 last month, you know, over the last week or so, frankly, uh. 0:09:45.400 --> 0:09:49.679 And you know, inevitably, earning seasons are backward backward looking. Uh, 0:09:49.720 --> 0:09:51.680 and we're going to say, well, gosh, that was really 0:09:51.720 --> 0:09:53.640 great for the third quarter, but it isn't telling me 0:09:53.640 --> 0:09:55.360 as much as I would like about the fourth quarter. 0:09:55.520 --> 0:09:59.240 So even though the surprises are are quite good, that's 0:09:59.280 --> 0:10:01.960 not necessar ssarily helping, you know, as you point out 0:10:02.520 --> 0:10:04.440 that said, if we do look at the guidance of 0:10:04.520 --> 0:10:07.800 forward guidance, it has been you know, very very positive. 0:10:08.000 --> 0:10:10.480 Two thirds of the companies that have given guidance so far, 0:10:10.920 --> 0:10:13.840 it's been upwards. Now, of course, there's always that qualifier 0:10:13.920 --> 0:10:16.200 that we know fewer companies are offering guidance and in 0:10:16.240 --> 0:10:19.480 the past, and it's still relatively early in the earning season. 0:10:20.040 --> 0:10:22.400 But if there is something that people are investors want 0:10:22.400 --> 0:10:26.199 to focus on to justify more positive meetings her outlook. 0:10:26.240 --> 0:10:28.120 I think it is that guidance that companies are giving 0:10:28.280 --> 0:10:31.960 Daniel Morris across all of b MP Perry Boss Securities research. 0:10:32.520 --> 0:10:35.760 Do you see what I'm gonna call an elasticity of 0:10:35.920 --> 0:10:39.839 CEO s? I mean Boeing right now, horrific numbers. They're 0:10:39.880 --> 0:10:43.079 being elastic. John Farrell mentions they go to a hundred 0:10:43.120 --> 0:10:45.920 and thirty thousand jobs. Do they have a lot of 0:10:46.040 --> 0:10:49.679 room to cut costs to John loves this phrase to 0:10:49.920 --> 0:10:52.160 right size? Do they have a lot of room to 0:10:52.280 --> 0:10:57.640 globally right size? Given this pandemic, I think it's going 0:10:57.679 --> 0:11:00.800 to be extremely challenging for those industry these like airlines, 0:11:00.840 --> 0:11:04.040 for example, where you appreciate that you know, it's not 0:11:04.120 --> 0:11:06.360 just the short term effect from the lockdowns, it's a 0:11:06.440 --> 0:11:10.280 longer term ramifications of what's changed thanks to the pandemic. 0:11:10.320 --> 0:11:13.280 It's a change of mentality. People realizing they don't need 0:11:13.320 --> 0:11:14.959 to fly around the world for a couple of hour 0:11:15.040 --> 0:11:17.120 meeting anymore, or do they even need to commute into 0:11:17.160 --> 0:11:19.560 the office every day the way we've done in the past. 0:11:19.600 --> 0:11:22.920 So those are arguably permanent changes that's going to hit 0:11:22.960 --> 0:11:26.720 some industries quite significantly, and there's gonna be much bigger 0:11:26.720 --> 0:11:29.720 restructuring is necessary than anyone would have anticipated. So I 0:11:29.720 --> 0:11:33.199 think there's without questions, certain parts of the economy UH 0:11:33.280 --> 0:11:35.720 that are going to go through a pretty wrenching change 0:11:35.760 --> 0:11:37.880 and inevitable is probably never going to be fast enough. 0:11:38.160 --> 0:11:39.920 But at the same time, then we also need to 0:11:39.920 --> 0:11:42.320 be thinking about, Okay, where is that demand going to go? 0:11:42.480 --> 0:11:44.640 I mean, you would still believe that agg demand is 0:11:44.640 --> 0:11:46.400 going to continue to rise, It's just going to be 0:11:46.440 --> 0:11:49.080 spent in different ways, and we need to really focus 0:11:49.080 --> 0:11:52.280 on where those opportunities are as well. Down I just 0:11:52.320 --> 0:11:54.640 want to finish on the market at the headline level 0:11:54.679 --> 0:11:57.040 and just think about the following concept. I wonder how 0:11:57.120 --> 0:11:59.880 much support is beneath this market on a daylight today, 0:12:00.480 --> 0:12:03.360 and the concept of the vaccine put down, how important 0:12:03.400 --> 0:12:05.640 is that vaccine put just this idea that people want 0:12:05.640 --> 0:12:08.560 to stay allocated to risk because they believe at some 0:12:08.600 --> 0:12:10.560 point in the next few weeks, the next few months, 0:12:10.760 --> 0:12:15.920 we could get that key announcement. Well, certainly the timing 0:12:16.160 --> 0:12:19.280 is crucial beneven if it is and in the next 0:12:19.280 --> 0:12:20.880 few weeks, and it is more the months that you 0:12:21.080 --> 0:12:23.160 that you mentioned, you know, if we think a year 0:12:23.160 --> 0:12:25.559 out and you know, if you are an equity investor, 0:12:25.679 --> 0:12:27.880 you are buying hopefully a stream of ouriens that goes 0:12:27.920 --> 0:12:29.480 a bit further out than the next quarter of the 0:12:29.520 --> 0:12:32.480 next six months. Absolutely that's going to be important. I 0:12:32.480 --> 0:12:34.480 think the other thing we we can't put aside is 0:12:34.559 --> 0:12:36.320 it is the week before the U S election. There's 0:12:36.320 --> 0:12:39.599 still then inevitable uncertainty about the outcome and the implications 0:12:39.600 --> 0:12:41.480 of that. So you've got kind of these two negative 0:12:41.480 --> 0:12:44.520 factors weighing on the market. Increase in infections and certainty 0:12:44.520 --> 0:12:46.559 head of the election. You know, one of those will 0:12:46.559 --> 0:12:50.280 hopefully be resolved by this time next week, though maybe not, 0:12:50.440 --> 0:12:53.480 and then the second as we all hope sooner resident later. 0:12:54.600 --> 0:12:56.760 I don't great to catch up. As always, Dan Morris 0:12:56.840 --> 0:13:02.640 of BNP PO Asset Management, thank you sir. It is 0:13:02.760 --> 0:13:05.960 very difficult, and again, as Lisa mentioned earlier, the spread narrowing, 0:13:06.000 --> 0:13:08.560 the difference in yield between that big negative tenure and 0:13:08.600 --> 0:13:12.240 in every larger negative two year yield really coming down 0:13:12.280 --> 0:13:15.839 and squeezing down to a flat or flatter negative based 0:13:15.880 --> 0:13:19.200 yield curve. In Germany, Jane Foley knows as well with 0:13:19.400 --> 0:13:23.160 Robbo Bank senior foreign exchange strategist, but she understands that 0:13:23.280 --> 0:13:26.120 foreign exchange not linked to the equity markets, who cares, 0:13:26.400 --> 0:13:29.480 but linked to the bond market, No question about that, 0:13:30.000 --> 0:13:33.720 Jane Foley. It's real simple. There's something going on in 0:13:33.760 --> 0:13:40.320 Germany is signaled by those greater negative yields. What is it, Well, 0:13:40.360 --> 0:13:43.000 of course, it's sort of flight to equality. It's fear 0:13:43.120 --> 0:13:45.560 tom And we do have the CPI dated for hero 0:13:45.600 --> 0:13:47.360 don't Happeople the end of the week, and that is 0:13:47.400 --> 0:13:50.320 going to highlight that more disflation. Now, we did have 0:13:50.360 --> 0:13:52.960 import process for Germany this morning a little bit better, 0:13:53.000 --> 0:13:55.080 but it leaves that TPR number later in the week. 0:13:55.120 --> 0:13:58.360 That's again going to worry investors. It's going to be 0:13:58.440 --> 0:14:00.880 quite interesting because we have that EP data for Q 0:14:01.080 --> 0:14:04.960 three that's gonna look really quite good at and nearly temperacent. 0:14:05.040 --> 0:14:07.960 Bounced back Q and Q and in Q three. But 0:14:08.000 --> 0:14:09.920 of course the market is already going to disregard that 0:14:09.960 --> 0:14:12.640 because even though it's not been released yet, it's already 0:14:12.840 --> 0:14:16.400 all news we all know now about the new lockdowns 0:14:16.480 --> 0:14:19.680 up throughout the region, and that of course means it's 0:14:19.680 --> 0:14:22.560 going to be bad news economically for the full quarter. 0:14:22.680 --> 0:14:25.640 So it doesn't look good from the European perspective right now, 0:14:25.760 --> 0:14:29.520 export import dynamics, importantly in the United States advanced goods 0:14:29.560 --> 0:14:33.080 trade balance, it's a secondary statistic, I'm going to call it. 0:14:33.080 --> 0:14:35.440 It's a pretty grim negative number, not to where it 0:14:35.600 --> 0:14:39.040 was supposed to be on survey. But nevertheless, another key 0:14:39.160 --> 0:14:42.440 data point there is well Jane Foley. Then when I 0:14:42.480 --> 0:14:45.240 look at this and John has mentioned the resiliency of 0:14:45.280 --> 0:14:48.000 the euro, of the euro, how does euro get a 0:14:48.000 --> 0:14:51.400 bid here? Well, I mean it doesn't if you're looking 0:14:51.400 --> 0:14:55.040 at against the end certainly. I mean that definitely is pushing, 0:14:55.720 --> 0:14:58.520 is pushing lower and even against the the US dollar 0:14:58.800 --> 0:15:02.000 one sevent you, I mean, it wasn't too long ago 0:15:02.040 --> 0:15:04.720 and we were above one eighteen. So the euro is 0:15:04.840 --> 0:15:07.520 looking at like it's on the back foot. There is 0:15:07.560 --> 0:15:10.720 some anxiety going into the ECB meeting tomorrow and it 0:15:10.880 --> 0:15:14.240 could they potentially pull the trigger on policy measures tomorrow. Well, 0:15:14.600 --> 0:15:16.520 I mean our central view is December, and I think 0:15:16.560 --> 0:15:19.600 that's probably closer to consensus. But there is some rumblings 0:15:19.640 --> 0:15:22.560 that given the worsening in the backdrop this week, given 0:15:22.600 --> 0:15:26.600 the fear about further lockdowns nationally in France, and maybe 0:15:26.920 --> 0:15:31.120 more restrictions in Germany and elsewhere that maybe the the 0:15:31.240 --> 0:15:33.920 guard the UCB president could pull the trigger. So I 0:15:33.920 --> 0:15:36.440 think a little bit of anxiety and that's pushing the 0:15:36.440 --> 0:15:41.200 the Euro on the back foot today. I've been really 0:15:41.240 --> 0:15:43.480 surprised by how resilient it's been up until the last 0:15:43.480 --> 0:15:46.000 twenty four hours, given the direction of travel the continent 0:15:46.080 --> 0:15:48.480 was on. It's been pretty obvious for the last four weeks. 0:15:48.480 --> 0:15:51.920 But here's the break this morning with a broader dollar bid. Jane. 0:15:51.920 --> 0:15:54.320 We've been looking at the Italian bond market and I 0:15:54.360 --> 0:15:56.160 think we can all agree the jury is still out 0:15:56.160 --> 0:15:58.520 as to whether this is really transformed from behaving like 0:15:58.560 --> 0:16:02.080 a credit to a self in the lower Today Italian 0:16:02.080 --> 0:16:05.520 bonds are softer, yields are hired by five six basis points. 0:16:05.880 --> 0:16:08.240 It's not dramatic, but the move is there, and I 0:16:08.280 --> 0:16:10.240 think a lot of people are focused on it, whether 0:16:10.280 --> 0:16:14.640 we can break that positive correlation between the single currency 0:16:14.800 --> 0:16:17.200 and the periphery. Jane. If I'd ask that question a 0:16:17.200 --> 0:16:18.960 couple of weeks ago, I think people would have had 0:16:18.960 --> 0:16:21.800 confidence and said yes. I think the move that's starting 0:16:21.800 --> 0:16:24.240 to emerge this morning, just slowly as this session grows 0:16:24.280 --> 0:16:27.520 older might be making some people nervous. Jane, what's your take. 0:16:28.640 --> 0:16:31.480 I think there were doubts really emerging. I mean, for instance, 0:16:31.880 --> 0:16:34.520 we did have headlines suggesting that there were protests in 0:16:34.680 --> 0:16:37.360 Rome about the restrictions. But I think more than that, 0:16:37.440 --> 0:16:39.600 if we if we look back over the spring and 0:16:39.680 --> 0:16:42.480 the summer about what really drove the euro higher. There 0:16:42.520 --> 0:16:44.920 was a lot of confidence about the shop policy, certainly, 0:16:44.960 --> 0:16:47.680 but also about the recovery fund. And as we go 0:16:47.760 --> 0:16:51.000 into this the second dip of this, of the second 0:16:51.040 --> 0:16:53.840 wave and the and the double dip of this, this recession, 0:16:54.080 --> 0:16:55.840 you know we would have asked about the recovery fund 0:16:55.920 --> 0:16:57.600 a is it big enough? Well, it's it's not that 0:16:57.760 --> 0:16:59.960 big as a percentage of GDP for the whole week. 0:17:00.480 --> 0:17:04.119 But there's also concerns, there's biggering going on about the timing. 0:17:04.880 --> 0:17:07.040 When are they going to get the funds out? Can 0:17:07.080 --> 0:17:09.639 itally given its its history of not being able to 0:17:09.680 --> 0:17:12.720 invest productively that can it actually use the loans that 0:17:12.800 --> 0:17:15.360 it will get and turn them into in a productive 0:17:15.359 --> 0:17:17.920 capacity rather than just more debts. So I think there 0:17:17.960 --> 0:17:21.440 are doubts beginning to emerge, and certainly, if those restrictions 0:17:21.480 --> 0:17:24.400 really do take a toll on the economy throughout Europe 0:17:24.440 --> 0:17:26.280 and certainly in Italy. I think those doubts can only 0:17:26.320 --> 0:17:29.520 get bigger in Q four. Well, Jen, that's the question. 0:17:29.520 --> 0:17:32.560 Where is that recovery fund? That recovery fund hasn't been 0:17:32.640 --> 0:17:35.680 ratified yet, and you've talked about the political difficulties. We've 0:17:35.680 --> 0:17:38.160 been really keen to draw a distinction between a European 0:17:38.200 --> 0:17:42.360 economy that's struggling and redenomination risk. Jane, do you think 0:17:42.359 --> 0:17:45.000 before year end? And I'm not saying that we start 0:17:45.040 --> 0:17:47.320 to think about the breakup of Europe, just that people 0:17:47.359 --> 0:17:50.399 start to conflate the two issues. Where the periphery starts 0:17:50.400 --> 0:17:54.000 to trade significantly weaker, it feeds back into the banks again. 0:17:54.040 --> 0:17:56.640 Can you see that scenario developing before your rise? Now? 0:17:57.840 --> 0:18:02.439 I can see Niggoline certainly arising. I mean we're starting 0:18:02.440 --> 0:18:04.159 off from a very strong position. If you look at 0:18:04.160 --> 0:18:06.400 the euro if you look at the amount of long 0:18:06.480 --> 0:18:09.240 positions built in the euro over the spring in the summer, 0:18:09.600 --> 0:18:12.800 really extensive. Now to put it, to put it in perspective, 0:18:12.840 --> 0:18:15.760 if we got back to sev seventeen, was I think 0:18:15.760 --> 0:18:17.800 a will go deluxe that year for the Eurozone. We 0:18:17.840 --> 0:18:20.159 had really strong growth from the outset or stronger than 0:18:20.160 --> 0:18:23.320 expected growth from the outset, and we had better political outcomes. 0:18:23.320 --> 0:18:25.880 That was the year. Remember that the market was fearful 0:18:26.000 --> 0:18:28.200 of the far right and the French presidential election in 0:18:28.240 --> 0:18:31.120 the Dutch election that didn't happen, So we had better outcomes. 0:18:31.320 --> 0:18:33.320 We had a really good year for the Euro. Long 0:18:33.359 --> 0:18:37.800 positions building and this year, this spring and summer, the 0:18:37.840 --> 0:18:40.880 markets become even more optimistic about the Europe. So I 0:18:40.920 --> 0:18:44.359 think that there is the perceptive that the risk that 0:18:44.400 --> 0:18:47.679 we could get some sort of more reality emerging and 0:18:47.800 --> 0:18:51.840 people lowering those long positions in the Euro. At what point, Jane, 0:18:51.960 --> 0:18:55.080 will central bank policy not have that bigger effect to 0:18:55.160 --> 0:18:58.120 uncurrency differentials? And it really all comes down to the economy, 0:18:58.160 --> 0:19:01.320 And it seems like perhaps that's what we're seeing today 0:19:01.520 --> 0:19:06.840 involved given the ongoing restrictions that we're hearing about in Europe. Well, 0:19:06.920 --> 0:19:09.679 certainly confidence is a lot of it um, you know, 0:19:09.760 --> 0:19:12.880 and and and certainly today we've seen confidence really taken 0:19:12.960 --> 0:19:16.280 not by those headlines, but in terms of such about policy. 0:19:16.320 --> 0:19:19.400 I think what the ECB did back in May and 0:19:19.400 --> 0:19:24.159 and really pushing hard against talk of fragmentation by you know, 0:19:24.200 --> 0:19:25.959 stepping up the types of bonds that it was going 0:19:26.000 --> 0:19:29.760 to buy. By by really making that message very clear, 0:19:30.119 --> 0:19:33.359 it really did help with the whole confidence in the 0:19:33.400 --> 0:19:37.119 notion of the Euro moving forward. And of course, at 0:19:37.160 --> 0:19:39.280 the same time was that recovery fund that the whole 0:19:39.320 --> 0:19:41.359 notion that perhaps they had taken a step forward to 0:19:41.440 --> 0:19:45.680 more of a fiscal comprehensiveness within the region. Now again, 0:19:46.160 --> 0:19:49.320 I think that during you for just the background of 0:19:49.359 --> 0:19:52.000 the economy, the worst union conditions is going to poke 0:19:52.160 --> 0:19:54.720 some holes in that confidence. And I think that's why 0:19:54.760 --> 0:19:56.960 perhaps the Euro is looking a little bit more vulnerable 0:19:57.040 --> 0:19:59.600 right now. And of course that is independent of course 0:20:00.080 --> 0:20:03.640 of the possibility that the dollar will see a bit 0:20:03.680 --> 0:20:05.840 more of a safe haven bid going into Quey for 0:20:06.040 --> 0:20:09.520 with the similar sorts of concerns about COVID nineteen and 0:20:09.520 --> 0:20:12.760 the double dip recession Gina. Based on positioning the sense 0:20:12.800 --> 0:20:15.399 that you're you're giving now that there could be dollar strengthening, 0:20:15.800 --> 0:20:19.080 How violent could that be given how many short positions 0:20:19.080 --> 0:20:22.560 have been put on on the dollar. Well, I don't 0:20:22.600 --> 0:20:24.439 think it could be as violent as anything like that 0:20:24.480 --> 0:20:26.520