Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jaily. We bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com,
Speaker 1: and of course on the Bloomberg Terminal. This is the
Speaker 1: interview of the day on the shock in awe of
Speaker 1: the short term paper market six months in. It is
Speaker 1: our Kane. It's complex, and you've got to read the
Speaker 1: fourteen thousand pages of stagums written by Tony Kriscenzi to
Speaker 1: understand a little bit of it. We don't have the
Speaker 1: time to do that, so we'll talk to him instead.
Speaker 1: Chriscenzi a pintel Now on where we are, Tony, there
Speaker 1: are two groups. The FED is organized. The FED is
Speaker 1: providing stability and the overnight market surge we've seen in
Speaker 1: Rebo is no big deal. There's another camp that says, Bologny,
Speaker 1: the world's fallen apart, which is a bringing chart upbread
Speaker 1: for TV and on radio. All you need to know
Speaker 1: it's a spike like you've never seen. Think about Jeff
Speaker 1: Bezos going up in space. That's what the spike looks like, Tony,
Speaker 1: what's it mean? Well, it's as if the FED wrote
Speaker 1: its recent framework on disappearing inc to some. Because the
Speaker 1: FEDS new framework released last August said that it wouldn't
Speaker 1: raise this policy rate until the inflation rate had gone
Speaker 1: above its two percent target for some time. It hasn't
Speaker 1: really done that for some time, and so hence the
Speaker 1: idea of disappearing INC. This is the spike we're seeing
Speaker 1: in rates. Of course, relates to the FEDS communication. And
Speaker 1: I should add that Bembrank is an advisor to Pimco
Speaker 1: has famously said that FED policy is two percent action communication.
Speaker 1: It goes to show how how strongly markets take the
Speaker 1: word of the Federal reserved. And certainly UM they were
Speaker 1: taken very strongly. So so the rising rates to just
Speaker 1: to sum up UH, I would say that it's as
Speaker 1: if the Fed is UH put the inflation cop back
Speaker 1: on the beat. It wanted to regain control of the
Speaker 1: inflation narrative because the public's hype over inflation had gotten
Speaker 1: too high. The fact got spooked. That's what it says,
Speaker 1: and it'll probably be good final words Tom on this UM.
Speaker 1: It'll probably be good for the equity market, for the
Speaker 1: credit markets, private investments, including real estate, because it looks
Speaker 1: like it will uh rain in inflation fears, but it
Speaker 1: made in fact. But Tony, this is really important. If
Speaker 1: Chrisensi's telling me that FED got spooked, that's really really important.
Speaker 1: What about the responsiveness, the male ability, the dynamics, the
Speaker 1: elasticity of trillions of dollars. I don't understand the theoretical
Speaker 1: model of what that money does. It came from this pandemic. Well,
Speaker 1: we see seven fifty billion of it in a FED
Speaker 1: repro facility. There's still a lot of money slashing around.
Speaker 1: And it's the reason why the Federal Reserve raised a
Speaker 1: few official polls. Just should say technical policy rates that
Speaker 1: it attracts it has. Its official policy, of course, is
Speaker 1: around zero. But it does things to tweak behavior in
Speaker 1: the money markets. And last week it raised two specific
Speaker 1: rates by five basis points because so there's so much
Speaker 1: money floating around that it was putting downward pressure on
Speaker 1: money market rates called commercial paper, etcetera. And three month bible,
Speaker 1: which reached an all time low of thirteen basis points
Speaker 1: last week. And so there's still that money still is
Speaker 1: out there so to speak, and it won't be removed
Speaker 1: for a long time. Remember, the FED is still purchasing
Speaker 1: billion dollars new securities per month. In other words, it's
Speaker 1: printing another one billion of money each month. It will
Speaker 1: do so into next year, and it won't shrink its
Speaker 1: balance sheet for a wild Why because it's going to
Speaker 1: reinvest the principle and interest payments it gets on the
Speaker 1: mortgages it has. And the Lisa, I don't mean interrupt, Tony,
Speaker 1: but this is so damn important, Lisa. What's so important?
Speaker 1: And Mr Senz just said, is that phrase for a
Speaker 1: very long time? I mean, that's really what the markets
Speaker 1: arguing about. Yeah, the the issue here is that people
Speaker 1: are trying to extra plate forward. What the trillions of
Speaker 1: dollars in excess cash slashing around that Clearly banks and
Speaker 1: the FED are struggling to know how to handle what
Speaker 1: the ramifications for this will be. Salton Posar of Credit
Speaker 1: Suite writing in a recent note that by paying trillions
Speaker 1: in reserves five basis points, the FED just planted the
Speaker 1: seeds of the next liquidity crisis. Tony, do you agree? No?
Speaker 1: For one, markets understand the Federal Reserve's reaction function, which
Speaker 1: is that if there were a liquidity problem with that,
Speaker 1: the federals would stand up and inject additional liquidity. This
Speaker 1: is something we learned after the g FC, the Global
Speaker 1: financial crisis. There was some doubts about whether the FED
Speaker 1: would stick to it in two thousand and thirteen when
Speaker 1: there was a so called tape attention. When there's a
Speaker 1: fear are like now that the FED might remove its
Speaker 1: monetary accommodation. That fear subsided over the years, and look today,
Speaker 1: Federal reserves communicated an idea that the markets didn't believe
Speaker 1: in previously. Yet the reaction was not much of a reaction.
Speaker 1: It's it's rather tame. Uh. You're not seeing meaningful movement
Speaker 1: in global markets from this, i e. Downward movement in equities,
Speaker 1: credit and our jump in interest rates. And so it's
Speaker 1: a rather benign notion related to the reaction function the idea.
Speaker 1: So this notion that there isn't enough liquidity to the
Speaker 1: liquidity crunches, uh, not not happening in my idea. What
Speaker 1: one quick gut notion though, to think about is the
Speaker 1: idea of chaos in periods when UH credit cycles end.
Speaker 1: After two thow we all saw that credit instruments did
Speaker 1: not trade well. And this relates to the breakdown the
Speaker 1: so called principal agent model, which is that there's so
Speaker 1: many dead securities in existence that when the investors go
Speaker 1: to sell that the system can't handle those securities because
Speaker 1: there is no intermediary to bid for them. So that's
Speaker 1: where there's a liquidity crunch in financial markets in debt
Speaker 1: securities because of the problems in the broth the principal
Speaker 1: agent model, and Tony that sort of speaks the so
Speaker 1: called paper tantrum type of model, particularly in credit, because
Speaker 1: it isn't traded in the same kind of way as
Speaker 1: a full faith and credit government debt of the United States.
Speaker 1: Here we are, though, with two year yields moving and
Speaker 1: as a number of analysts noted, people expressing the hawkishness
Speaker 1: heard by a number of the FED members in markets,
Speaker 1: but not, as you point out, in credit, we are
Speaker 1: not seeing the stress in risk assets. How do you
Speaker 1: make sense of this? Well, first, I thought the first
Speaker 1: thing I came to my head when you said that
Speaker 1: is corporate profit story cash flow. What investors care about
Speaker 1: bond investors ecuting investors is cash flow. A bond investor
Speaker 1: is about getting his or her or its money back. Uh.
Speaker 1: And the earning story is quite good. In fact, we
Speaker 1: think the the equity that investors should be overweight equities
Speaker 1: today overweight credit. The story and equities is that the
Speaker 1: earnings will grow near thirty percent this year, and most
Speaker 1: projected we would project as well that earnings will grow
Speaker 1: tem percent next year, tem percent the year after that.
Speaker 1: The Federal Reserves communication, if anything, will elongate the economic
Speaker 1: expansion by team tapering, I should say, bringing down inflation expectations,
Speaker 1: inflation fears the type that might have truncated the the
Speaker 1: economic expansion. And so the story is looking good. And
Speaker 1: again I mentioned I refer back to the notion of
Speaker 1: the Fed's reaction function. Most believed that the Federal Reserve
Speaker 1: would step in and take action if, in fact the
Speaker 1: knockts got into trouble. Tony, I wonder about the renewed
Speaker 1: as Ben Rom calls it on the m Live blog.
Speaker 1: Hey hey, Tony, good to talk to you. He says,
Speaker 1: there's a renewed quest for duration, and I wonder if
Speaker 1: that just point to market expectations of real volatility coming
Speaker 1: back in rates. Looking out several years and into so
Speaker 1: called forward rates, one sees that and even out five
Speaker 1: years that the market consensus is that interest rates of course,
Speaker 1: the you OC curve will be in the low twos.
Speaker 1: In fact, that's down twenty basis points in the past
Speaker 1: week or so. We would say that the sixty forty
Speaker 1: model is alive and well. Returns have been quite good
Speaker 1: this year, called it seven or so. We still believe
Speaker 1: in the hedge value of high quality fixed income instruments.
Speaker 1: And I said earlier that we prefer to be overweight credit,
Speaker 1: overweight equities, ovoid private assets including real estate. But that's
Speaker 1: not a very balanced portfolio. We would say then that
Speaker 1: the way to balance that is, of course through the
Speaker 1: use of aition having fixed income up in a portfolio
Speaker 1: because in the long run of adverse scenarios will affect
Speaker 1: treasuries in a way that benefits portfolio while the other
Speaker 1: instruments don't fare so well. So so we believe in
Speaker 1: the head value of treasuries and and the still big
Speaker 1: believers in that's a shock, you know, I was. I've
Speaker 1: been terrified to check my I r A over the
Speaker 1: last couple of years as we continue to hear that
Speaker 1: the sixty forty model is dead and gone. Why was
Speaker 1: that and and how come you think it's it's healthy
Speaker 1: and surviving well. Thinking first of the returns for the year,
Speaker 1: which are quite respectable. UH cent or so is a
Speaker 1: fair return, and it's very difficult to surmise that in
Speaker 1: a quite adverse scenario that longer term treasuries, and then
Speaker 1: this has been demonstrated in the past week, would not
Speaker 1: fare well in an adverse scenario. So last week a microcosm,
Speaker 1: perhaps when the Dow Jones Industrial average was following five
Speaker 1: points longer term treasury yields with falling uh and this
Speaker 1: is the sort of behavior we would expect in other
Speaker 1: adverse scenarios, and that could be prompted by numerous things
Speaker 1: that are difficult to predict, but we do believe that
Speaker 1: investors would move in that way. I should add finally
Speaker 1: that the reach duration is a global story, and this
Speaker 1: is obvious in Germany where yields where you are, where
Speaker 1: yields are still in negative territory, and also in Japan,
Speaker 1: of course, where the near zero all the way years
Speaker 1: practically correct. So the the reach for duration, the need
Speaker 1: for it is still high, and I should the final
Speaker 1: final note is in sixty models because of the performance
Speaker 1: of equities, if anything, is likely to be some adjustments
Speaker 1: by large pension funds and other investors following it into
Speaker 1: fixed income, especially given some of the volatility of thank
Speaker 1: you so much, thanks this morning. Right now, all of
Speaker 1: this market action dovetails into the banks. There has never
Speaker 1: been a crisis like this in the career of Gerard Cassidy.
Speaker 1: He's with RBC Capital Markets and joins us right now.
Speaker 1: He has seen this before. Angst and handwringing. What does
Speaker 1: all this uproar, Jerry mean for the big banks, tomm
Speaker 1: You're right, We've been through a number of different cycles
Speaker 1: and each one has a different side to it, but
Speaker 1: this one it's quite interesting because we've not seen this
Speaker 1: low rate environment persists for so long, particularly on the
Speaker 1: long end of the curve, with the likelihood of inflation
Speaker 1: heating up two levels possibly we haven't seen in over
Speaker 1: twenty five years. So the industry right now is grappling
Speaker 1: with an excess amount of liquidity caused by the quantitative
Speaker 1: vizing by the Federal Reserve. As you know, Tim, they're
Speaker 1: balancing defense balance sheet now is over eight trillion dollars,
Speaker 1: and that's up from four trillion prior to the pandemic,
Speaker 1: and that's got into the banking system, which is weighing
Speaker 1: on their margins along with this rate environment. You know,
Speaker 1: I looked your right and we were talking about thirty
Speaker 1: or four dollar lobster roles because we were coming on
Speaker 1: with Gerard Cassidy of Portland, Maine. And I guess the
Speaker 1: question is, when you see a pullback in JP, we're
Speaker 1: going of eleven percent or other selected Cassidy stocks, is
Speaker 1: it time for Gerard Cassidy to load the lobster boat.
Speaker 1: I think it is, Tom. In fact, this pullback is
Speaker 1: a great opportunity for investors to buy bank stocks, whether
Speaker 1: it's JP, Morgan Chase, or Bank America, earning the large
Speaker 1: regionals like a PNC or Truest. And you're right, Tom,
Speaker 1: if you believe that the U. S economy is truly
Speaker 1: growing at six or seven percent and throwing three or
Speaker 1: four percent for inflation loan growth historically, Tom, going back
Speaker 1: to the nineteen forties, it's carlat it's a nominal GDP
Speaker 1: growth and the low growth hasn't shown up yet because
Speaker 1: of the liquidity of corporates and consumers. But over the
Speaker 1: next twelve months, we do expect to see loan growth
Speaker 1: with the growth in the economy the way it's projected today,
Speaker 1: at least that this is so important, you know, Grizzel
Speaker 1: pro like Cassidy who remembers that a lobster roll was
Speaker 1: three dollars forty And I'm sorry, the fact of the
Speaker 1: matter is he's looking at twelve months, not twelve hours. Tom.
Speaker 1: I love that your priority right now is a lobster roll.
Speaker 1: I am right there with you, Gerard, talking about the
Speaker 1: liquidity beyond perhaps the beverage of your choice to accompany
Speaker 1: a lobster roll, but rather the liquidity in the financial system.
Speaker 1: You talk about extending loans. The idea that there's three
Speaker 1: point nine trillion dollars of cash of reserves at the
Speaker 1: Federal Reserve versus pre financial crisis of forty six billion
Speaker 1: dollars on average, a complete magnitude change. What is the
Speaker 1: trajectory of getting that money into lending at the same
Speaker 1: time people are drawing down their deposits and actually spending
Speaker 1: that cash, perhaps taking that cash out of the banks
Speaker 1: and into the economy. Now that that is the key metric,
Speaker 1: and it's you're very observant on the numbers, and I
Speaker 1: would suggest that that's what the banks want to do
Speaker 1: to the banks. As I try to remind myself and investors,
Speaker 1: banks are in the business to lend money. They want
Speaker 1: to lend money to qualified borrows, and in right now
Speaker 1: the demands not there, but as the liquidity is used up.
Speaker 1: And remember, the consumer has a number of benefits that
Speaker 1: are expiring in the fall. For example, if you're a
Speaker 1: student and you're deferred your loan payments, that expires in
Speaker 1: the fall. So I think you're gonna find people are
Speaker 1: going to be used up their stimulus payments to help
Speaker 1: with their monthly cash flows. And then we're revolved back
Speaker 1: onto credit cards, which were starting to actually see so
Speaker 1: maybe they are buying those lots of roles Tom the
Speaker 1: thirty ft dollars. Maybe people are buying lobster roles. I
Speaker 1: wonder if companies are going to start buying other companies,
Speaker 1: because he asked the consumer balance it's looking pretty healthy,
Speaker 1: but companies have a lot of cash on hand as well.
Speaker 1: And Jamie Diamond last week and talking about the fact
Speaker 1: that okay, yeah, trading isn't going to be as great
Speaker 1: look to M and A as a driver. How much
Speaker 1: of a growth catalyst do you think M and A
Speaker 1: will be for these banks. And you know, and that's
Speaker 1: a real good question, and I think it will be
Speaker 1: a real driver because as corporates become more confident that
Speaker 1: the U. S economy is out of the downturn that
Speaker 1: we experienced last year, do the pandemic, they will have
Speaker 1: more confidence to either build new plant or equipment or
Speaker 1: go out and buy a competitor to become more efficient.
Speaker 1: So we do see that as being one of the
Speaker 1: accelerants to loan growth, along with regular corporate loan demand,
Speaker 1: you know, the building of all the new green initiatives,
Speaker 1: whether it's electric vehicles and other things, those two are
Speaker 1: really demanding corporate borrowing. And that you will pick up
Speaker 1: as again confidence comes back into this economy. How much
Speaker 1: does your buy banks call get threatened by a flattening
Speaker 1: yield curve as many people now are looking at the
Speaker 1: consensus call as being of that continuing No, that that
Speaker 1: is a risk. I I don't disagree with you whatsoever.
Speaker 1: If we're chatting here a year from now, in the
Speaker 1: ten year government bond yield is a hundred and ten
Speaker 1: basis points or a hundred and twenty basis points, and
Speaker 1: there's more talk of the FED raising shorting that that is,
Speaker 1: that would be a very challenging bank stock environment. I
Speaker 1: don't disagree with you, Jerry, I don't care what I
Speaker 1: care about drug Cassidy is Connecticut or a main lobster role?
Speaker 1: Are you gonna go with a butter sauce? Or in
Speaker 1: honor of your colleague and crime, are you gonna go
Speaker 1: with the Mike mayonnaise Like a good main guy. You
Speaker 1: gotta go with the butter sauce. Time with the nice
Speaker 1: I p A and we'll we'll call it a day.
Speaker 1: Butter sauce. I never thought, Lisa, I'm absolutely shocked. Really yeah,
Speaker 1: just think he was ice called Mike Mayonnaise and the
Speaker 1: whole thing. No, butter sauces is far superior. Okay, thank you.
Speaker 1: I learned something finally today on the show Gerard Cassidy
Speaker 1: of RBC Capital Markets, truly expert. We didn't even have
Speaker 1: time there to go for his single best buy within
Speaker 1: the south Side and ben Emma's was booked. We said, yeah, okay, great,
Speaker 1: seven a slot. Is wonderful that Ben Emmons with us
Speaker 1: on this Monday, and then things blew up on Friday.
Speaker 1: So this is a genius booking of Benjamin Emmons and
Speaker 1: mentally Global Advisors with an important research note over the weekend,
Speaker 1: what'd you right? Yeah at him, I was looking at
Speaker 1: the dynamic of the of the curve on Friday, and
Speaker 1: you know it speaks to that you get guidance actually
Speaker 1: through the dop lots, which was different in the twenty
Speaker 1: thirteen when the fat actually didn't do that and yields jumped,
Speaker 1: and so the opposite effect that happens on the long
Speaker 1: end of the UK that says, okay, maybe these future
Speaker 1: right acts are sufficient to control inflation around that two percent.
Speaker 1: So the market is given some credibility on that front
Speaker 1: to the FAT. But as also lot of technicals at work,
Speaker 1: and you probably have talked about with Tony, you know,
Speaker 1: dis positioning that took place prior to all this flattening
Speaker 1: ever seen was really predicated on that market expecting as
Speaker 1: this is folks, this is what we do when we
Speaker 1: invented surveillance. This was a couple of months ago, when
Speaker 1: we invented surveillance, we said what we want to do
Speaker 1: is get a short term guy like Chriscenzi on the
Speaker 1: show and then get a long term guy like Emmon's
Speaker 1: as well parachute in the Chriscenzi's market. Long term, people
Speaker 1: like you and frankly Jerome Powell, what do they think
Speaker 1: of trillions of dollars in the Kresenzi space, overnight repo
Speaker 1: and the rest of it. So it's not only substantial,
Speaker 1: but it will continue to compress short term interest rates
Speaker 1: over time. As much as you want to communicate that
Speaker 1: you're going to raise rates, you can't have expected to
Speaker 1: yield to jump all the way out to this projective
Speaker 1: rate that the fetest put out. I think it's more
Speaker 1: like a very slow normalization and markets are no notice
Speaker 1: actually because we've experienced this in two when we were
Speaker 1: eating slowly with the two yields over time, I think
Speaker 1: that's what you can expect um. Whereas on the low
Speaker 1: end of the U curve it's this dynamic. I think
Speaker 1: of a technical positioning and the fact that you know,
Speaker 1: maybe these rates are sufficient to keep inflation the future
Speaker 1: under control. All right, So if it is technical, are
Speaker 1: we almost through with the technicality? Ben are we moving
Speaker 1: into a period where perhaps long ends along end of
Speaker 1: rates can possibly rise on the prospect of less fed accommodation.
Speaker 1: I think we said that the weights communicated this same
Speaker 1: compared to twenty thirteen. Is that you know, we were
Speaker 1: missing guidance own rates in twenty thirteen. And if we
Speaker 1: have this idea now that okay, it's gonna go that trajectory,
Speaker 1: you take out some of that rish premium out of
Speaker 1: the low end. At the same time, to your points,
Speaker 1: probably there some scope for rising long term rates as
Speaker 1: new data comes in and surprises still to the upside.
Speaker 1: You know, let's face it, we have an economy that's
Speaker 1: really strong. It's not normal to have rates at these
Speaker 1: low levels. Um, it's as we talked about a few
Speaker 1: weeks ago. It looks like this loca it so I
Speaker 1: would think an explay Rover report, even the core PC
Speaker 1: data comes out this week, surprise to the upside, probably
Speaker 1: a catalyst for rates to somewhat normalize. Again, back to
Speaker 1: inside the race where we came from, Ben, did we
Speaker 1: already get the taper tantrum? Was that what March was?
Speaker 1: Maybe Caylee, but um, you know there's a definition about
Speaker 1: the state potenttrum at Antoni thirteen. It was really a
Speaker 1: communication that confused markets and led to this repositioning on Okay,
Speaker 1: we didn't really expect you to go this fast with
Speaker 1: ending quee and then moving to rate acts maybe in
Speaker 1: the future. So and that respect, the FED I think
Speaker 1: has done a really good job controlling that aspect. But
Speaker 1: I think what the markets were not expecting last week
Speaker 1: was to see this dog blot shift. And I think
Speaker 1: what really having on Friday was just completely recalibrating what
Speaker 1: we saw in March, where you know, the expectation for
Speaker 1: rate acts were the same as they are now today,
Speaker 1: with now the difference that the markets understand what the
Speaker 1: FED is potentially planning to do, including you know, working
Speaker 1: towards this the start of the tapering process. Well, Ben
Speaker 1: to Kelly's point though, isn't it surprising that you're not
Speaker 1: seeing a bigger wobble and risk assets given the fact
Speaker 1: that people are starting to think about tapering sooner. I
Speaker 1: think it's a two two things going on at least
Speaker 1: that because yes, stapering means you know, removal of accommodation
Speaker 1: over time, but we also have to discount of fact
Speaker 1: that the fet is still super accommodated. Fact we will
Speaker 1: continue buy on twenty billion dollars a month, which by
Speaker 1: the way larger than in when it was like eighty
Speaker 1: five billion. So so we're going to continue on that
Speaker 1: pace for at least a number of months, if not longer,
Speaker 1: until that tapering actually happens, maybe presumably in two So
Speaker 1: you're looking at a balance sheet that's going to extend
Speaker 1: beyond nine very quickly, around of time, very quickly. Here,
Speaker 1: what do you need to hear from FETE officials in
Speaker 1: the coming days, including today? I think you want to
Speaker 1: hear that what they've put out as as projections is
Speaker 1: a what we call bullish forecast. They're looking at the
Speaker 1: economy will be protected. Here again, this surge of inflation
Speaker 1: and this forecast that they put out on dop plot
Speaker 1: has always been considered to be an individual that a's
Speaker 1: re emphasized right. They are still at the starting phase
Speaker 1: of considering future organization. Thank you so much for Medally
Speaker 1: Global Advisors. Jane Foley joins the rubble Bank. She's been
Speaker 1: dead on And what's so important, folks, is there price
Speaker 1: targets are moving. I mean the idea of you get
Speaker 1: a price target and a cup of coffee later you're
Speaker 1: halfway there? What do you do with your movable feast
Speaker 1: of FX targets? Jane, how ugly is this ben and
Speaker 1: how do you adapt and adjust rubble bank on a
Speaker 1: Monday morning. Well, to be honest, you know, my my
Speaker 1: one month target at the end of last in the
Speaker 1: middle of last week was at one twenty. I haven't
Speaker 1: changed that yet because we could have a little bit
Speaker 1: of price adjustment. But I do think that the dollar
Speaker 1: is going to remain strong, certainly into the rest of
Speaker 1: this year and certainly this summer. I mean, there had
Speaker 1: already been a lot of focus on Jackson Hole. Maybe
Speaker 1: that was going to be the meeting where the Fed
Speaker 1: became in a more hawkish but I think what we
Speaker 1: saw last there's a clearly really surprising market, and what
Speaker 1: we've seeing now is a huge amount of dollar positioning
Speaker 1: just being squeezed out here. Well, the dollar position has
Speaker 1: been squeezed out. I got a little static on the land.
Speaker 1: We're gonna keep going with Jane Foley, see if we
Speaker 1: can get that. That's you know, clearly, that's what happens
Speaker 1: when the micey the wires over the weekend released seven
Speaker 1: thirty and the mice coming and working the wires as well. Jane.
Speaker 1: You know, I look at the Pacific rim play just
Speaker 1: as something that we haven't talked about today away from
Speaker 1: the majors, and there's just been this idea of better economy,
Speaker 1: Pacific RIM excellence. If I get a strong dollar, I
Speaker 1: can't get Pacific RIM currency strength, which wins out well,
Speaker 1: I think in the short term it's going to be
Speaker 1: the dollar. But you know, what the Fed has done
Speaker 1: last week does potentially allow other central banks to put
Speaker 1: a different slant on their policies. But since if we
Speaker 1: consider you know, the r B A, the r B
Speaker 1: and Z, those economies have been pretty good. They didn't
Speaker 1: really died that much last year compared with other detail economies,
Speaker 1: they've had really strong rebounds um and yet the central banks,
Speaker 1: or particularly r B A has remained pretty wish. Not
Speaker 1: so much to the r B N s A. But
Speaker 1: you could argue that now that the dollar is strengthened
Speaker 1: and their currencies have come off, that this could really
Speaker 1: open the door for other central banks to be a
Speaker 1: little bit more hawkish too. Now you could potentially apply
Speaker 1: that same sort of logic, maybe even to the Bank
Speaker 1: of Thing or maybe even to the ECB. To what
Speaker 1: extent does this open the way for other central banks
Speaker 1: to to subtly change their turn Now we're not necessarily
Speaker 1: expecting the shocks that you've we've seen from the FED.
Speaker 1: And we look at the the Ye curves in the
Speaker 1: UK and look at the Yo curves and in Europe
Speaker 1: and Germany compared with the US over the last few days,
Speaker 1: we haven't seen that much movement, but you know, it
Speaker 1: could mean that we will see more central banks been
Speaker 1: brave enough to come out and being a little bit
Speaker 1: more hawkish because they don't need to fear that their
Speaker 1: exchange rate is going to start zooming higher. Well, and
Speaker 1: that's on the developed central bank side, right Jane. And
Speaker 1: when you look at emerging markets, the Bloomberg or the
Speaker 1: m S c I E m f X index right
Speaker 1: now hovering around its lowest level in a month, obviously
Speaker 1: on the losing end of that dollar strength equation. And
Speaker 1: we know that emerging market central banks have been raising rates,
Speaker 1: they have been tightening policy. They are trying to combat
Speaker 1: rampant inflation. When you look at the legs of Brazil
Speaker 1: and Turkey, are they going to be able to provide
Speaker 1: enough support to their currencies? Well, you know, I think
Speaker 1: at some point we've got to look at the various
Speaker 1: different emerging markets in their own given their own fundamental
Speaker 1: capacity rather than look at the group as a whole,
Speaker 1: because some are better positioned than others. But clearly, you know,
Speaker 1: in terms of there being a stronger dollar, in terms
Speaker 1: of there being a FED who's a little bit more
Speaker 1: hawkers than than than it was before, that is clearly
Speaker 1: bad news for the whole all of em. But we
Speaker 1: still remember that, you know that the theft has still
Speaker 1: being accommodative at this point. Is it's just a little
Speaker 1: less commoditive than before, but still accommodative. So from that
Speaker 1: point of view, there will be still value in some
Speaker 1: emerging markets, but it will be the investors that are
Speaker 1: able to, you know, put apart the different em countries
Speaker 1: and look for the ones that can still offer value. Gene.
Speaker 1: Of course, we're getting the Bank of England decision later
Speaker 1: on this weekend. Right now, I'm looking at a cable
Speaker 1: rate one thirty eight or so. It is the pound
Speaker 1: is the strongest performer in the G ten space today.
Speaker 1: What is your base case for the pound? Well, you know,
Speaker 1: we have seen obviously Sterling come back against you. We
Speaker 1: stole in the last couple of days. That's not the
Speaker 1: same sort of story that we've seen in Sterling against
Speaker 1: the euro. It's we've still really very range bound and
Speaker 1: although it's it's it's moved a little bit, it's still
Speaker 1: towards the end of the lower end of its range.
Speaker 1: Now the Bank of England, as you said, is clearly
Speaker 1: in focus, probably not going to be that much or offer,
Speaker 1: but I think the market's always expecting that chief Economist
Speaker 1: whole day is he leaves the bank this month, will
Speaker 1: come out with some hawkish parting remarks that I think
Speaker 1: the market positioning for that. But I think there isn't
Speaker 1: going to be any particular surprises over the summer. But
Speaker 1: later in the year we could have a little bit
Speaker 1: more taping from from the Bank of England, so we
Speaker 1: need to watch out for that. But that assumes, of
Speaker 1: course that the slowdown and reopening the economy in England
Speaker 1: and doesn't impact confidence so too much that we still
Speaker 1: carry on and see some see that the remainding reopening
Speaker 1: of the economy take place in July. Jane Fowie, thank
Speaker 1: you so much, greatly appreciate it, and tumultuous day. This
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