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Speaker 1: Let's get to our guests. Goorov Malik, chief investment strategists

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Speaker 1: at State Street Global Advisers, Garov, we understand that the

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Speaker 1: FED doesn't want easier financial conditions, It wants tighter financial conditions.

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Speaker 1: Is that a good thing that they're telling us? That

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Speaker 1: warning investors that you know, if you buy stocks because

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Speaker 1: you're confident in seeing value for twelve months down the road,

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Speaker 1: or if you're buying bonds because you're nervous and that

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Speaker 1: drives down interest rates and that makes conditions easier, well

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Speaker 1: be forewarned because we don't like it, so you shouldn't

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Speaker 1: do it. I mean, is it a good thing that

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Speaker 1: they're warning us or a bad thing that they're telling

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Speaker 1: us how to do our jobs? It's an interesting question. Frankly, right,

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Speaker 1: I mean, they do want, uh, most consumers to behave

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Speaker 1: the way you're describing it, right, They do want financial

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Speaker 1: conditions to tighten because it makes their job much easier.

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Speaker 1: They don't have to raise rates as much. But but Frankly,

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Speaker 1: consumers and I would say many investors are also seeing

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Speaker 1: the fact that inflation is falling at a very fast rate.

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Speaker 1: Investors and consumers also seeing the fact that the FED

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Speaker 1: is going to continue keeping rates really high, and in

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Speaker 1: that process they're going to potentially push the economy into recession,

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Speaker 1: which means they're going to be forced very soon to

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Speaker 1: cut rates. And I think it's that viewpoint that is

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Speaker 1: keeping stock markets a bit more, a bit of buoyant

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Speaker 1: than than where the Fed would like to see them.

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Speaker 1: So it's it's it's a challenge for them as to

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Speaker 1: how they played this out. I think our perspective on

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Speaker 1: it is that they will probably push the rates, keep

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Speaker 1: them high, wait for that s potnum on an inflation

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Speaker 1: to change, and then you'll probably see rate cuts sooner

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Speaker 1: than than the market may be anticipating because the slowdown

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Speaker 1: is very palpable. Yeah, we had Neil cash Carry saying

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Speaker 1: another hundred basis points in the first half of three,

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Speaker 1: So that's rather odd with what you're saying. If we

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Speaker 1: do see some amazing this year, when do you think

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Speaker 1: that might be? So I don't think, I mean, it's

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Speaker 1: not our base case to see a hundred basis points.

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Speaker 1: We certainly do price in five, five and a quarter

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Speaker 1: a speak rates. If you look at FEDS history, typically

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Speaker 1: when rates speak, you normally see a cutting cycler cutting

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Speaker 1: on average in weeks time. So from our standpoint, if

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Speaker 1: rates peak some point in time, as you say in

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Speaker 1: Q one, then by the end of the year, which

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Speaker 1: is kind of what the market is now as well,

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Speaker 1: that you can't expect there to be a rate cutter cutting,

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Speaker 1: which means at some point in time call it between

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Speaker 1: um in age two, risk assets start repricing the fact

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Speaker 1: that they could be growth cutting in four because of

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Speaker 1: the fact that the rate cutting cycle is started. So

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Speaker 1: that's our base case. Yeah, maybe it's a pet peeve

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Speaker 1: of mine, but it just feels like, you know, overstepping

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Speaker 1: one's bounds. For instance, we had the Steven Major on yesterday.

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Speaker 1: You had a fixed income research at HSBC. They're predicting

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Speaker 1: the tenure ye'll be down to two and a half

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Speaker 1: percent by the end of this year because they think

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Speaker 1: the FED will go too far and and the market

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Speaker 1: will will reflect that and yields will will fall. So

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Speaker 1: in effect, you wonder where the FED um where does

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Speaker 1: it Where does it go next? Does it tell companies

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Speaker 1: don't hire people because you're complicating our job. Well, I

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Speaker 1: mean whether the FEDS says or does not say, in effect,

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Speaker 1: that's what companies are doing. I mean, I think companies

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Speaker 1: still have, you know, a high number of vacancies, but

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Speaker 1: if you go inside and look and speak with company management,

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Speaker 1: what you're finding is the same thing that they're keeping

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Speaker 1: the vacancy great high because they want the flexibility to

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Speaker 1: see if there's a recovery, will continue hiding that is

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Speaker 1: potential of a recession. These are just vacancies frankly, that

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Speaker 1: they can they can cut back on. As we look

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Speaker 1: at the labor markets, what we do find is that

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Speaker 1: there is definitely a slowdown that's cutting in the large

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Speaker 1: megacap sector. There is a slowdown and cutting also in

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Speaker 1: the in the middle and small companies. It's only the

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Speaker 1: segment that's sitting sub college fifty employees where we still

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Speaker 1: see robust hiding, and we do see a lot of

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Speaker 1: vacancies in that in that part of the market, but

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Speaker 1: those are generally more lower rate jobs, so they don't

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Speaker 1: complicate FATS picture in terms of they're being wage hikes

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Speaker 1: and wage related inflation. So you know, whether the FAT

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Speaker 1: says or not, that's what companies are doing. Companies are

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Speaker 1: being careful about how they're hiding. I mean you saw

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Speaker 1: that with the new story an Amazon Today salesforce um,

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Speaker 1: I mean you're seeing that across the board. Yeah, and

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Speaker 1: we'll get a bit of steer on that at the

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Speaker 1: end of the week when we get those jobs numbers

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Speaker 1: out of the US as well. But how about earnings

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Speaker 1: and profits? When when do you see those improving? So

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Speaker 1: I mean typically the cycle you follow with with this

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Speaker 1: is I mean I think that you know you're going

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Speaker 1: to continue seeing earnings decline. Now, I don't see earnings

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Speaker 1: falling down, and just use SNP as an example. We

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Speaker 1: don't see earnings falling down to call it a two

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Speaker 1: hundred level, which really indicative of um of their being

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Speaker 1: a you know, slightly bigger than a mild growth recession.

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Speaker 1: We don't see earnings fall into that that level. But

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Speaker 1: I think its going to continue staying challenged through till

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Speaker 1: I would say, easily into three. Almost all the twenty

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Speaker 1: twent three you're gonna see the clients. But we see

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Speaker 1: more like a call it a two fift twenty number

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Speaker 1: UM rather than to thirty five, which is where where

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Speaker 1: it consensus is right now. So we do see it

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Speaker 1: a mark change of cutting. And then there is this

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Speaker 1: this interesting dynamic that starts playing out with stock markets,

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Speaker 1: which is that markets start forecasting and single gays effect

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Speaker 1: going to do any rate cuts, which means future earning

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Speaker 1: is going to be better, which leaves room for the

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Speaker 1: multiple expand. So either way, there is a reasonable chance

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Speaker 1: that you can see some risk asset rally OC cutting

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Speaker 1: in the latter half of three heading into twenty four.

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Speaker 1: The first challenge because we've seen some gains right now,

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Speaker 1: but that may just be some you know, readjustment from

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Speaker 1: big losers last year and such, and just you know,

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Speaker 1: getting back a little bit of lost ground for taking

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Speaker 1: on real risk. What's the trigger or for you? And

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Speaker 1: and seeing that happening in the second half. So it's interesting, right,

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Speaker 1: I mean, what played out in the last two weeks

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Speaker 1: is what we thought would play out in all of three.

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Speaker 1: That we expected some of these conditions start improving, Chinese

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Speaker 1: growth to get better, the dollar to stabilize and start

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Speaker 1: it's it's marched down, which would give room for risk

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Speaker 1: assts to start start rallying. Stabilization occurring in the long

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Speaker 1: end of the curve, which we do see well anchored

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Speaker 1: because of you know, the same demographic forces that existed

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Speaker 1: before COVID, those things would overtake put a lid on

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Speaker 1: where the tenure can go up to We just saw

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Speaker 1: that occur in a very contracted period of time, so

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Speaker 1: I think heading into H one, it would not surprise

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Speaker 1: us and markets were to decline by another five to

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Speaker 1: ten percent, so that would come as no surprise. We

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Speaker 1: do see somewhat um and again I just use SNP

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Speaker 1: asn example. We do see somewhat of a call it

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Speaker 1: demand occurring at the levels, so sort of testing June

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Speaker 1: lows that can occur, but but there is it is

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Speaker 1: demanded that states, so in fact we don't see it

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Speaker 1: falling much lower than that. So decliner cutting in the

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Speaker 1: first half and sort of second half recovery. So things

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Speaker 1: that played under the these called it last six to

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Speaker 1: eight weeks, slowly but surely playing out a gain in

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Speaker 1: three is our is our base case. In terms of trigger,

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Speaker 1: I think the big trigger for US would be looking

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Speaker 1: at Q two and seeing what occurs with China. Clearly

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Speaker 1: seen a change in tone, but also we've seen the

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Speaker 1: effect of COVID and it's a little bit difficult to

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Speaker 1: gauge really what's the cutting on the ground, right, So

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Speaker 1: we're being cautious about and we know that Q four

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Speaker 1: is obviously severely challenged. We suspect Q one is also

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Speaker 1: going to be continue being challenged. But as we get

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Speaker 1: into Q two, we do see the consumer recover strongly.

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Speaker 1: So we do see more like a six percent growth

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Speaker 1: of cutting on the consumption side back to the levels

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Speaker 1: we saw in two thousand one, So that would be

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Speaker 1: a big trigger. We've gotta ask thirty seconds left, and

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Speaker 1: I'm just wondering about China. You're cautious, but do you

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Speaker 1: risk missing the bus here? We've seen the Golden Dragon

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Speaker 1: and decks up thirty in two days. I mean, you know,

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Speaker 1: it's it is a reasonable amount, but again you look

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Speaker 1: at the declines that have occurred or over the last

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Speaker 1: two years. Still reads room for for investors to make

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Speaker 1: some money in China if there is some conviction around

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Speaker 1: fiscal easing, around consumption coming back. Uh, and really we

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Speaker 1: can look past COVID. So yeah, policy change is absolutely grea.

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Speaker 1: Thank you so much. Goreth Malik from State Street Global

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Speaker 1: Advisors