Speaker 1: Let's get to our guests. Sees Our mossri, head of
Speaker 1: e M Cross Assets Strategy at Goldman Sachs sees Nancy
Speaker 1: Pelosi rattled markets, but treasuries did not get a bid,
Speaker 1: So something changed in a hurry. What do you make
Speaker 1: of this massive spike in treasury yields? Yeah, well we
Speaker 1: did have some um, we did have some headlines about
Speaker 1: some Feed officials, you know, still saying we are ways
Speaker 1: away from containing inflation. So I think, you know, this
Speaker 1: move and yield is probably just some giving up of
Speaker 1: the previous move. But I think the bottom line just
Speaker 1: on fundamentals is, look, we're not out of the woods. Um,
Speaker 1: we still have high inflation, we have you know, falling
Speaker 1: and quite weak growth, and so that sets up for
Speaker 1: quite a bit of volatility across markets. You know. Our view,
Speaker 1: you know, in that white is to basically be you know,
Speaker 1: it to basically be defensive. Um. And certainly now the
Speaker 1: added ball coming out of Asia, you know, it doesn't
Speaker 1: help the e M pie in in aggregate. Yeah, I
Speaker 1: want to let me just follow really quickly. Rich everybody
Speaker 1: knew what the Fed speakers said. I mean, there was
Speaker 1: really not much new there. Cash carry told us that
Speaker 1: two days ago. So it's kind of hard to to
Speaker 1: say that was the catalyst, isn't it. I suppose so.
Speaker 1: I suppose so. But again, we're coming off of a
Speaker 1: period of very high vault, both in markets but also
Speaker 1: in fundamentals, and I think that's sort of to me,
Speaker 1: at least the critical story. I mean, first look, in general,
Speaker 1: I would say, very hard to look at just you know,
Speaker 1: a few hours or one day of trading, because positioning
Speaker 1: is light. We're in August, you know, maybe people are
Speaker 1: taking vacation and so on. I mean, you can explain
Speaker 1: short term technicals through a variety of factors. Again, as
Speaker 1: a research guy, what I would say is fundamental volatility
Speaker 1: is very high, and you're going to see whip sawing
Speaker 1: in markets, especially when you know the view from particularly
Speaker 1: like equity investors who have been you know, very much
Speaker 1: happy to have a FED put so to speak, for
Speaker 1: quite some time. Maybe got a little bit of a
Speaker 1: sign last week, and the press sir that actually the FED,
Speaker 1: you know, is somewhat worried about growth as well as inflation,
Speaker 1: and so you might get some accommodation there. And I mean, again,
Speaker 1: I think the markets calibration of the forward on the
Speaker 1: set is really whip sawing, and so I don't think
Speaker 1: you know, the latest the latest moves is any different.
Speaker 1: And very quickly. I mean, at the end of the day,
Speaker 1: Sea we've got e M central banks being held hosts
Speaker 1: to what the FED does. I think that's right? Well,
Speaker 1: I wouldn't maybe say it exactly as much because um,
Speaker 1: again many e M central banks, particularly outside of Asia,
Speaker 1: have been tightening for a year and a half, right,
Speaker 1: and so actually you know, again you can be there
Speaker 1: many e M. So one could perhaps pick one to
Speaker 1: fit an example that Brazil. You know, we have a
Speaker 1: meeting on Wednesday, that's so tomorrow in the western hemisphere, um,
Speaker 1: and we think that might signal the end of the
Speaker 1: hiking cycle. For example, they've hiked rates, you know, something
Speaker 1: like ten percentage points right over the past year and
Speaker 1: a half. And so there are pockets where you know
Speaker 1: e M has already done the work. I would say,
Speaker 1: but I would very much agree with the sentiment of
Speaker 1: what you are suggesting in so much as it's very
Speaker 1: hard to see e M fixed income or EM rates rally. Uh.
Speaker 1: If if US core yields, you know, sell off. I
Speaker 1: mean that we have to be we have to be
Speaker 1: clear about that, even if it's the potential energy or
Speaker 1: the yield spread you know there and tell us, you know,
Speaker 1: what are you making of the space itself. I mean,
Speaker 1: it's not a unitary asset class. It's got obviously all
Speaker 1: the different assets within it and also different jurisdictions. And
Speaker 1: I guess we've got to say that, you know, is
Speaker 1: it a situation in Asia at least for countries which
Speaker 1: have oil and those who don't. Yeah. I think there's
Speaker 1: a number of delineations across the e M complex, and
Speaker 1: oil has been a very important one. Uh. Certainly if
Speaker 1: we look at performance of the past you know six
Speaker 1: months that has and that have not so to speak.
Speaker 1: But of course oil has has come down quite a bit,
Speaker 1: which has helped, you know, the interest rate story of
Speaker 1: recent months. So again that can that can whip saw again.
Speaker 1: But I would say the other important delineation, and probably
Speaker 1: the one that's more strategic, is basically tying to the
Speaker 1: news of the hour, which is China is a very important,
Speaker 1: very idiosyncratic risk and most e M investors, whether it's
Speaker 1: in fixed income or equities, are cutting that out of
Speaker 1: the allocation. Not to say it's some peder or worse,
Speaker 1: but simply it's a separate risk. And so you see
Speaker 1: a lot of e M X China mandates picking up.
Speaker 1: I think that's you know, a strategic theme that again
Speaker 1: ties to what we're seeing today. So Pelosi is a
Speaker 1: big story in the last twenty four hours. Uh and
Speaker 1: US China relations always get a lot of attention. However,
Speaker 1: inflation is even bigger in markets. I find one comment
Speaker 1: that you made kind of interesting that in the e
Speaker 1: M you like interest rate sensitive equities, you find them appealing.
Speaker 1: Explain that. Yeah, well, again I think everything has to
Speaker 1: be a little bit debated. Are we talking about the
Speaker 1: next one month or the next you know, six months
Speaker 1: to a year? And I would say, strategically so called
Speaker 1: that against six months out, which again maybe a difficult
Speaker 1: maturity given given the vall we're experiencing, you know, the
Speaker 1: last couple of days and probably for the rest of
Speaker 1: the week. The key story an e M is that
Speaker 1: e M central banks have been ahead of the FED.
Speaker 1: I mean that to me is the biggest theme effectively,
Speaker 1: you know, the differentiator that we've seen again going back
Speaker 1: several several quarters, so as we think forward, yeah, maybe
Speaker 1: interest rates rise and core rates still pressure the e
Speaker 1: M complex in the in the near term. But the value,
Speaker 1: if you want to call the risk premium, is the
Speaker 1: wedge between e M local interest rates and US interest rates.
Speaker 1: And there are a number of equity sectors, the number
Speaker 1: of equity markets, mostly outside of Asia, and I mean
Speaker 1: ausie on to some degree that I think will benefit
Speaker 1: if we can adopt a strategic view again call that
Speaker 1: six months plus, um you know, and lever to that
Speaker 1: to that theme of compression. See. So I just want
Speaker 1: to get back to you what you mentioned about, you know,
Speaker 1: mandates which don't include China. How concerning is the property market.
Speaker 1: I mean that's something which has been just burning away,
Speaker 1: but now with mortgage boycotts and the like, the banking
Speaker 1: system is really in the cross says, Are you concerned
Speaker 1: about existential to what's going on with those lenders right
Speaker 1: now and whether the balance sheets are strong enough given
Speaker 1: how the pressure is growing on them. I mean certainly so,
Speaker 1: certainly so, both you know, fundamentally and in markets on
Speaker 1: our credit analysts on the ground there Kenho who has
Speaker 1: been on your program, has certainly highlighted a number of those.
Speaker 1: Um So I would say just two quick things. You know.
Speaker 1: The first one is again it's less about risks on China.
Speaker 1: Obviously there are there are many, we can discuss them.
Speaker 1: But to me, the key about this mandate shift is
Speaker 1: simply that China is a huge market, both in fixed
Speaker 1: income in equity, is moving to its own drum and
Speaker 1: so you wouldn't want to commingle, so to speak, the
Speaker 1: risks of China with with the rest of the him.
Speaker 1: That to me is the crucial point to underscore in
Speaker 1: terms of the property market and the spillovers. Absolutely, that's
Speaker 1: a concern. You know, we're quite negative on the growth outlook,
Speaker 1: but I would just say a lot of it's in
Speaker 1: the price. Okay, So back to the big question inflation
Speaker 1: re Salt and poser at credit sweez. He thinks inflation
Speaker 1: is more structural then most people realize, and that it
Speaker 1: will take a deep and prolonged recession to fix. If
Speaker 1: that's the case, you call six months out might be shaky.
Speaker 1: Um do you, I mean, what do you think of
Speaker 1: that comment? Yeah? Look, I think that comment is shared
Speaker 1: by shared by a number of people. Um, and look
Speaker 1: we think core and and look there's a number of
Speaker 1: things here. Look again, Powell was quite clear in saying
Speaker 1: it's core pc. That is what the Fed. You know,
Speaker 1: we'll look at and we expect core pc to stay
Speaker 1: above you know, the target range through the bulk of
Speaker 1: next year, certainly on a year a year basis, so
Speaker 1: that looks we understand that inflation is very high. To me,
Speaker 1: it's about the light at the end of the tunnel.
Speaker 1: It's seeing second rout of changes and importantly inflation. Excellent, okay, Caesar,
Speaker 1: thanks very much, Caesar. Mastery Goldman Sachs