1 00:00:00,120 --> 00:00:02,599 Speaker 1: So we did see movement in the markets today after 2 00:00:02,680 --> 00:00:07,520 Speaker 1: the Federal Reserve issued a message that policy is not 3 00:00:07,760 --> 00:00:11,800 Speaker 1: heading for interest rate increases anytime soon, if the economy 4 00:00:11,800 --> 00:00:14,000 Speaker 1: does not pick up a more devast message in fact 5 00:00:14,040 --> 00:00:17,720 Speaker 1: than the markets had expected. And in return, stocks up, 6 00:00:17,800 --> 00:00:20,560 Speaker 1: bonds up in terms of price, down in terms of yield, 7 00:00:20,600 --> 00:00:24,239 Speaker 1: dollar getting weaker touching a twenty month low versus the yen. 8 00:00:24,600 --> 00:00:27,280 Speaker 1: That means that yen got a lot stronger, making the 9 00:00:27,400 --> 00:00:29,960 Speaker 1: job much much harder for Prime Minister and the Make 10 00:00:30,000 --> 00:00:33,120 Speaker 1: of Japan as they try to stimulate and boost Japan's economy. 11 00:00:33,520 --> 00:00:36,640 Speaker 1: Connecting all the dots for us now is Douglas Borthwick. 12 00:00:36,720 --> 00:00:39,560 Speaker 1: Doug is managing director and head of FFX at Chapter 13 00:00:39,600 --> 00:00:41,840 Speaker 1: Lane and Co. Here in New York City. Welcome Doug, 14 00:00:42,159 --> 00:00:45,159 Speaker 1: Thank you very much. So, first of all, the fact 15 00:00:45,280 --> 00:00:51,160 Speaker 1: that more Fed officials now six out of seventeen, say 16 00:00:51,280 --> 00:00:54,800 Speaker 1: only one rate increase this year compared with four rate 17 00:00:54,840 --> 00:00:58,360 Speaker 1: hikes projected by the majority in December. Did that surprise you? 18 00:00:58,680 --> 00:01:00,560 Speaker 1: And what does it mean for the Fed? Does it 19 00:01:00,600 --> 00:01:03,320 Speaker 1: mean for the dollar going ahead? It didn't surprise me 20 00:01:03,320 --> 00:01:06,160 Speaker 1: at all. If if you remember we spoke actually the 21 00:01:06,200 --> 00:01:08,600 Speaker 1: end of December, and then we talked about how they 22 00:01:08,600 --> 00:01:11,280 Speaker 1: wanted four more rate rises by the end of the 23 00:01:11,360 --> 00:01:13,559 Speaker 1: year and how shocked I was that that was the case, 24 00:01:13,600 --> 00:01:15,000 Speaker 1: and I think they had to come back to one 25 00:01:15,120 --> 00:01:17,160 Speaker 1: or two. And I think that what we're seeing now 26 00:01:17,240 --> 00:01:19,600 Speaker 1: is that one or two is coming back into focus. 27 00:01:19,640 --> 00:01:21,800 Speaker 1: You know. I think that at the end of December, 28 00:01:22,080 --> 00:01:25,399 Speaker 1: the Fed was just extremely optimistic, and yet their message 29 00:01:25,400 --> 00:01:27,560 Speaker 1: when they raised rates seemed to be rather defensive rather 30 00:01:27,640 --> 00:01:29,920 Speaker 1: than offensive. And I think that what they're doing now 31 00:01:29,959 --> 00:01:31,840 Speaker 1: is they're catching up to the market and having that 32 00:01:31,920 --> 00:01:34,440 Speaker 1: realization that, you know what, the economy isn't quite as 33 00:01:34,440 --> 00:01:38,240 Speaker 1: strong as as they've expected. And I think that the 34 00:01:38,240 --> 00:01:41,520 Speaker 1: the employment numbers that we saw obviously last week were 35 00:01:41,640 --> 00:01:44,200 Speaker 1: terrible and that just made them obviously take a pause 36 00:01:44,240 --> 00:01:46,280 Speaker 1: and decided that maybe we should put it off. I 37 00:01:46,280 --> 00:01:49,760 Speaker 1: think that thinking that July will be the first rate rise, 38 00:01:49,840 --> 00:01:52,440 Speaker 1: I think is are the second rate rise is obviously 39 00:01:52,480 --> 00:01:54,200 Speaker 1: a little bit ahead of itself as well. So I 40 00:01:54,240 --> 00:01:55,560 Speaker 1: think they were going to see maybe and you were 41 00:01:55,560 --> 00:01:57,760 Speaker 1: talking in September now and we when we look at 42 00:01:57,760 --> 00:01:59,960 Speaker 1: when they be raising rates, if they do, I think 43 00:02:00,000 --> 00:02:03,520 Speaker 1: it's been a very big change in the market now 44 00:02:03,640 --> 00:02:06,600 Speaker 1: since the last twenty and G seven meetings in that 45 00:02:06,720 --> 00:02:09,000 Speaker 1: it seems that center banks have run their course in 46 00:02:09,080 --> 00:02:11,600 Speaker 1: terms of CHEWI and seeing that as as the medicine 47 00:02:11,720 --> 00:02:14,919 Speaker 1: for the weakness in the economies. And today I think 48 00:02:14,919 --> 00:02:16,560 Speaker 1: that the FED really talked about how there is a 49 00:02:16,560 --> 00:02:19,359 Speaker 1: difference between monitoring fiscal policy and what can be used 50 00:02:19,360 --> 00:02:21,440 Speaker 1: for which. But also you saw the b O J 51 00:02:21,680 --> 00:02:23,840 Speaker 1: last night commit or at least you had the chairman 52 00:02:23,919 --> 00:02:27,640 Speaker 1: of Chairwoman of the l DTUH Tom only in Adu, 53 00:02:27,680 --> 00:02:30,200 Speaker 1: who said the structural reforms and growth strategy is now 54 00:02:30,280 --> 00:02:32,679 Speaker 1: much more important than que And I think that that's 55 00:02:32,680 --> 00:02:35,320 Speaker 1: really what we're looking at is globally the center banks 56 00:02:35,320 --> 00:02:39,000 Speaker 1: are more reticent about having their balance sheets rise considerably, 57 00:02:39,440 --> 00:02:41,600 Speaker 1: and maybe their pointing neither their congresses or to the 58 00:02:41,680 --> 00:02:43,919 Speaker 1: diet and saying, you know, maybe it's your turn to act, 59 00:02:44,919 --> 00:02:48,720 Speaker 1: Mr Borthwick. Before we turn to September, we've got to 60 00:02:48,760 --> 00:02:52,160 Speaker 1: pass through June. What do you think the voters in 61 00:02:52,200 --> 00:02:54,880 Speaker 1: the United Kingdom will do and what do you think 62 00:02:54,919 --> 00:02:58,600 Speaker 1: the repercussions will be. Well, that's the multibillion dollar question. 63 00:02:59,160 --> 00:03:02,840 Speaker 1: I think that multi billion pound questions as well. Whatever 64 00:03:02,880 --> 00:03:05,760 Speaker 1: you're trading it in that reality is we're trading at 65 00:03:05,760 --> 00:03:08,520 Speaker 1: one forty two right now. That's you know, dollars to sterling. 66 00:03:09,160 --> 00:03:11,600 Speaker 1: I think that if if they were to remain in 67 00:03:11,840 --> 00:03:14,560 Speaker 1: um in in in the EU, you'll probably see a 68 00:03:14,639 --> 00:03:16,800 Speaker 1: rally up to the round the one fifty level and stuff, 69 00:03:16,840 --> 00:03:20,120 Speaker 1: but a five move. If they decide to exit, then 70 00:03:20,160 --> 00:03:22,320 Speaker 1: we're talking about going down to maybe one thirties, which 71 00:03:22,360 --> 00:03:24,520 Speaker 1: is around in eight percent move or twelve big figures. 72 00:03:25,160 --> 00:03:28,160 Speaker 1: I think that this is a truly binary event, and 73 00:03:28,200 --> 00:03:31,280 Speaker 1: we have very few binary events in the FX market. 74 00:03:31,280 --> 00:03:34,520 Speaker 1: But by binary, I mean it really is a fifty 75 00:03:34,560 --> 00:03:36,760 Speaker 1: fifty bet here and if you have a position going 76 00:03:36,760 --> 00:03:38,920 Speaker 1: into it, you're either very right or you're very wrong. 77 00:03:39,720 --> 00:03:41,560 Speaker 1: And I think that there's a lot of complacency in 78 00:03:41,600 --> 00:03:45,600 Speaker 1: the market, namely because as you look back in the past, 79 00:03:45,640 --> 00:03:47,640 Speaker 1: and I think that the Scottish referendum maybe is a 80 00:03:47,640 --> 00:03:50,680 Speaker 1: good example here. In the Scottish referendum, it was around 81 00:03:50,680 --> 00:03:53,440 Speaker 1: that fifty fifty level, but then when it actually came 82 00:03:53,520 --> 00:03:56,480 Speaker 1: down to people making the decision on how they were 83 00:03:56,480 --> 00:03:58,280 Speaker 1: going to vote, there was there were a lot more 84 00:03:59,000 --> 00:04:00,800 Speaker 1: it'd rather vote with the out as quoted, with the 85 00:04:00,800 --> 00:04:03,560 Speaker 1: way things were as opposed to making a change, and 86 00:04:03,600 --> 00:04:06,400 Speaker 1: I think that that's really what the remain folks are 87 00:04:06,440 --> 00:04:08,720 Speaker 1: relying on, is that people don't want to take the 88 00:04:08,840 --> 00:04:11,920 Speaker 1: change and change is risky and so let's remain. However, 89 00:04:11,960 --> 00:04:14,080 Speaker 1: I think one of the major points are that the 90 00:04:14,120 --> 00:04:18,159 Speaker 1: big turnarounds was that the Sun newspaper, which really is 91 00:04:18,160 --> 00:04:20,760 Speaker 1: a voice of the people in the UK, came out 92 00:04:20,760 --> 00:04:22,080 Speaker 1: a couple of days ago and said, you know, it's 93 00:04:22,080 --> 00:04:24,560 Speaker 1: time for exit. I think that now the exit, you 94 00:04:24,600 --> 00:04:26,560 Speaker 1: see the exit polls ticking up, tacking up. Now, the 95 00:04:26,560 --> 00:04:29,080 Speaker 1: exit polls seemed to be getting ahead of themselves as 96 00:04:29,120 --> 00:04:32,279 Speaker 1: compared to the the betting numbers and the betting polls 97 00:04:32,320 --> 00:04:35,360 Speaker 1: which are still pointing towards them remaining. And this really 98 00:04:35,400 --> 00:04:37,560 Speaker 1: makes it a very very interesting play. I think that 99 00:04:37,600 --> 00:04:39,760 Speaker 1: there will be few people sleeping in the foreign exchange 100 00:04:39,800 --> 00:04:45,000 Speaker 1: world on NAP. I can only agree with you, Doug. 101 00:04:45,160 --> 00:04:49,600 Speaker 1: And of course are Bloomberg news stories out of London 102 00:04:49,960 --> 00:04:53,120 Speaker 1: covering the surveys and the polls point out that there's 103 00:04:53,160 --> 00:04:57,120 Speaker 1: been lots of times a misque from the poll to 104 00:04:57,160 --> 00:04:59,560 Speaker 1: the vote, because when the undecided is getting the booth, 105 00:05:00,120 --> 00:05:03,200 Speaker 1: they are the ones who tipped the balance, But so 106 00:05:03,200 --> 00:05:05,600 Speaker 1: so what do you so look out ahead? Is the 107 00:05:05,880 --> 00:05:11,880 Speaker 1: is the Brexit vote so potentially destabilizing to Europe, to 108 00:05:11,960 --> 00:05:15,479 Speaker 1: the euro area that you really can't tell us today 109 00:05:15,520 --> 00:05:17,559 Speaker 1: what your call is for the dollar and the euro 110 00:05:17,680 --> 00:05:20,680 Speaker 1: it's and even the yen until you know how that 111 00:05:20,760 --> 00:05:22,920 Speaker 1: vote goes, or you say you'll get through it. You'll 112 00:05:22,960 --> 00:05:25,239 Speaker 1: have a big reaction for a week at the world 113 00:05:25,240 --> 00:05:29,280 Speaker 1: won't end and the currency trades, the currency trends continue 114 00:05:29,720 --> 00:05:33,240 Speaker 1: well if there's certainly whatever happens with the sterling vote. 115 00:05:34,160 --> 00:05:36,440 Speaker 1: When you look at the ripples, the biggest ripple officer 116 00:05:36,560 --> 00:05:38,039 Speaker 1: is gonna be where the stone drops, which is going 117 00:05:38,120 --> 00:05:40,440 Speaker 1: to be how sterling trades versus all other currencies, a 118 00:05:40,480 --> 00:05:43,159 Speaker 1: sterling yen, euro against the sterling, sterling against the dollar. 119 00:05:43,960 --> 00:05:46,120 Speaker 1: After that, as you look towards dollar yen, you probably 120 00:05:46,120 --> 00:05:48,280 Speaker 1: see because people will sell sterling and buy in the 121 00:05:48,360 --> 00:05:50,880 Speaker 1: dollar and feel pressure on the downside. If the UK 122 00:05:51,040 --> 00:05:53,320 Speaker 1: was to exit with the euros sterling, you'd probably see 123 00:05:53,320 --> 00:05:55,919 Speaker 1: people buying euros and selling sterling. If the UK was 124 00:05:55,920 --> 00:05:58,240 Speaker 1: to vote to exit, and so you're sterling would rally. 125 00:05:58,560 --> 00:06:01,000 Speaker 1: These sorts of moves would really be over the course 126 00:06:01,040 --> 00:06:03,200 Speaker 1: of a couple of weeks, because remember, if they decided 127 00:06:03,240 --> 00:06:05,640 Speaker 1: to exit, they still have to plan how they would exit, 128 00:06:06,080 --> 00:06:08,800 Speaker 1: and so the numbers aren't really there or the data 129 00:06:08,839 --> 00:06:11,159 Speaker 1: isn't there, and and it's not something that happens overnight. 130 00:06:11,200 --> 00:06:13,080 Speaker 1: It's sudden that happens over the next number of years. 131 00:06:13,720 --> 00:06:15,960 Speaker 1: And so I think you get you get this knee 132 00:06:16,000 --> 00:06:18,440 Speaker 1: jerk reaction and then the markets will calm down somewhat. 133 00:06:18,720 --> 00:06:20,800 Speaker 1: I think that there is a huge trend in place 134 00:06:20,880 --> 00:06:23,240 Speaker 1: right now where you see yen strength and euro strength 135 00:06:23,640 --> 00:06:26,040 Speaker 1: and I and and dollar weakness. And I've been saying 136 00:06:26,080 --> 00:06:28,520 Speaker 1: this since December and then I believe that that's because 137 00:06:28,560 --> 00:06:31,039 Speaker 1: you're seeing some central banks or reserve managers in the 138 00:06:31,040 --> 00:06:34,479 Speaker 1: world start to diversify out of their overweight position in 139 00:06:34,520 --> 00:06:37,160 Speaker 1: dollars and into the end and into the euro. If 140 00:06:37,160 --> 00:06:39,240 Speaker 1: you'll notice, you'll see the ten year paper now in 141 00:06:39,279 --> 00:06:41,440 Speaker 1: Europe and in Japan is now negative. In the US 142 00:06:41,480 --> 00:06:43,600 Speaker 1: it's still US is now one of the high yowlders 143 00:06:43,600 --> 00:06:45,719 Speaker 1: in the ten year market. And I do believe that 144 00:06:45,760 --> 00:06:48,919 Speaker 1: there is there is an interest, primarily out of the 145 00:06:49,040 --> 00:06:53,039 Speaker 1: largest Asian reserve managers to right now sell a dollar 146 00:06:53,120 --> 00:06:55,080 Speaker 1: by euros and by yen, and I think it's because 147 00:06:55,160 --> 00:06:58,120 Speaker 1: instead of monitoring their currency against the dollar, the Chinese 148 00:06:58,120 --> 00:07:02,119 Speaker 1: specifically are now monitoring their currency verse the basket. If 149 00:07:02,240 --> 00:07:06,000 Speaker 1: the UK voters decided to leave the European Union, will 150 00:07:06,040 --> 00:07:10,640 Speaker 1: there be other countries to hold similar referendums. Well, remember 151 00:07:10,680 --> 00:07:14,120 Speaker 1: it's not this isn't a vote about the UK leaving 152 00:07:14,240 --> 00:07:17,480 Speaker 1: the Euro per se. This is then relieving the trade 153 00:07:17,560 --> 00:07:20,880 Speaker 1: zone or the European Union. So there could be a 154 00:07:20,920 --> 00:07:22,600 Speaker 1: discussion of that. But I think that if you're a 155 00:07:22,600 --> 00:07:25,080 Speaker 1: member of the euro the arts of you leaving the 156 00:07:25,080 --> 00:07:28,440 Speaker 1: EU are considerably lower than the UK. And the UK 157 00:07:28,560 --> 00:07:31,000 Speaker 1: really is a specific example and that it doesn't share 158 00:07:31,000 --> 00:07:34,119 Speaker 1: the euro currency, but it is part of the euro Union, 159 00:07:34,800 --> 00:07:38,200 Speaker 1: and so for for trade reasons it's rather important. The 160 00:07:38,320 --> 00:07:40,720 Speaker 1: knock on effect or the domino effect from this is 161 00:07:41,240 --> 00:07:43,480 Speaker 1: if the UK is to vote to leave the Euro 162 00:07:43,880 --> 00:07:46,920 Speaker 1: the euro Zone, you'll probably find Scotland then calling for 163 00:07:46,960 --> 00:07:51,440 Speaker 1: a further referendum because around six Scottish voters would like 164 00:07:51,480 --> 00:07:54,120 Speaker 1: to remain part of the European Union, and it's been 165 00:07:54,160 --> 00:07:58,240 Speaker 1: mentioned a number of times that should the English essentially 166 00:07:58,280 --> 00:08:01,360 Speaker 1: vote to move away, then Scotland may vote again to 167 00:08:01,520 --> 00:08:03,880 Speaker 1: move away from England, and so I think that's important. 168 00:08:03,920 --> 00:08:06,200 Speaker 1: But then as you see people talk about independence and 169 00:08:06,240 --> 00:08:09,640 Speaker 1: you see referendums, then people worry about what could happen 170 00:08:09,640 --> 00:08:11,960 Speaker 1: in Canada because they're spoken quebective would also like to 171 00:08:12,000 --> 00:08:14,720 Speaker 1: have independence, What could happen in the Basque areas, what 172 00:08:14,800 --> 00:08:18,040 Speaker 1: could happen? And there's lots of different zones in Europe 173 00:08:18,040 --> 00:08:19,720 Speaker 1: as well. There's people that think about, you know what, 174 00:08:19,760 --> 00:08:22,040 Speaker 1: we'd like to be independent and have our own country, 175 00:08:22,160 --> 00:08:26,240 Speaker 1: and that creates destabilization and obviously volatility. I just want 176 00:08:26,240 --> 00:08:28,520 Speaker 1: to give me a wild forecast, or are not so wild? 177 00:08:28,720 --> 00:08:32,440 Speaker 1: If the vote is to leave, how low does the 178 00:08:32,480 --> 00:08:35,199 Speaker 1: pound go, where does the dollar go, where does young go? 179 00:08:36,280 --> 00:08:37,520 Speaker 1: If they were to vote to leave. I think you 180 00:08:37,640 --> 00:08:40,520 Speaker 1: probably see sterling drop off too. As I've said, right 181 00:08:40,559 --> 00:08:42,800 Speaker 1: around the one thirty level. I think I don't think 182 00:08:42,800 --> 00:08:44,800 Speaker 1: you're going to see it drop much more than that, 183 00:08:44,880 --> 00:08:47,440 Speaker 1: and that's around an eight percent move lower that could 184 00:08:47,440 --> 00:08:50,719 Speaker 1: happen rather quickly. Now, obviously central banks are going to 185 00:08:50,760 --> 00:08:52,719 Speaker 1: step in and talk about liquidity. You'll probably see that 186 00:08:52,760 --> 00:08:55,360 Speaker 1: stabilize somewhat. But I do think over time you're going 187 00:08:55,440 --> 00:08:57,600 Speaker 1: to see great dollar weakness over the next year or so. 188 00:08:58,120 --> 00:09:00,240 Speaker 1: Thank you very much for joining US Douglas Board quick 189 00:09:00,280 --> 00:09:05,760 Speaker 1: as managing director the head OFFX at Chapter Laine and Company. 190 00:09:05,840 --> 00:09:10,880 Speaker 1: Right now, the British pounds sterling at one forty two twelve, 191 00:09:11,360 --> 00:09:14,520 Speaker 1: in the euro at one twelve sixty four. You're listening 192 00:09:14,520 --> 00:09:16,440 Speaker 1: to taking Stock on Blueberg Radio.