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Speaker 1: Let's get to our guests, global head of Rates Strategy

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Speaker 1: at t D Securities, So Pre I'm a little confused here.

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Speaker 1: Recession fears are are gaining momentum, and we see that

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Speaker 1: with the weak retail sales and the stumbling manufacturing. Also

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Speaker 1: the strong bid for long term treasuries and the widening

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Speaker 1: inversion of the yield curve. So there's definitely that fear. Yet,

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Speaker 1: as I mentioned Doug a few moments ago, the Atlanta

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Speaker 1: Fat GDP now tracker shows growth at two point seven percent,

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Speaker 1: So what's going on? Sure, thanks for having me a

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Speaker 1: great question. I think the data right now it's very

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Speaker 1: hard to argue that it's signaling a recession. But the

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Speaker 1: markets forward looking, and we realized that monetary policy works

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Speaker 1: with a lag, and so I think what the market

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Speaker 1: is saying is there's a lot of a lot that

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Speaker 1: the Fed has done. And it's not just the Fed.

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Speaker 1: We've had typening in financial conditions because it's a global

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Speaker 1: rise and interest rates and global qt. So I think

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Speaker 1: forward looking expectations of growth and what are declining as

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Speaker 1: opposed to the data. The consumer looks strong, the labor

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Speaker 1: market looks strong. But I will say the Fed meeting

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Speaker 1: yesterday also reinforced some of those recession fears. I mean,

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Speaker 1: despite the FED putting in significant rate hikes, they still

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Speaker 1: have the unemployment rate rising, you know, four points six

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Speaker 1: percent by the end of next year. They have almost

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Speaker 1: like zero GDP for next year as well. I mean

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Speaker 1: they're calling it a soft landing, but it's very close

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Speaker 1: to a recession. So I think it reinforced fears. That's

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Speaker 1: why it's brought a bit to bonds. It's continued that

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Speaker 1: bid that was building up anyway. It's the just the

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Speaker 1: fear that the FED may have already overdone it. Whether

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Speaker 1: they end at five or five and a half percent,

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Speaker 1: you know, they've they've done a lot, and that's going

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Speaker 1: to slow down the economy lead to a recession. And

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Speaker 1: that's why that long end is is performing well. I

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Speaker 1: think the market is a little pessimistic in terms of

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Speaker 1: how quickly the economy slows down. But I have to

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Speaker 1: say our base case is for a recession in the

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Speaker 1: second half of next year and the FED starting to

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Speaker 1: ease rates by December. So I don't disagree with the

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Speaker 1: just the timing. I was initially going to make my question,

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Speaker 1: you know, true or false. It unravels quickly from here.

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Speaker 1: But but you're saying no, not until the second half

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Speaker 1: of next year, because you think there's residual strength, right,

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Speaker 1: There is momentum in the consumer. There is still that savings.

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Speaker 1: The savings have not been fully depleted, and I think

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Speaker 1: that's what's keeping the consumers strong. Also, the labor market

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Speaker 1: is very strong because consumer companies are holding label. So

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Speaker 1: I think for the labor market to really weaken, you're

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Speaker 1: going to need a few quarters of week consumer spending.

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Speaker 1: So yeah, we see that more in the second half

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Speaker 1: of next year. So, I mean I'm seeing quite a

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Speaker 1: bit of in terms of spreads with you as treasuries,

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Speaker 1: with Germany, with Japan, I mean they've narrowed a bit

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Speaker 1: here this week already. Should expect spreads to continue to tighten. Yeah,

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Speaker 1: I think, Um, you know, the spread story is also

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Speaker 1: more about what's happening with other central banks. I think

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Speaker 1: ECB has a lot more to catch up, particularly CUT.

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Speaker 1: I think that's it's unknown. I think QUT is very

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Speaker 1: hard for markets to price in, and so we expect

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Speaker 1: actually more of that compression with particularly with Europe, as

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Speaker 1: the market realizes there's a lot of supply. The first

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Speaker 1: quarter typically brings in more supply as well, so particularly

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Speaker 1: with Europe. But yeah, I think the US has done

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Speaker 1: has already priced in um policy and now is pricing

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Speaker 1: in slower growth. The rest of the world is still

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Speaker 1: catching up. Um. I think the UK has caught up,

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Speaker 1: but but Europe I think has some some ways to go.

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Speaker 1: Let's talk a little bit about China, because a lot

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Speaker 1: of mixed signals there as well. I mentioned in you know,

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Speaker 1: earlier in the program that we had this kind of dichotomy.

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Speaker 1: On the one hand, the US is getting tough on China,

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Speaker 1: on the other hand, they're softening on the delisting. Are

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Speaker 1: you confident that geopolitics doesn't do more damage in or

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Speaker 1: do you think it does? You know, I think that

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Speaker 1: changing world order. Our view is that that is something

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Speaker 1: we're going to have to live with for many years

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Speaker 1: to come. You know, is it a twenty three market

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Speaker 1: event or is it the next five years? I would

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Speaker 1: say it's the next five years. Um. There is this

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Speaker 1: shifting world order that we've been used to, and I

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Speaker 1: think it is shifting, and it's a structural theme that

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Speaker 1: we should price in, and asset markets will price that in.

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Speaker 1: I mean, I think for next year, it's much more

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Speaker 1: about the reopening process, um. You know, and and how

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Speaker 1: how does China do they put in stimulus in order

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Speaker 1: to I think we're waiting to see that Economic work conference.

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Speaker 1: Are they willing to accept the lower GDP or is

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Speaker 1: they're going to be stimulus. I think that will dominate

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Speaker 1: more in two thousand twenty three. Um. But when we're

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Speaker 1: talking about, you know, two twenty four after the US election,

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Speaker 1: I think that's when we should be thinking about geopolitics

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Speaker 1: and what's the U S China relationship. I think that's

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Speaker 1: when that becomes more in focus. I don't see particular

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Speaker 1: policy decisions from the US changing that in in the

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Speaker 1: very near term. Yeah, and you ment the reopening plan.

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Speaker 1: I mean you're you're seeing this pretty violent rotation out

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Speaker 1: of government bonds, out of credit in China into the

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Speaker 1: equity market. Should I expect that to continue? And do

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Speaker 1: you think the bond market has fully priced in the

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Speaker 1: sort of reopening. Yeah, I I do think the expectation.

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Speaker 1: I think nobody expected such a quick reopening. Um. I

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Speaker 1: have to say, I've been surprised. And you know what

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Speaker 1: that's telling me is is that the Chinese authorities are

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Speaker 1: responding to the protests as well as the economic impact

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Speaker 1: of the lockdowns. And so does that mean they're going

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Speaker 1: to have maybe more targeted stimulus. I don't think we

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Speaker 1: get broad based stimulus, but if we're going to get

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Speaker 1: more targeted stimulus, that's good for the economy. So I

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Speaker 1: think there's more in that rotation. But we have to

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Speaker 1: really wait to see what does China do in terms

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Speaker 1: of policy measures. And as I said, I'm waiting for

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Speaker 1: that Economic Work Conference for details. None of us wants

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Speaker 1: to talk politics, but we have to be aware of it.

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Speaker 1: This dismantling of the COVID strategy, does it suggest to

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Speaker 1: us that Hi Jinping is losing power to his peers

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Speaker 1: in the party, you know? Or is he being more

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Speaker 1: responsive to the economy. I mean, at the end of

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Speaker 1: the day, there's a health policy and any economic policy,

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Speaker 1: and the two. If the two or two out of sync,

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Speaker 1: it's not politically stable. And so, you know, is there

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Speaker 1: a power struggle? Perhaps is he just being more responsive

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Speaker 1: because they're not saying anything, you know, the top party member,

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Speaker 1: the only person we heard from was the Vice Premier

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Speaker 1: Sun Chun Lan saying that we're at a new stage.

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Speaker 1: So it definitely raises some questions. Pria, thanks very much,

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Speaker 1: PA from TV Securities, This is Bloomberg