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Speaker 1: Let's get to our guests. It's Vishnu Vatan, head of

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Speaker 1: economics and strategy at Missouho Bank. So Vishnu the um

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Speaker 1: the fears about recession are mounting. I think it's pretty obvious.

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Speaker 1: You've got the weak retail sales we saw in the US,

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Speaker 1: and software manufacturing is happening everywhere, the stronger bid for

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Speaker 1: treasuries now, the spread also between twos and tents closing

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Speaker 1: in on a d basis points. So what I'm curious

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Speaker 1: about is you don't have a smoothing mechanism with the

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Speaker 1: FED and its intentions elsewhere. Does this kind of unraveled

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Speaker 1: quickly now or is it going to be you know,

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Speaker 1: sort of long, painful process. I think that's that's really

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Speaker 1: what markets are, and I think most economy watches out

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Speaker 1: grappling to get a sense of um that the consensus

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Speaker 1: appears to be that, you know, we might get away

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Speaker 1: with a fairly shallow recession. So despite the fat thing

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Speaker 1: that you know, the U. S economy is is set

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Speaker 1: to grow up point five percent next year, I think

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Speaker 1: the consensus is moving towards a fractional contraction rather than

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Speaker 1: you know, structional growth, and to some extent, the suspicion

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Speaker 1: is that financial conditions play apart because the more markets

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Speaker 1: so perversely enough, the more markets disbelief that the fat

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Speaker 1: will not cut and rarely on pivot hopes, the more

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Speaker 1: the fat may have to tighten because they intend for

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Speaker 1: the policy transmission to come through financial markets, and that

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Speaker 1: could lead to that kind of very unruly unrapily if

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Speaker 1: you must, whereas if we were to have a gradual

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Speaker 1: adjustment process that will take on its own momentum, and

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Speaker 1: perhaps you can get the soft landing. Yeah, there seems

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Speaker 1: to be a pattern emerging that markets rarely, then the

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Speaker 1: Fed reiterates what has been saying all along, and then

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Speaker 1: we get a sell off like we've seen today. We

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Speaker 1: have valuations so consistently out of step with some pretty

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Speaker 1: clear central bank or in wreck. It has to go

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Speaker 1: down to recent memory, because really the question of whether

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Speaker 1: it's a you know, L shaped you shape or V

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Speaker 1: shaped economy became you know, recovery became quite obsolete ten

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Speaker 1: years ago simply because you know, the q E response

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Speaker 1: meant that is almost always a V shape. Just how

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Speaker 1: acute the V is um and in fact, COVID was pridiculous.

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Speaker 1: We didn't even get a v shap. It was just

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Speaker 1: a Nike tic Uh. You know, they ended up much

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Speaker 1: much higher, and so markets are quite used to that. Uh.

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Speaker 1: And I think given that, you know, to be fair

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Speaker 1: to markets, given that over the last fifteen years, you've

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Speaker 1: had the the you know, the relative ratios of financial

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Speaker 1: markets versus the real economy growing substantially, the bet is

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Speaker 1: that the FAT will blink sooner than they that they

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Speaker 1: are indicating, particularly with the vocal references. Something in your

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Speaker 1: camp would be why are companies not reducing headcount more?

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Speaker 1: It seems like the FAT is looking at the labor market,

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Speaker 1: they're seeing reasonably positive signals. Seems to be telling a

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Speaker 1: different story than and some of the other economic data.

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Speaker 1: So we have to suspect that there's a reason why

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Speaker 1: companies are not letting people go. Is it a structural

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Speaker 1: thing or what I mean? That's a great question, and

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Speaker 1: I suspect that, you know, if you get into the

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Speaker 1: details of it, it will reveal very different pictures across

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Speaker 1: the world. For the US, of course, Uh. You know

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Speaker 1: that that that that that slump in in participation rate

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Speaker 1: that never quite recovered. That's one of the reasons because

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Speaker 1: companies are well abared that the available labor labor pool

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Speaker 1: is that much more tighter. But there's the structural shift

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Speaker 1: to green energy, you know. Uh, you know what, whatever

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Speaker 1: digitalization so on and so forth creates a lot more

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Speaker 1: demanding the interim, although a downward adjustment is certainly not

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Speaker 1: a risk to be dismissed. The strong labor force one

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Speaker 1: of the things that's really helped underpin consumer confidence for

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Speaker 1: some time. But as rates continue to rise, inflation continues

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Speaker 1: to bite. So how long do you see the consumer

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Speaker 1: remaining resilient for I think the consumer resilience may have

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Speaker 1: been overstated by our post COVID experience, not just on

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Speaker 1: built up savings, but also the pent up demand of

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Speaker 1: people just wanting to spend, and they were happy to

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Speaker 1: migrate spending from goods to services. Whereas I think this

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Speaker 1: resilience could give way by and by by late twenty

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Speaker 1: twenty three, particularly as as a small gage rates and

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Speaker 1: financing burden starts to bite. Uh and and the the

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Speaker 1: ability to pass on wage increments also becomes more constrained

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Speaker 1: as companies grappled with you know, continuing to raise prices.

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Speaker 1: You danced around my first question nicely, So I just

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Speaker 1: want to put it to your point blank, do you

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Speaker 1: see do you see mild recession, deep recession or no

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Speaker 1: risk session. I see a mild recession. Uh. And and

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Speaker 1: that's from what you know. We were discussing earlier about

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Speaker 1: market still having you know, some kind of a sense

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Speaker 1: to to adjust to the FETs, uh, you know, messaging,

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Speaker 1: whereas if that doesn't come through, it'll be harder. We

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Speaker 1: may get into a deeper recession in twenty twenty four.

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Speaker 1: The other reason for a mild recession is some offset

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Speaker 1: from China reopening could also inaggregate make the picture look

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Speaker 1: a bit lossier. Um. We heard from the Bank of

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Speaker 1: England today obviously tightening by fifty basis points. There was

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Speaker 1: some descent though. Do you suspect that that's one economy

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Speaker 1: that might be overdoing it on the tightening front? I think, um,

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Speaker 1: you know, clearly even with the fifty basis point hike. Um,

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Speaker 1: there is a sense that the Bank of England is

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Speaker 1: going to peak sooner than the than than the rest,

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Speaker 1: and and and quite happy to hold it. Uh. But

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Speaker 1: the signals from the economy have been mixed and and

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Speaker 1: certainly the inflation risks are are not negligible, so it

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Speaker 1: is a It is a tough balancing act. Um and

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Speaker 1: and I sense that another fifty would be, you know,

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Speaker 1: pushing it into the vicinity of overdoing it. Visionally, the

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Speaker 1: reopening of China has been a big story yet stumbling

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Speaker 1: a little bit here. But we haven't heard from Sijin

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Speaker 1: Ping and other top Communist Party officials. The only one

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Speaker 1: we heard from is actually out in this. In this

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Speaker 1: change of leadership, I'm wondering whether or not this gives

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Speaker 1: them an out to flip the process, to actually change

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Speaker 1: their mind at some point soon. Should we worry about that?

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Speaker 1: My sense of it is that directionally and cyclically the

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Speaker 1: reopening is it's not a hit stake. It's quite genuine. However,

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Speaker 1: the devil isn't the details. I think what China really

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Speaker 1: wants to get going is that kind of stopped start

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Speaker 1: stop economic activity. So they really want to raise the

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Speaker 1: thresholds before they need to restrict activity, whereas I don't

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Speaker 1: think they necessarily want to reopen the borders and outbound

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Speaker 1: tourism as quickly. I mean that's there's a certain aspect

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Speaker 1: of keeping taps on on capital flight in in part

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Speaker 1: of that story as well. Uh and and so I

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Speaker 1: think it just boils down to the exact and precise

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Speaker 1: details of China reopening fish New thank you very much

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Speaker 1: for joining us fish New VATA and head of Economics

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Speaker 1: and Strategy at Missouho Bank