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Speaker 1: Seven and a half minutes past there. Let's get to

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Speaker 1: our first guests on the show today, Charo Chan, market

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Speaker 1: strategist at Saxo Capital Markets. Charo, A bad year for

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Speaker 1: risk assets just got a lot worse. Does this, in

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Speaker 1: your mind bring into the picture now the June lows?

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Speaker 1: And in fact, how likely do you think it is

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Speaker 1: that we not only test those lows but actually take

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Speaker 1: them out to the downside. Good morning, brand, Thank you

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Speaker 1: for having me. And absolutely I'm gonna look at you know,

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Speaker 1: the stock market declines we've had yesterday and that was

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Speaker 1: just a one day effect. Uh certainly, I mean, you know,

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Speaker 1: the macro headwinds are really on the rise, and and

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Speaker 1: we've been calling for higher for longer inflation and certainly

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Speaker 1: that has been proved to be the case yesterday. So

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Speaker 1: of course, not just um the June lows, but lower

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Speaker 1: lows ahead for equity markets in this environment. And I

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Speaker 1: mean I do think these will come with pair market rally.

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Speaker 1: That's not going to be a straight path down, uh,

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Speaker 1: you know, because market expectations for the Fed obviously gotten

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Speaker 1: a bit to aggressive. So these will keep a little

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Speaker 1: bit of a volatility there in the picture, and we

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Speaker 1: might continue to see some were market trallies, but overall

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Speaker 1: the trend will remain down and we will see lower

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Speaker 1: lowise ahead. It seems that the baby was thrown out

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Speaker 1: of the bath water. And you know, we were hearing

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Speaker 1: from somebody from JP Morgan Asset Management suggesting that, hey,

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Speaker 1: hang on a second, it is down. The inflation is down.

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Speaker 1: You know, let's not just think that it's all going wrong.

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Speaker 1: It's just a bit slow the progress and perhaps anticipated.

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Speaker 1: Um no, absolutely, yes, I mean it's down from the

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Speaker 1: eight and a half percent her last one to eight

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Speaker 1: point three percent if you call that down. But we

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Speaker 1: have to keep the reference in mind, which is the

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Speaker 1: FATS two percent target, right so uh, and right now,

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Speaker 1: the terminal rate pricing, even though it has been revised

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Speaker 1: much higher yesterday after the print, we're still at a

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Speaker 1: terminal rate pricing of about four point three percent next

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Speaker 1: day in terms of the FATS funds rate. So what

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Speaker 1: does that mean that that still leaves uh, you know,

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Speaker 1: real rates in negative territory for us. Uh. So, of

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Speaker 1: course that remains a concern, and that does mean that,

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Speaker 1: you know, we will continue to see the impact of

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Speaker 1: that in businesses and markets and stuff. So, um, you know,

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Speaker 1: I mean, I think it's not about the peak inflation.

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Speaker 1: But what we really need to be concerned here is

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Speaker 1: how fast it comes down to the two to three

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Speaker 1: percent levels that we should ideally see and how you know,

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Speaker 1: I mean how fast it will get there and then

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Speaker 1: how long that will take? Right, so so so do

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Speaker 1: that I think really points of reference. This really could

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Speaker 1: change the mindset here on this number. Would would you

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Speaker 1: agree that there now are much higher risks that the

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Speaker 1: Fed goes too far, that it will slam the economy

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Speaker 1: into recession, and that you know that it's almost to

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Speaker 1: be expected. I'm in the situation if you do compare

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Speaker 1: to what happened in the seventies, you know, and it

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Speaker 1: was a very similar situation, and of course we did

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Speaker 1: see a deep recession at that point of time. And

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Speaker 1: after yesterday's print as well, I mean, we've been seeing

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Speaker 1: calls for a hundred basis points rate high for September,

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Speaker 1: and you know, like I said, a much higher terminal

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Speaker 1: rate as well. But that being said, I mean from

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Speaker 1: what I've seen, you know, with Probble's messages in the

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Speaker 1: last few months, we might see a big hike, but

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Speaker 1: it is generally toned down a little bit with a

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Speaker 1: little bit of a softer commentary around it. Uh So,

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Speaker 1: I think, you know, the response from Proble will certainly

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Speaker 1: be different from what we've seen from Paul Foulker in

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Speaker 1: UM nineties seventies. I won't be as aggressive. I think

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Speaker 1: we are a little bit more cognizant of the fact that,

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Speaker 1: you know, growth is going to slow down, but we

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Speaker 1: hopefully should not be seeing a big crash. And I

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Speaker 1: think obviously a little bit more cognizant of mine would

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Speaker 1: be those that are calling for less aggressive FED because

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Speaker 1: they're concerned about recession. Right. Well, we've got this CPI

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Speaker 1: read out of the way here. Um, does it move

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Speaker 1: the dial really in any meaningful way with regards to

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Speaker 1: the FED, because it did seem as that they're going

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Speaker 1: to do seventy five basis points on September the twentieth,

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Speaker 1: no matter what. Yes, exactly, I think the seventy five

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Speaker 1: basis points was baked in, but I think now we're

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Speaker 1: getting above that, and there are some calls for a

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Speaker 1: hundred basis points more. I would usually I think, ignore that.

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Speaker 1: But I think the most interesting part there was the

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Speaker 1: Wall Street Journal. You know, reporter Tim Arouse who was

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Speaker 1: actually considered as the FEDS voice, especially in backout blackout periods.

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Speaker 1: He also actually hinted, uh, you know that at least

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Speaker 1: the seventy five basis points rate high in September is warranted.

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Speaker 1: Uh So I think there is some expectation that it

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Speaker 1: could go beyond every time, but I wouldn't bet my

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Speaker 1: life on it. Actually, I think what is more relevant

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Speaker 1: here is you know how high it can go, and

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Speaker 1: were now actually looking at the terminal rate of four

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Speaker 1: point three percent, So so that's that's a pretty good

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Speaker 1: number above four percent already potentially could go up a

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Speaker 1: little bit more. But I think I think that's that's

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Speaker 1: more important. I think we need to push out the

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Speaker 1: easing expectations from next year as well. That's well, let's

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Speaker 1: let's talk about the counter to that. Because I mentioned

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Speaker 1: that Jeff Gunlock was one, there may be others. Gun

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Speaker 1: Like said he'd only do twenty five basis points at

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Speaker 1: the meeting because he thinks the FED hasn't paused long

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Speaker 1: enough to see what the what sort of affect the

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Speaker 1: rates that have already been done will have. Um. Do

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Speaker 1: you think there's much resonance for that for you? Um?

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Speaker 1: And I think the FED pretty much has an idea

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Speaker 1: that whatever they've done is really not sufficient to get

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Speaker 1: inflation down to levels where they want to see it.

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Speaker 1: Uh So, I mean, of course there's been you know,

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Speaker 1: some cartnage in the markets, and businesses will see an impact,

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Speaker 1: but of course that's not their focus right now. Uh So,

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Speaker 1: of course they will slow it down from here at

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Speaker 1: some point um and start taking into account, you know,

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Speaker 1: how things are shaping up. But right now I think

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Speaker 1: it's still the time where they need to do a

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Speaker 1: lot more, and they pretty much understand that, Charon. The

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Speaker 1: thing is, it's a different situation when you look at

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Speaker 1: the rates landscape in the US compared to let's say Europe.

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Speaker 1: Europe you've got also acutely high inflation, but you also

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Speaker 1: have an energy crisis which is much deeper, and one

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Speaker 1: which is sending bill soaring, which in itself is an

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Speaker 1: interest rate hike. Do you think that these two different

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Speaker 1: scenarios are playing worse for Europe? Um? Absolutely, if you

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Speaker 1: look at it in the relative sense. I mean, I

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Speaker 1: do see that they had winds um far more in Europe,

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Speaker 1: especially in terms of you know, the recession concerns or

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Speaker 1: the staculation concerns, even though inflation concerns are pretty much similar.

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Speaker 1: So what that means is, I'm in last week, you know,

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Speaker 1: towards the end of the week when we started seeing

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Speaker 1: the dollar take a turn lower, and that was because

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Speaker 1: e c B was being a little bit more hawkish

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Speaker 1: than expected. I mean, it did go for a seventy

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Speaker 1: five basis points, but the outlook was also pretty much

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Speaker 1: more hawkish than what the markets were expecting. And we

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Speaker 1: did see some positive response from the Europe But I

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Speaker 1: mean you've seen it's it's all been raised and we

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Speaker 1: are now again below parity, and that very well kind

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Speaker 1: of goes to say that the room for FED to

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Speaker 1: be relatively more hawkish than the ECB is certainly you

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Speaker 1: know higher. So let's a little bit about strategy. We've

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Speaker 1: just gone through how the US is in trouble, Europe

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Speaker 1: is in trouble, and we know that China is in trouble.

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Speaker 1: Um the bond market investing with yields up here over

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Speaker 1: four percent or so at some point probably soon for

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Speaker 1: a lot of these um leading notes and and bonds,

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Speaker 1: that will attract some money, especially when you see stocks

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Speaker 1: falling like this. What's the level do you think where

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Speaker 1: buyers will come in you know, full you know, fully charged.

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Speaker 1: That's a great question, Ran. I think in terms of

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Speaker 1: you know, the US US right now, the critical point

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Speaker 1: in the tenure of EUREAU is obviously the three point

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Speaker 1: five percent, and a break above that again would see

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Speaker 1: I think a big response from the equity markets, from

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Speaker 1: the dollar as well. But I think, yeah, like you said,

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Speaker 1: and you know, given that we are at a terminal

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Speaker 1: rate of four percent plus now, there is still some

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Speaker 1: potential to go higher from there. But we as as

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Speaker 1: we approached that four percent level in the ten year,

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Speaker 1: I think that will be certainly a point where we

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Speaker 1: could start to see things turn around a speaking of years, certainly,

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Speaker 1: I think at that point, even though we might still

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Speaker 1: see some more federate taks from there. Charo always a pleasure.

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Speaker 1: Thank you so much for joining us at Charchanana their

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Speaker 1: market strategies that Saxo Capital Markets discussing the fall app

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Speaker 1: from that hotter than expected CPI reading in the United States,