1 00:00:00,080 --> 00:00:02,800 Speaker 1: Let's get to our guest. Silas jaw is with us 2 00:00:03,040 --> 00:00:06,120 Speaker 1: for the half hour. Silish is chief economist also the 3 00:00:06,120 --> 00:00:09,760 Speaker 1: head of market research at r HB Banking Group. He's 4 00:00:09,760 --> 00:00:12,959 Speaker 1: on the line from Kala Lumpur. Silas, thanks for being 5 00:00:12,960 --> 00:00:15,200 Speaker 1: with us. I think what the market is really trying 6 00:00:15,320 --> 00:00:18,279 Speaker 1: to deal with right now is the notion of being 7 00:00:18,360 --> 00:00:21,759 Speaker 1: at peak inflation. So we had this CPI data in 8 00:00:21,760 --> 00:00:23,840 Speaker 1: the US coming in on the soft side. I just 9 00:00:23,920 --> 00:00:25,960 Speaker 1: ran the function on the Bloomberg terminal looking at the 10 00:00:25,960 --> 00:00:29,560 Speaker 1: Bloomberg Commodity Index. We reached a fifty two week high 11 00:00:29,560 --> 00:00:33,199 Speaker 1: back in early March, and from that point until today 12 00:00:33,280 --> 00:00:37,600 Speaker 1: we're down about four. So the commodity story seems to 13 00:00:37,640 --> 00:00:42,360 Speaker 1: be indicating that maybe perhaps we're at peak inflation, or 14 00:00:42,400 --> 00:00:44,239 Speaker 1: at least we've seen it. Would you buy into that? 15 00:00:46,200 --> 00:00:48,839 Speaker 1: I think in terms of thinking about it from the 16 00:00:49,040 --> 00:00:52,840 Speaker 1: month on a month and month momentum basis, I think 17 00:00:52,840 --> 00:00:55,840 Speaker 1: a lot of that could be behind us. But the 18 00:00:55,920 --> 00:00:58,760 Speaker 1: key warning really is, you know, we have been through 19 00:00:58,840 --> 00:01:01,640 Speaker 1: this episode before with the last year, year, year and 20 00:01:01,680 --> 00:01:04,440 Speaker 1: a half or so um and there's gonna be plenty 21 00:01:04,480 --> 00:01:08,160 Speaker 1: of volatility in the inflation data because the underlying strength 22 00:01:08,800 --> 00:01:11,759 Speaker 1: of the U S economy is very much They're fairly 23 00:01:11,800 --> 00:01:15,320 Speaker 1: resilient from what we can see from our bottoms up indicators. 24 00:01:15,319 --> 00:01:18,480 Speaker 1: So although commodity prices are coming off and likely to 25 00:01:18,520 --> 00:01:21,200 Speaker 1: continue to do so towards the year end um, the 26 00:01:21,240 --> 00:01:24,920 Speaker 1: economy remains fairly fairly well supported, so we'll see hard 27 00:01:24,959 --> 00:01:28,160 Speaker 1: to make that call peak inflation. Our call is basically 28 00:01:28,160 --> 00:01:33,200 Speaker 1: we should start seeing signs of a sustained decline and 29 00:01:33,280 --> 00:01:36,560 Speaker 1: momentum of the headline and core CPI by year in 30 00:01:37,160 --> 00:01:40,440 Speaker 1: early next year. And in terms of how this is 31 00:01:40,480 --> 00:01:44,520 Speaker 1: all playing out into the equity market, you're saying, looking 32 00:01:44,560 --> 00:01:48,120 Speaker 1: for some key technical levels. If the current valley is sustainable, 33 00:01:48,280 --> 00:01:51,080 Speaker 1: do you see the SNP five potentially rates your new 34 00:01:51,120 --> 00:01:55,680 Speaker 1: record high here? I think there are three key factors 35 00:01:55,920 --> 00:01:58,240 Speaker 1: to make that call, and that's what we're looking at 36 00:01:58,360 --> 00:02:01,760 Speaker 1: very very closely, is why that by year end um 37 00:02:01,800 --> 00:02:04,600 Speaker 1: eating the set is mostly done. We think that's going 38 00:02:04,640 --> 00:02:07,080 Speaker 1: to be the case. Our fet funds rate forecast for 39 00:02:07,160 --> 00:02:12,359 Speaker 1: year end is three um and the so called terminal 40 00:02:12,440 --> 00:02:14,880 Speaker 1: rate from our perspective is four percent, so I think 41 00:02:14,880 --> 00:02:17,760 Speaker 1: we're gonna get there. September, our forecast is seventy five 42 00:02:17,800 --> 00:02:21,360 Speaker 1: basis points still let's see how you know, data points 43 00:02:21,440 --> 00:02:25,520 Speaker 1: passing November, sorry, September pan out. But the bottom line 44 00:02:25,600 --> 00:02:28,120 Speaker 1: is that the worst of the deterioration and risk sentiment 45 00:02:28,520 --> 00:02:30,760 Speaker 1: that we saw, particularly in the stock market, which is 46 00:02:30,760 --> 00:02:33,399 Speaker 1: pricing in some sort of a very deep US recession 47 00:02:33,720 --> 00:02:36,480 Speaker 1: and very deep global slowdown in the months of May 48 00:02:36,480 --> 00:02:39,480 Speaker 1: early June. I think that's that's pretty much behind us. 49 00:02:39,560 --> 00:02:43,400 Speaker 1: So for us, the overall global asset allocation is overweight 50 00:02:43,440 --> 00:02:47,520 Speaker 1: fixed income market way to equities, and underweight cash. I 51 00:02:47,560 --> 00:02:49,680 Speaker 1: was looking at a recent note from the strategist over 52 00:02:49,720 --> 00:02:54,200 Speaker 1: at City Group, and they say that analyst recommendations overall 53 00:02:54,240 --> 00:02:57,399 Speaker 1: are highly optimistic, maybe too much so, and that could 54 00:02:57,440 --> 00:02:59,760 Speaker 1: be a warning sign. Would you buy into their faces? 55 00:03:01,560 --> 00:03:04,280 Speaker 1: I think for much of the bad news, as far 56 00:03:04,520 --> 00:03:08,360 Speaker 1: as how markets across the world have moved, uh, you know, 57 00:03:08,440 --> 00:03:10,840 Speaker 1: in the first half of the year, has pretty much 58 00:03:10,919 --> 00:03:15,160 Speaker 1: price skin that ultimately earnings aren't going to be as 59 00:03:15,240 --> 00:03:19,240 Speaker 1: let's say, elevated as what market analysts are forecasting. So 60 00:03:19,280 --> 00:03:20,840 Speaker 1: I think a lot of it is already in the 61 00:03:20,880 --> 00:03:23,800 Speaker 1: price I mean, and that's for that's what we see 62 00:03:24,440 --> 00:03:29,079 Speaker 1: in previous market cycles during these signs of stress cycles 63 00:03:29,320 --> 00:03:32,120 Speaker 1: wanted to get your thoughts on the China inflation picture 64 00:03:32,160 --> 00:03:34,079 Speaker 1: that we saw yesterday. A lot of that driven by 65 00:03:34,120 --> 00:03:36,880 Speaker 1: pork but now you've got the POC sounding the alarm 66 00:03:36,920 --> 00:03:39,360 Speaker 1: about inflation risks. What does that mean in terms of 67 00:03:39,400 --> 00:03:43,560 Speaker 1: potentially I guess less stimulus coming through from authorities And 68 00:03:43,920 --> 00:03:45,960 Speaker 1: just tell us about your view here on China because 69 00:03:45,960 --> 00:03:50,600 Speaker 1: you've got to sell China equities. Cool. Yes, So for 70 00:03:50,720 --> 00:03:54,040 Speaker 1: US UM we start with the sort of the policy 71 00:03:54,120 --> 00:03:58,480 Speaker 1: environment both domestically and externally towards China, and still a 72 00:03:58,560 --> 00:04:02,520 Speaker 1: lot of uncertainty, not on be related to the UM 73 00:04:02,600 --> 00:04:08,160 Speaker 1: you know, the China Taiwan relationship, but also basically domestic 74 00:04:08,240 --> 00:04:12,240 Speaker 1: policy continue to be in sort of a flip stop place, 75 00:04:12,840 --> 00:04:16,279 Speaker 1: particularly as it relates to the like tech sectors, some 76 00:04:16,400 --> 00:04:21,960 Speaker 1: of the very wealthy Chinese individuals On shorehand, the geopolitical 77 00:04:21,960 --> 00:04:26,320 Speaker 1: tensions between the Western allies and China will will continue. 78 00:04:26,360 --> 00:04:29,720 Speaker 1: So that puts US in a situation, along with our 79 00:04:30,160 --> 00:04:32,800 Speaker 1: fairly modest growth forecast for this year next year at 80 00:04:32,800 --> 00:04:38,119 Speaker 1: four a piece of seth China UM and basically switch 81 00:04:38,200 --> 00:04:41,800 Speaker 1: over potentially to to India. That's what would be our 82 00:04:41,880 --> 00:04:45,960 Speaker 1: key thesis regarding China. So many key trading partners for 83 00:04:46,120 --> 00:04:48,920 Speaker 1: China in the region, among them South Korea. And we're 84 00:04:48,920 --> 00:04:50,840 Speaker 1: looking at the trade data for the first ten days 85 00:04:50,839 --> 00:04:54,680 Speaker 1: of the month. Exports up twenty three that's year every year. 86 00:04:55,240 --> 00:04:58,320 Speaker 1: Chip exports were down, but boy, the autos surged by 87 00:04:58,360 --> 00:05:01,760 Speaker 1: more than a hundred and oil products up UH in 88 00:05:01,839 --> 00:05:04,680 Speaker 1: big time as well. Give me your sense about what 89 00:05:04,880 --> 00:05:09,080 Speaker 1: is happening with the South Korean economy right now, I mean, 90 00:05:09,400 --> 00:05:13,960 Speaker 1: basically the external side, much like the rest of Asia, 91 00:05:14,040 --> 00:05:16,560 Speaker 1: with the exception of China, I think even China trade 92 00:05:16,600 --> 00:05:18,640 Speaker 1: data is pretty good. That I take that back is 93 00:05:18,640 --> 00:05:22,200 Speaker 1: that the bottom line is the exports trajectory in Korea 94 00:05:22,240 --> 00:05:24,599 Speaker 1: and the rest of the region is very much driven 95 00:05:25,160 --> 00:05:29,120 Speaker 1: by the US consumer. That's the ultimate destination of Korean 96 00:05:29,240 --> 00:05:32,560 Speaker 1: and Asian exports. So our forward looking view is that 97 00:05:32,640 --> 00:05:35,120 Speaker 1: the U s economy will slow two and a half 98 00:05:35,200 --> 00:05:37,159 Speaker 1: this year. Is the average in next year's two percent 99 00:05:37,320 --> 00:05:39,560 Speaker 1: a little bit slightly below trend next year, but we 100 00:05:39,560 --> 00:05:41,760 Speaker 1: should start we should start seeing a little bit of 101 00:05:41,839 --> 00:05:45,960 Speaker 1: deterioration UH in the momentum of exports towards the fourth quarter, 102 00:05:46,040 --> 00:05:49,800 Speaker 1: early part of of of of next year. Nothing as 103 00:05:49,839 --> 00:05:53,279 Speaker 1: catastrophic as what markets were pricing in uh in the 104 00:05:53,320 --> 00:05:55,599 Speaker 1: month of month of June, as far as the dollar 105 00:05:55,760 --> 00:05:58,839 Speaker 1: and the global stock mark markets of very very worried 106 00:05:59,440 --> 00:06:03,000 Speaker 1: sentiment at that point of time. No longer so. But nevertheless, 107 00:06:03,080 --> 00:06:06,360 Speaker 1: this for looking view the concerns so about China and 108 00:06:06,400 --> 00:06:09,359 Speaker 1: particularly their ongoing struggles with containing the pandemic and the 109 00:06:09,400 --> 00:06:12,520 Speaker 1: property market downturn, as we know very much impacting a 110 00:06:12,640 --> 00:06:16,479 Speaker 1: number of nations globally and around this region in particular. 111 00:06:16,560 --> 00:06:20,320 Speaker 1: We had that second quarter contraction here in Singapore and 112 00:06:20,320 --> 00:06:23,440 Speaker 1: now they have trimmed their twenty two growth forecast too. 113 00:06:24,000 --> 00:06:27,400 Speaker 1: How much further I guess downside risks do you see 114 00:06:27,440 --> 00:06:30,560 Speaker 1: two other economies across OS and you mentioned you liked India, 115 00:06:30,600 --> 00:06:33,000 Speaker 1: but but what would you be seeing as potentially a 116 00:06:33,040 --> 00:06:39,200 Speaker 1: concern here? So for US, we already had downgraded growth 117 00:06:39,240 --> 00:06:42,920 Speaker 1: and upgrade inflation in our third quarter outlook and report, 118 00:06:42,960 --> 00:06:46,080 Speaker 1: and that was published empty end of June. We should 119 00:06:46,080 --> 00:06:50,279 Speaker 1: start seeing other analysts on the south side starting to 120 00:06:50,360 --> 00:06:53,960 Speaker 1: downgrade growth in Asia to Japan. Suit I think I 121 00:06:54,360 --> 00:06:57,599 Speaker 1: would say sometime this this quarter and that pace of 122 00:06:57,640 --> 00:07:01,520 Speaker 1: downgrades will most likely excel rate in the fourth quarter 123 00:07:01,520 --> 00:07:05,839 Speaker 1: of the year. That's how uh. The evolution of a 124 00:07:06,120 --> 00:07:10,040 Speaker 1: of a market expectations on growth in this part of 125 00:07:10,080 --> 00:07:13,600 Speaker 1: the world will ensue and inflation I think the markets 126 00:07:13,640 --> 00:07:17,320 Speaker 1: will also in terms of south Side, will raise their forecast. 127 00:07:17,320 --> 00:07:20,400 Speaker 1: Closure are forecast where we have been fairly hawkish for 128 00:07:20,480 --> 00:07:23,760 Speaker 1: quite some time. Anyways, all right, Salas, great to have 129 00:07:23,800 --> 00:07:25,240 Speaker 1: you with us. Thank you so much for joining us. 130 00:07:25,280 --> 00:07:27,800 Speaker 1: That is, salis chief economist and head of market research 131 00:07:27,840 --> 00:07:29,239 Speaker 1: at our HB Banking Group.