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Speaker 1: Our guest is Steve Bryce ce Io at Standard Chartered

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Speaker 1: Wealth Management. Steve in looking at the FED statement and

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Speaker 1: the difference between the essential message there and the and

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Speaker 1: the Powell commentary afterwards, I want to tap into the

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Speaker 1: zeitgeist a little bit and go back to the show

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Speaker 1: to tell the truth. Will the real Federal Reserve please

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Speaker 1: stand up? Which one isn't? Yeah, it's it's it's it's difficult, right.

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Speaker 1: They clearly want to be very very focused on fighting

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Speaker 1: inflation messaging, so they don't want people to move too

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Speaker 1: far ahead of themselves and say that we're anywhere close

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Speaker 1: to winning the battle against inflation. But they also know

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Speaker 1: that the current path that they're on, and I would

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Speaker 1: actually argue that they're already passed that. But is there

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Speaker 1: heading towards our session? Right, so we're already on that path.

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Speaker 1: We've obviously seen a record in version of the two

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Speaker 1: tens part of the curve, and we've seen now more

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Speaker 1: importantly to us, it's acually an inversion of the three

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Speaker 1: months a tenure. Were slightly positive at the moment, but

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Speaker 1: it has been inverted already, so that they're obviously trying

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Speaker 1: to get this balance between inflation still being way too

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Speaker 1: high for their for their objectives, but also the fact

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Speaker 1: that they're heading towards recessions, so they're trying to buy

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Speaker 1: some time. I'm not sure it's going to work, but

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Speaker 1: that's what they're trying to do. Do you think the

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Speaker 1: market gets it? Because we keep seeing rallies and then reversals.

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Speaker 1: There seems to be a lot of hope of FED

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Speaker 1: pivots and then they get shoved further out into the future.

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Speaker 1: So to what degree is the market reflecting future FED tightening? Well,

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Speaker 1: I think that the market is just is struggling, like

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Speaker 1: the FED struggling, to be honest. I mean, obviously the

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Speaker 1: Fed's going to be data dependent, that's always the case.

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Speaker 1: Obviously they're trying to make sure that people don't think

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Speaker 1: they're backing off too early, especially after having height too

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Speaker 1: slowly to start with. UM. So markets are trying to go, Okay,

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Speaker 1: what's going what should the FED do? And what is

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Speaker 1: the faith going to do? And what it should do

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Speaker 1: is actually quite difficult, So it's relying on what it's

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Speaker 1: saying UM at the moment, and I think so it's

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Speaker 1: going to be really difficult, I think to figure out

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Speaker 1: what's you know, when they're going to pivot what pivot means.

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Speaker 1: But probably at some point next year we're going to

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Speaker 1: be talking about rate cuts rather than rate hikes. Where

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Speaker 1: when that happens is going to be obviously key. So

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Speaker 1: I'm curious about your investing strategy. I note that you

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Speaker 1: have some defensive themes and and you're looking at least

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Speaker 1: another three months of dollar strength, right yeah, and obviously

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Speaker 1: you know so, I mean it must meet before before

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Speaker 1: the FMC that was coming under a bit of pressure,

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Speaker 1: that short term British un tilt was obviously the events

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Speaker 1: of not just in the US but also in the

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Speaker 1: UK and Europe overnight has has put significant upward pressure

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Speaker 1: on the dollar. Again. You still think the FED is

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Speaker 1: obviously going to be entitening mode. Whether they do fifty

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Speaker 1: or seventy five places point at the next meeting, it's

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Speaker 1: rains to be seen, but you can see the Bank

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Speaker 1: of England already trying to back off the pace of

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Speaker 1: late hikes. Um and Europe actually was quite hawkish, but

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Speaker 1: it didn't really matter to markets over night. So that's

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Speaker 1: going to put upward pressure on the dollar in a

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Speaker 1: relatively defensive environment. Um So, so yeah, that's our view

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Speaker 1: in the short term. And Steve, we were talking a

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Speaker 1: moment ago about ongoing US dollar strength, and I know

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Speaker 1: you've got a larger than usual cash position right now.

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Speaker 1: What's the logic behind there keeping some dry powder or

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Speaker 1: with the rates the way they are, can you get

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Speaker 1: a reasonable return on cash right now? I guess it's

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Speaker 1: a bit of those. It's probably more the former, to

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Speaker 1: be honest, you know, we do feel that's from an

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Speaker 1: equity market perspective in particular, there's probably another leg down

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Speaker 1: still to come before we form a proper base, and

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Speaker 1: that's you know, we've seen equity markets obviously discount a

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Speaker 1: mild recession in terms of the performance we've seen so far. UM.

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Speaker 1: But you know, we've got a lot of policy tightening

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Speaker 1: still in the in the pipes waiting to hit the economy.

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Speaker 1: So you know, we think that fed's pretty much focused

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Speaker 1: on lagging indicator in terms of employment numbers UM Santi

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Speaker 1: aniccdotal evidence employment hiring is is weakening, but you know

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Speaker 1: they're probably going to overtight and then that could lead

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Speaker 1: to quite a what will look like initially at least

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Speaker 1: quite a sharp procession. And we don't think that's discounted

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Speaker 1: so from that perspective, we think equities could take a

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Speaker 1: leg leg lower, and therefore having an overweight cash position

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Speaker 1: will give you some dry powder to buy into that

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Speaker 1: in a few months time. There are two major overhangs

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Speaker 1: right now, and one is the FED obviously in central

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Speaker 1: banks generally with higher interest rates. The other is the

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Speaker 1: COVID zero strategy in China. And and so I want

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Speaker 1: to say that if we get some easing at some

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Speaker 1: point in the next six months on the central banks,

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Speaker 1: that the dollar is probably gonna give back a lot

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Speaker 1: of ground, and and that's going to drive up a

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Speaker 1: lot of Asian currencies. So I want to challenge you

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Speaker 1: on one of your calls and bonds you like, um,

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Speaker 1: you know, developed market investment grade, but then you say

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Speaker 1: Asia US dollar bonds won't. Won't local currency bonds really

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Speaker 1: benefit once the dollars starts going down and those currencies

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Speaker 1: started going up. Uh, yeah, we think they will. I mean, obviously,

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Speaker 1: you know, the dollar has been incredibly strong for the

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Speaker 1: past two years, and we're all sort of saying, okay,

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Speaker 1: it's close to multidecade high. So I totally agree when

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Speaker 1: the dollar turns, it will turn in a big way.

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Speaker 1: I guess the question is, you know when you actually

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Speaker 1: sort of start putting that on. So if you've got

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Speaker 1: a twelve month, you eighteen months, you might say I

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Speaker 1: can put it on now, but the dollars still strong,

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Speaker 1: so you might get a better entry point. So I

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Speaker 1: agree with your thesis. Strong dollar flip side of that

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Speaker 1: at the moment is a very weak yend at a

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Speaker 1: number of our guests quite like Japan at the moment.

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Speaker 1: That's part of the reason. Also some good companies they're

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Speaker 1: offering reasonable bagains. Is this a market you're looking at? Um,

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Speaker 1: It's not actually a preferred market at the moment, And

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Speaker 1: I think that the good thing about the Japanese market

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Speaker 1: is quite the sense that it is obviously reasonably cheap

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Speaker 1: as well. You do obviously have the policy uncertainty. They've

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Speaker 1: got YELD curve control in place at the moment, but

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Speaker 1: you know, there's a lot of questions about how long

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Speaker 1: they'll be able to maintain that. So from a regional perspective,

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Speaker 1: with an equities, we actually prefer the ones that are

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Speaker 1: really really depressed the sentiment wise and also evaluation wise,

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Speaker 1: and so from our perspective we've got the UK. Obviously,

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Speaker 1: the UK is in a very difficult economic situation, but

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Speaker 1: it's it's fully priced in our opinion, and then you've

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Speaker 1: got major extra plan. I guess, you know, the tail

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Speaker 1: winds of a wiker dollar would help there. But you know,

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Speaker 1: we've even now we've seen we're seeing peak pessimism in

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Speaker 1: both the UK and Asia, we think, and that's that's

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Speaker 1: something that should be supportive for investors over the next

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Speaker 1: twelve months or so. Can we find companies that are

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Speaker 1: a somewhat recession proof that have pricing power and are

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Speaker 1: trading at a mid teens multiple? Is it possible, Um,

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Speaker 1: it's gonna go off after the sell off we've seen

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Speaker 1: so far, it's it's getting easier. Um. You know around

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Speaker 1: the world, I mean even in the US, right, So,

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Speaker 1: you've seen valuations in the US were very expensive at

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Speaker 1: the end of last year. We've seen them come off

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Speaker 1: quite sharply, and that's what's driven in the returns. Of course,

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Speaker 1: earnings have continued to go higher. Um, So, so they

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Speaker 1: do exist. You know. Obviously, the consumer staples area is

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Speaker 1: something that we would normally look at in a recessionary

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Speaker 1: environment healthcare as well, but from a global perspective, we're

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Speaker 1: actually still overweight energy, so yes, a recession would hurt them,

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Speaker 1: but they're still extraordinarily cheap um and giving decent dividon yields,

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Speaker 1: So from that perspective, energy is effectively like alright, Steve

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Speaker 1: Bryance will have to leave it there. Thanks for joining

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Speaker 1: us on Bloomberg Deybreak Asia. Steve Bryce's CEIO it's standard

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Speaker 1: chartered wealth management