Speaker 1: We're joining us now right here in Sydney. We've got
Speaker 1: Nick Sean Maker is a senior investment consultant and portfolio
Speaker 1: manager at Evidentia Group, to talk about a number of things.
Speaker 1: And Nick, I just want to start with central banks
Speaker 1: if I can. We just heard from Morgan Stanley. They're
Speaker 1: saying markets haven't for the priced and what's coming from
Speaker 1: the Fed. But two was the year of tightening. What's
Speaker 1: going to be particularly with four new voting members on
Speaker 1: the FED. Yeah, Look, it's it's really interesting if you
Speaker 1: see where the market is anticipating the terminal right to be,
Speaker 1: it's about four point eight percent, and then for rates
Speaker 1: to rate cuts to come later in the year, and
Speaker 1: we know the FED is expecting rates to go above
Speaker 1: five and stay there for the rest of the year.
Speaker 1: So look, a lot of that's going to depend on
Speaker 1: the shape of the recession. Um. The shape of the
Speaker 1: recession will largely be determined by inflation, and inflation now
Speaker 1: is going to be driven by core services. So you know,
Speaker 1: we still do have a very very tight labor market
Speaker 1: in the US UM and we need to see a
Speaker 1: better balance labor markets. So if we don't see the
Speaker 1: deflationary forces and the base effects of inflation. Seeing numbers
Speaker 1: come down, market will be in the first half of
Speaker 1: the year, you know, the FED is going to have
Speaker 1: to to move more aggressively. So you know, there certainly
Speaker 1: is a case to see that the FED dot plots
Speaker 1: look realistic, but there's also obviously reasons at the market
Speaker 1: thinks that perhaps the recessions worse than what the FED
Speaker 1: make expect. You can see that by the terminal rate
Speaker 1: pricing and the inversion of the yield curve. So it's
Speaker 1: you know, yeah, we've seen we've seen r it's coming.
Speaker 1: I mean, we've seen inflation coming down a little bit.
Speaker 1: I'm not sure if the read of changes is enough
Speaker 1: to impress you. But when you look at it, I mean,
Speaker 1: are you enough encouraged by this to get long or
Speaker 1: do you think there's just more time, that more wider
Speaker 1: that has to go under the bridge. I think there's
Speaker 1: more water that has to come under the bridge. It's
Speaker 1: great to see two consecutive months where core inflation has
Speaker 1: been below expectations. I mean the risk out there to
Speaker 1: the risks out there is obviously the longer inflations around,
Speaker 1: the more you have inflation expectations. Having a risk becoming
Speaker 1: unhinged and that going through the wages like we saw
Speaker 1: in the seventies um and there still is the million
Speaker 1: dollar question of you know, some of these exogenous supply
Speaker 1: issues that have contributed to inflation, COVID zero, Russia and Ukraine.
Speaker 1: You know, will commodities be weaponized next year. So it's
Speaker 1: just a very very very fluid environment and it's just
Speaker 1: all about watching the data for now in terms of
Speaker 1: supply issues. I'll give you exhibit A China and it's
Speaker 1: bumby exit out of COVID zero settings. What are you
Speaker 1: anticipating this ride is going to be like in the
Speaker 1: next few months. Look, it's it's uncertain. I mean, you
Speaker 1: know we've seen China flagging this or market participants forecasting
Speaker 1: and enter COVID zero for so long. You know, there
Speaker 1: is a risk that the population at some stage with
Speaker 1: COVID cases rising, kind of self insured and kind of
Speaker 1: lockdown themselves even if the country is opening up. I
Speaker 1: think another interesting thing to watch around what happens with
Speaker 1: China is what does it do to inflation. So you
Speaker 1: could expect, if you know, all other things being equally saw,
Speaker 1: how the rest of the world equity markets behaved when
Speaker 1: economies were open. But then if you do have um
Speaker 1: China reopening, commodity prices go up initially probably have a
Speaker 1: non inflationary boost growth, but then does it also cause
Speaker 1: problems for the fat if it contributes to inflation throughout
Speaker 1: throughout next year? Um So lot we watch. We had problems,
Speaker 1: or at least investors took issue with policy coming out
Speaker 1: of China, and now it seems like we've got a
Speaker 1: kind of two chains of command. There's a there's a
Speaker 1: more moderate one that kind of is holding sway at
Speaker 1: the moment, and there's the really strict side that we've
Speaker 1: seen in the past. And I don't know if you're listening.
Speaker 1: Before the type of the hour, I did a meter
Speaker 1: review and there's an analysis piece in the Nick Asian
Speaker 1: review that says that you know, people are confused. You've
Speaker 1: got Premily Ka chiang uh dictating some matters, and then
Speaker 1: the number two, the incoming Lee Chang, both of their
Speaker 1: hands on the tillers. So I guess as an investor
Speaker 1: you're faced with that difficulty as well. Yeah. Absolutely, I mean,
Speaker 1: so there's the power at the moment emphasizing common prosperity
Speaker 1: and regulation and that is a risk for markets as
Speaker 1: well as it has been for the last two years.
Speaker 1: I mean that there is also more progressive people in
Speaker 1: China that don't want to be perceived as an enemy
Speaker 1: of the West. But you know how that plays out
Speaker 1: through time. It is hard to see, but you can
Speaker 1: see now people take into the streets and protesting, and
Speaker 1: that in itself can cause China to be more nationally
Speaker 1: stick and all kinds of geopolitical conclusions or ramifications could
Speaker 1: result from that, as we see all around the world.
Speaker 1: We've heard again today from the PBOC, recently repeating it's
Speaker 1: vow to support the property sector backing him and a
Speaker 1: maintaining liquidity in the financial system. The work conference over
Speaker 1: the weekend stressing the importance of the Internet. Both of
Speaker 1: these parts of the economy took a bit of a
Speaker 1: beating over the past twelve months. Because the time to
Speaker 1: take a look now is the flora look. I think
Speaker 1: there's a few things around that. You know, despite having
Speaker 1: the best monthly return in Chinese equities in November for
Speaker 1: I think about twenty years, they're still at a discount
Speaker 1: verse to the rest of the world, So that warrants
Speaker 1: some attention. Um if we're now in the first transition
Speaker 1: of the US dollar peaking. Well, that tends to be
Speaker 1: a green light for e MS sets, whether it's equities
Speaker 1: or born so again that warrants some attention. You just
Speaker 1: have to be extremely extremely selective. On the other side
Speaker 1: of that, you can see many parallels to China to
Speaker 1: Japan in the nineties with aging demographics and a very
Speaker 1: over levied property sector. So it's it's again just a
Speaker 1: very fluid backdrop like most things. At the moment, it's
Speaker 1: a big day today for the United States and and
Speaker 1: for Ukraine, with Vladimir Zelinski giving an address to the
Speaker 1: Congress and meeting with the President. I'm just curious for
Speaker 1: the night. You know, the President talked about seeking a
Speaker 1: just piece in the war. Does it feel like there's
Speaker 1: any end in sight to this? No, and it'd be
Speaker 1: interesting to know what they what they mean by peace
Speaker 1: in that context. But there doesn't seem to be an endgame.
Speaker 1: It doesn't seem to be an endgame that I can
Speaker 1: see there. I think when we see NATO, Ukraine and America,
Speaker 1: let's say winning or making grounds in Russia, you know,
Speaker 1: there still is orbit very low probability to the risk
Speaker 1: that Russia then comes back with obviously, you know if
Speaker 1: they're desperate new killer, So I mean, you almost don't
Speaker 1: want to see things getting better. It's a bit of
Speaker 1: a catch twenty two. So I don't know what the
Speaker 1: endgame there is, but you know you can see the
Speaker 1: world moving to the bricks in some case of Saudi
Speaker 1: Arabia and so on, so you know that this this
Speaker 1: hegemon of the US is certainly being confronted. All right,
Speaker 1: Nick seon Maker, senior investment consultant, Ample follow your manager
Speaker 1: at Evidentia Group. Thanks so much for joining us.