WEBVTT - Caesar Maasry on the Markets (Radio)

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<v Speaker 1>Let's get to our guests. Sees Our mossri, head of

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<v Speaker 1>e M Cross Assets Strategy at Goldman Sachs sees Nancy

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<v Speaker 1>Pelosi rattled markets, but treasuries did not get a bid,

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<v Speaker 1>So something changed in a hurry. What do you make

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<v Speaker 1>of this massive spike in treasury yields? Yeah, well we

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<v Speaker 1>did have some um, we did have some headlines about

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<v Speaker 1>some Feed officials, you know, still saying we are ways

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<v Speaker 1>away from containing inflation. So I think, you know, this

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<v Speaker 1>move and yield is probably just some giving up of

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<v Speaker 1>the previous move. But I think the bottom line just

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<v Speaker 1>on fundamentals is, look, we're not out of the woods. Um,

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<v Speaker 1>we still have high inflation, we have you know, falling

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<v Speaker 1>and quite weak growth, and so that sets up for

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<v Speaker 1>quite a bit of volatility across markets. You know. Our view,

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<v Speaker 1>you know, in that white is to basically be you know,

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<v Speaker 1>it to basically be defensive. Um. And certainly now the

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<v Speaker 1>added ball coming out of Asia, you know, it doesn't

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<v Speaker 1>help the e M pie in in aggregate. Yeah, I

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<v Speaker 1>want to let me just follow really quickly. Rich everybody

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<v Speaker 1>knew what the Fed speakers said. I mean, there was

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<v Speaker 1>really not much new there. Cash carry told us that

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<v Speaker 1>two days ago. So it's kind of hard to to

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<v Speaker 1>say that was the catalyst, isn't it. I suppose so.

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<v Speaker 1>I suppose so. But again, we're coming off of a

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<v Speaker 1>period of very high vault, both in markets but also

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<v Speaker 1>in fundamentals, and I think that's sort of to me,

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<v Speaker 1>at least the critical story. I mean, first look, in general,

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<v Speaker 1>I would say, very hard to look at just you know,

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<v Speaker 1>a few hours or one day of trading, because positioning

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<v Speaker 1>is light. We're in August, you know, maybe people are

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<v Speaker 1>taking vacation and so on. I mean, you can explain

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<v Speaker 1>short term technicals through a variety of factors. Again, as

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<v Speaker 1>a research guy, what I would say is fundamental volatility

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<v Speaker 1>is very high, and you're going to see whip sawing

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<v Speaker 1>in markets, especially when you know the view from particularly

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<v Speaker 1>like equity investors who have been you know, very much

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<v Speaker 1>happy to have a FED put so to speak, for

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<v Speaker 1>quite some time. Maybe got a little bit of a

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<v Speaker 1>sign last week, and the press sir that actually the FED,

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<v Speaker 1>you know, is somewhat worried about growth as well as inflation,

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<v Speaker 1>and so you might get some accommodation there. And I mean, again,

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<v Speaker 1>I think the markets calibration of the forward on the

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<v Speaker 1>set is really whip sawing, and so I don't think

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<v Speaker 1>you know, the latest the latest moves is any different.

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<v Speaker 1>And very quickly. I mean, at the end of the day,

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<v Speaker 1>Sea we've got e M central banks being held hosts

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<v Speaker 1>to what the FED does. I think that's right? Well,

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<v Speaker 1>I wouldn't maybe say it exactly as much because um,

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<v Speaker 1>again many e M central banks, particularly outside of Asia,

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<v Speaker 1>have been tightening for a year and a half, right,

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<v Speaker 1>and so actually you know, again you can be there

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<v Speaker 1>many e M. So one could perhaps pick one to

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<v Speaker 1>fit an example that Brazil. You know, we have a

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<v Speaker 1>meeting on Wednesday, that's so tomorrow in the western hemisphere, um,

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<v Speaker 1>and we think that might signal the end of the

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<v Speaker 1>hiking cycle. For example, they've hiked rates, you know, something

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<v Speaker 1>like ten percentage points right over the past year and

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<v Speaker 1>a half. And so there are pockets where you know

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<v Speaker 1>e M has already done the work. I would say,

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<v Speaker 1>but I would very much agree with the sentiment of

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<v Speaker 1>what you are suggesting in so much as it's very

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<v Speaker 1>hard to see e M fixed income or EM rates rally. Uh.

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<v Speaker 1>If if US core yields, you know, sell off. I

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<v Speaker 1>mean that we have to be we have to be

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<v Speaker 1>clear about that, even if it's the potential energy or

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<v Speaker 1>the yield spread you know there and tell us, you know,

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<v Speaker 1>what are you making of the space itself. I mean,

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<v Speaker 1>it's not a unitary asset class. It's got obviously all

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<v Speaker 1>the different assets within it and also different jurisdictions. And

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<v Speaker 1>I guess we've got to say that, you know, is

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<v Speaker 1>it a situation in Asia at least for countries which

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<v Speaker 1>have oil and those who don't. Yeah. I think there's

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<v Speaker 1>a number of delineations across the e M complex, and

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<v Speaker 1>oil has been a very important one. Uh. Certainly if

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<v Speaker 1>we look at performance of the past you know six

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<v Speaker 1>months that has and that have not so to speak.

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<v Speaker 1>But of course oil has has come down quite a bit,

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<v Speaker 1>which has helped, you know, the interest rate story of

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<v Speaker 1>recent months. So again that can that can whip saw again.

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<v Speaker 1>But I would say the other important delineation, and probably

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<v Speaker 1>the one that's more strategic, is basically tying to the

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<v Speaker 1>news of the hour, which is China is a very important,

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<v Speaker 1>very idiosyncratic risk and most e M investors, whether it's

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<v Speaker 1>in fixed income or equities, are cutting that out of

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<v Speaker 1>the allocation. Not to say it's some peder or worse,

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<v Speaker 1>but simply it's a separate risk. And so you see

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<v Speaker 1>a lot of e M X China mandates picking up.

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<v Speaker 1>I think that's you know, a strategic theme that again

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<v Speaker 1>ties to what we're seeing today. So Pelosi is a

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<v Speaker 1>big story in the last twenty four hours. Uh and

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<v Speaker 1>US China relations always get a lot of attention. However,

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<v Speaker 1>inflation is even bigger in markets. I find one comment

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<v Speaker 1>that you made kind of interesting that in the e

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<v Speaker 1>M you like interest rate sensitive equities, you find them appealing.

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<v Speaker 1>Explain that. Yeah, well, again I think everything has to

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<v Speaker 1>be a little bit debated. Are we talking about the

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<v Speaker 1>next one month or the next you know, six months

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<v Speaker 1>to a year? And I would say, strategically so called

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<v Speaker 1>that against six months out, which again maybe a difficult

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<v Speaker 1>maturity given given the vall we're experiencing, you know, the

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<v Speaker 1>last couple of days and probably for the rest of

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<v Speaker 1>the week. The key story an e M is that

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<v Speaker 1>e M central banks have been ahead of the FED.

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<v Speaker 1>I mean that to me is the biggest theme effectively,

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<v Speaker 1>you know, the differentiator that we've seen again going back

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<v Speaker 1>several several quarters, so as we think forward, yeah, maybe

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<v Speaker 1>interest rates rise and core rates still pressure the e

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<v Speaker 1>M complex in the in the near term. But the value,

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<v Speaker 1>if you want to call the risk premium, is the

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<v Speaker 1>wedge between e M local interest rates and US interest rates.

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<v Speaker 1>And there are a number of equity sectors, the number

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<v Speaker 1>of equity markets, mostly outside of Asia, and I mean

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<v Speaker 1>ausie on to some degree that I think will benefit

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<v Speaker 1>if we can adopt a strategic view again call that

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<v Speaker 1>six months plus, um you know, and lever to that

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<v Speaker 1>to that theme of compression. See. So I just want

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<v Speaker 1>to get back to you what you mentioned about, you know,

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<v Speaker 1>mandates which don't include China. How concerning is the property market.

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<v Speaker 1>I mean that's something which has been just burning away,

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<v Speaker 1>but now with mortgage boycotts and the like, the banking

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<v Speaker 1>system is really in the cross says, Are you concerned

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<v Speaker 1>about existential to what's going on with those lenders right

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<v Speaker 1>now and whether the balance sheets are strong enough given

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<v Speaker 1>how the pressure is growing on them. I mean certainly so,

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<v Speaker 1>certainly so, both you know, fundamentally and in markets on

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<v Speaker 1>our credit analysts on the ground there Kenho who has

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<v Speaker 1>been on your program, has certainly highlighted a number of those.

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<v Speaker 1>Um So I would say just two quick things. You know.

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<v Speaker 1>The first one is again it's less about risks on China.

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<v Speaker 1>Obviously there are there are many, we can discuss them.

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<v Speaker 1>But to me, the key about this mandate shift is

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<v Speaker 1>simply that China is a huge market, both in fixed

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<v Speaker 1>income in equity, is moving to its own drum and

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<v Speaker 1>so you wouldn't want to commingle, so to speak, the

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<v Speaker 1>risks of China with with the rest of the him.

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<v Speaker 1>That to me is the crucial point to underscore in

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<v Speaker 1>terms of the property market and the spillovers. Absolutely, that's

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<v Speaker 1>a concern. You know, we're quite negative on the growth outlook,

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<v Speaker 1>but I would just say a lot of it's in

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<v Speaker 1>the price. Okay, So back to the big question inflation

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<v Speaker 1>re Salt and poser at credit sweez. He thinks inflation

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<v Speaker 1>is more structural then most people realize, and that it

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<v Speaker 1>will take a deep and prolonged recession to fix. If

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<v Speaker 1>that's the case, you call six months out might be shaky.

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<v Speaker 1>Um do you, I mean, what do you think of

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<v Speaker 1>that comment? Yeah? Look, I think that comment is shared

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<v Speaker 1>by shared by a number of people. Um, and look

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<v Speaker 1>we think core and and look there's a number of

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<v Speaker 1>things here. Look again, Powell was quite clear in saying

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<v Speaker 1>it's core pc. That is what the Fed. You know,

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<v Speaker 1>we'll look at and we expect core pc to stay

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<v Speaker 1>above you know, the target range through the bulk of

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<v Speaker 1>next year, certainly on a year a year basis, so

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<v Speaker 1>that looks we understand that inflation is very high. To me,

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<v Speaker 1>it's about the light at the end of the tunnel.

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<v Speaker 1>It's seeing second rout of changes and importantly inflation. Excellent, okay, Caesar,

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<v Speaker 1>thanks very much, Caesar. Mastery Goldman Sachs