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Speaker 1: Let's get to our guests for the half hour. Ben

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Speaker 1: Emmons is with us. He is senior portfolio manager also

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Speaker 1: the head of fixed income macro strategies at New Edge Wealth,

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Speaker 1: joining us from l A. Ben, Nice to have you

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Speaker 1: on the program on a holiday, Happy Thanksgiving. Hope things

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Speaker 1: are well with you. Talk to me about your reading

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Speaker 1: on these FED minutes. They seem pretty dovish. No, hey,

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Speaker 1: thank you, thanks very much for having me back. Um, yeah,

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Speaker 1: they've red, I guess more dovish from the tone that

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Speaker 1: Powell struck in that press conference the last time. Right

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Speaker 1: when the statement came out, the market reacted favorably and

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Speaker 1: Paul started really speaking to higher rates and quite hawkish.

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Speaker 1: But these minutes do reflect that that view that Powell

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Speaker 1: hash But overall that the assessment, particul by the FAT

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Speaker 1: staff was about Pow. Yes, the economy is really slowing down,

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Speaker 1: the risk of essessions increasing. Uh. They actually actually made

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Speaker 1: a forecast at they could go aboff the fats um

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Speaker 1: estimate of the natural unappointment rate by say twenty four

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Speaker 1: And then you saw really you stumbling on once I

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Speaker 1: think those headlines started to come out, So that did

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Speaker 1: read I guess do wish that way. But in the end,

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Speaker 1: Doug though, the division within defense is very low, if

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Speaker 1: not in the hill really because they are all on

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Speaker 1: the same board that they have to drive up rates

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Speaker 1: still further from here, meaning like a higher terminal rate

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Speaker 1: that's being communicated before, and that seems to be out

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Speaker 1: of five five and a quarter percent range or about.

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Speaker 1: I think that was an important aspect of this minute. Yeah,

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Speaker 1: but I think he is the the analogy of aircraft,

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Speaker 1: at least you did in Patrick Walla did which you

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Speaker 1: at the moment that also saying is the rising star

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Speaker 1: as well? He is, And I think that analogy is

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Speaker 1: very accurate. Right, so there's still going to you know,

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Speaker 1: cruising out of if you will. Right, we're still up

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Speaker 1: in the plane up in the air. We haven't really

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Speaker 1: gotten to that point where then the plane starts like

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Speaker 1: sort of being in a sent and and be stable. Right,

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Speaker 1: So so I think he's right that you know, they

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Speaker 1: still have more to go, and so this is right,

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Speaker 1: a youth current version is getting worse. Heavy day we

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Speaker 1: hit negative eaty basis points and intra day and after

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Speaker 1: the minutes came out. So I think it shows that

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Speaker 1: the market is willing to price even more inversion from

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Speaker 1: here probably will surpass the Hunter basis points in the

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Speaker 1: next week or so, actually heading towards core PC and payrolls. Right,

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Speaker 1: and again reflection of the market understands the fact wants

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Speaker 1: to get to a much higher rate than what they've

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Speaker 1: been communicating in the past. That was again the message

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Speaker 1: from the minutes From what I thought. Even economists at

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Speaker 1: the FED are now telling members of the committee that

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Speaker 1: the risk of our session has grown to nearly fifty fifty.

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Speaker 1: So we're essentially at a coin toss here, Ben, I mean,

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Speaker 1: the question, now, how deep do you think it's going

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Speaker 1: to be severe? And it may be that, like you know,

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Speaker 1: they do point out that they that there are some

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Speaker 1: people in the fat are worried that if you get

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Speaker 1: to really high level of rates that there's a lot

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Speaker 1: of instability created, right, and then that makes the downtown

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Speaker 1: even worse, right if you get financial stability. So this

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Speaker 1: is something we have to keep in mind. At the moment,

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Speaker 1: the data does not reflect any of that, right, then

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Speaker 1: slow down. But the GDP data, strong spending data strong

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Speaker 1: conference has been very negative because of inflation. But inflation

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Speaker 1: started moderating an extent, so we don't deal actually with

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Speaker 1: an economy that's heading towards a cliff. But you know,

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Speaker 1: they have to be careful, and therefore they're putting it

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Speaker 1: out in the in statements and minutes and speeches that yeah,

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Speaker 1: it could, it could at worse. Ben was the market

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Speaker 1: diaction warranted to some extent rich But I would say

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Speaker 1: that you know, if you're getting a tiny ye now

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Speaker 1: drifting lower, stay towards sort of three and a half

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Speaker 1: percent that may happen near term, I would say that

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Speaker 1: would be probably too low from where the fact wants

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Speaker 1: to go with rates, because even though the yuko is

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Speaker 1: very inverted, the two will probably drift higher from here

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Speaker 1: reflecting this this higher terminal rate, and the thing you

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Speaker 1: should be pulled up again. Right. So it was I

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Speaker 1: think a reaction to the future, but not to the president.

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Speaker 1: Let's continue the conversation on the Fed bend before we

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Speaker 1: pivot to Asia and bring the dollar into the conversation.

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Speaker 1: We saw a lot of weakness yesterday as those yields

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Speaker 1: moved lower across the curve. Have we seen, given everything

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Speaker 1: that we're describing, have we seen peaked dollar? And you've

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Speaker 1: seen it temporarily because since the middle of October, indeed,

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Speaker 1: the dollar index peaked, and I think a lot of

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Speaker 1: us explained by the way the sterling has has appreciated

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Speaker 1: because of all the distress of price out of that

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Speaker 1: currency has the budget issues were taken care of and

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Speaker 1: the bank aving stepped in, and then obviously the reaction

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Speaker 1: in the euro is very notable too to the the

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Speaker 1: e c B being basically committed to start raising rates

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Speaker 1: with with fifty seventy five base points at the time.

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Speaker 1: So I think that's explained the interestate differential change on

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Speaker 1: the dollar. But if you think about the global economy

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Speaker 1: the dollar, I think you started to react to what's

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Speaker 1: happening with the lockdowns in China because it does come

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Speaker 1: through PM data also, and you saw it in the

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Speaker 1: service bm I for example just just before the holiday.

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Speaker 1: You know that that does show that there's an impact

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Speaker 1: from from the global slowdown coming through PM data here.

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Speaker 1: So I think if you take that together and again

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Speaker 1: plotting the dollar against say these the two things you curve,

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Speaker 1: then there is an expectation that yes, the economy is

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Speaker 1: moving to a slow path in the future that should

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Speaker 1: lead to slower rate highs. There for a weaker dollar

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Speaker 1: than what we have been, but let's face it, we

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Speaker 1: also had the strongest dollar, you know, and at least

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Speaker 1: ten fifteen years, right, So it's definitely that reason to

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Speaker 1: the dollars just come off. It's high, but it's still

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Speaker 1: really strong for more than a year ago. Ben Okay,

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Speaker 1: let's say that we've had the dollar being driven up,

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Speaker 1: particularly against the EU arguably as well Sterling, I'm not

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Speaker 1: gonna go with talk about the end because of interest

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Speaker 1: rate differentials, What time and when do that' say economic

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Speaker 1: performance differences that are to play a role. I think

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Speaker 1: it starts to play a role right now. Rich. I

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Speaker 1: think that I know that that as the yu kerv

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Speaker 1: continues to invert further that as much as that is

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Speaker 1: all Martet policy timing from the fats still priced in,

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Speaker 1: there's now I think we're getting to a point where

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Speaker 1: the Yukov is also really signaling to slow down. And

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Speaker 1: I think comparing the Yukov to what's happening in forward

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Speaker 1: looking indicates like I S M P M, I you

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Speaker 1: can see it. There's a similar trend and and I

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Speaker 1: think that is where now the daughters start to react

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Speaker 1: to as well, like the recognition that this four point

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Speaker 1: three on GDP now that we still have for this

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Speaker 1: quarter is much of a boost from trade and inventory

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Speaker 1: that is changing right that there's going to be more

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Speaker 1: slow than so we're right here now, so meaning there

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Speaker 1: could be someone more downside for the dollar from here.

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Speaker 1: Speaking of downside with the COVID situation in China getting worse,

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Speaker 1: I mean, we're looking at the high likelihood of a

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Speaker 1: much weaker Chinese economy and what kind of drag will

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Speaker 1: that have for the global economy. I could be significant

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Speaker 1: because you know that that that was like that in

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Speaker 1: a number of years ago as well, where you know

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Speaker 1: China is and continous to be the significant drive of

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Speaker 1: global growth. So I would say estimated they think it's

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Speaker 1: a it's a seven tenths to a percentage point of

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Speaker 1: global GDP. That's putty essential, right if if if you

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Speaker 1: continue to staying these really harsh lockdowns with the only

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Speaker 1: benefit I do say that that the supply chain pressures

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Speaker 1: have at the moment at least ease quite a bit.

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Speaker 1: And that's also I think part of just to slow

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Speaker 1: down as happening overall, you know, the demand is waning,

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Speaker 1: therefore that easing of supply change. But what we can

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Speaker 1: conclude to Doc is that these COVID policies that we

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Speaker 1: have in China, it will take some time to get

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Speaker 1: completely out of it, but they will change obviously, And

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Speaker 1: it was a week ago a lot of news out

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Speaker 1: that they are willing to start the vaccination of of

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Speaker 1: with using fisre vaccines, and that I think is an

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Speaker 1: important turnaround in that COVID policy. So near term weakness

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Speaker 1: will will drag on global economy, but I think next year,

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Speaker 1: if China economy fully reopens, there would be initially a

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Speaker 1: boost of the global economy through trade and and commodity. Rarely, Ben,

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Speaker 1: I don't think ever has the United States actually been

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Speaker 1: it had had an important rest recession. They've exported all

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Speaker 1: of them, it would seem. And the next one always

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Speaker 1: comes from somewhere that you don't expect. It's always out

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Speaker 1: of left field. You prepare for the last war as

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Speaker 1: opposed to the one which actually arrives. Yeah, for generation,

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Speaker 1: and you know the shock of Ukraine. We've sort of

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Speaker 1: really worked that off now, right, and it will be

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Speaker 1: another shock that's to be seen but possible. And you know,

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Speaker 1: the next still risk that coming along is that if

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Speaker 1: it's indeed leading to finally an official recession in China. Yes,

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Speaker 1: or no, that could be a big, a big risk, heread.

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Speaker 1: Or it's the sudden up of the strength of the

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Speaker 1: economy seeing Karn, the United States getting closer to the cliff,

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Speaker 1: and and all of a sudden everything turns here becomes

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Speaker 1: a recession. I think those are are like macro risks

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Speaker 1: ahead of us, that are the market is definitely getting

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Speaker 1: ready for and and as much as is well telegraphed

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Speaker 1: out there, it will always come as a surprise, right

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Speaker 1: and and you know the bullish and that she's seeing

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Speaker 1: in equities and bounds. It may change then quick then

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Speaker 1: very very very quickly, in ten seconds. How where will

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Speaker 1: the SMP five be at the end of December. I

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Speaker 1: still think it's going to be around four thousand, and

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Speaker 1: so we kind of well, may break the four thousand briefly,

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Speaker 1: but then we'll fall right back