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Speaker 1: All right, let's get to our guest. Isaac Pool is

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Speaker 1: with us. He is the global ce IO at Oriana

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Speaker 1: Financial Services. On the line from Melbourne, Isaac, thanks for

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Speaker 1: being with us. Tough markets to try to navigate these days.

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Speaker 1: A lot of confusion being displayed in the bond markets

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Speaker 1: to whether or not we're headed to some kind of

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Speaker 1: recessionary pressure here. What's your take if you look at

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Speaker 1: the bond market, what's the message? Yeah, I think it is.

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Speaker 1: That's right. These are very very volatile bond markets, and

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Speaker 1: right now I think they're trying to show a very

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Speaker 1: big consensus that the FED is going to keep hiking

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Speaker 1: until they hit a recession and then they're going to

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Speaker 1: have to pivot and cut. And that's what we are.

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Speaker 1: What we see in the shape of the futures out

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Speaker 1: towards big hump, and there's lots of late cuts, and

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Speaker 1: I think that that's hiding perhaps an alternative view that

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Speaker 1: the FED will get to something that's around neutral, and

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Speaker 1: I think that's somewhere around three to three and a

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Speaker 1: half percent, and then pause, not pivot, and so it's

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Speaker 1: not just a matter of hiking and cutting pivoting. There

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Speaker 1: is a pause in there that could happen. And I

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Speaker 1: think it's a tension between those who are expecting to

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Speaker 1: pause and those who are expecting the pivot that is

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Speaker 1: driving so much of this volatility, right, Isaac David here,

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Speaker 1: And I guess the easy thing to do, if, if

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Speaker 1: if the pivot was the the accurate thing was to

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Speaker 1: simply do nothing. Right. But I guess under the other scenario,

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Speaker 1: where the FED remains high and inflation remains relatively high,

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Speaker 1: what's the investment strategy, because that doesn't seem to be

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Speaker 1: the middle ground that people are talking about as much. No,

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Speaker 1: it isn't the middle ground. But I think actually, whether

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Speaker 1: there is a recession or whether there is not a recession,

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Speaker 1: government bond yields at the moment are offering a pretty

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Speaker 1: good opportunity in the sense that the come on our phone.

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Speaker 1: There hasn't been for many many years. There's downside protection

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Speaker 1: against the recession. But if the FED does pause, if

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Speaker 1: inflation remains a little bit elevated, the drips low, and

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Speaker 1: I think that's that's quite likely, then then bond yields

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Speaker 1: can sort of trade sideways. We've beIN the range for

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Speaker 1: a year, maybe a year and a half, and and

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Speaker 1: that will leave them delivering pretty good returns over over

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Speaker 1: that period in a way they just haven't in the

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Speaker 1: last six months. So there's a real opportunity there to

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Speaker 1: rebalance it. Really the opportunity presented in June to rebalanced

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Speaker 1: back into duration into government bonds, add them to the

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Speaker 1: portfolio and benefit from the the both way nature of

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Speaker 1: that of that trade. So what does that mean for

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Speaker 1: the equity market? I'm trying to understand. Are are we

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Speaker 1: in a period, particularly where the US is concerned, where

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Speaker 1: we may be a little over bought. I think that

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Speaker 1: we're definitely seen a big move driven by that by

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Speaker 1: that moved lower in duration, lower yields have helped growth

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Speaker 1: and that's been a driver of the big valley we've

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Speaker 1: seen so far. But also alongside that, the economy has

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Speaker 1: been pretty resilient. Inflation is translated to better earnings and

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Speaker 1: I have been expected. And I think if if the

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Speaker 1: Fed can pause and extend this this cycle a little bit,

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Speaker 1: you're going to get upside surprises. And that means probably

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Speaker 1: isn't their market rallies as a broad consensus is suggesting,

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Speaker 1: and actually something that could be quite durable. I don't

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Speaker 1: think we're going to see shifteam send gains every every

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Speaker 1: four weeks, but we could continue to see returns push

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Speaker 1: higher over three without a big bear market is Isaac,

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Speaker 1: Let's maybe turn our attention as part of the world here.

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Speaker 1: I mean, there doesn't seem to be at least any

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Speaker 1: strong case to be long China at the moment. Do

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Speaker 1: you see otherwise or is there anything else that that

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Speaker 1: that you see perhaps just reason for caution right now?

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Speaker 1: I think if you look in the review mirror, there's

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Speaker 1: there's not a lot of positivity in China that the

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Speaker 1: economic gata is bad. The kind of situation is ad

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Speaker 1: it's it's difficult to draw any other conclusion than it's

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Speaker 1: probably in a recession. However you'd like to define a

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Speaker 1: recession in China, and that's that's been baked into into

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Speaker 1: prices for China's under performing a lot. I think looking

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Speaker 1: out over the next twelve to eighteen months that perhaps

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Speaker 1: is from upside there when when you consider we're I

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Speaker 1: think through a recession there, and that's going to come

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Speaker 1: through COVID policies being relaxed, not not this month, not

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Speaker 1: next month, perhaps after the National Congress at the end

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Speaker 1: of this year and UH and there is upside to

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Speaker 1: economic growth from the levels right now, and I think

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Speaker 1: that hasn't been priced into markets, and so there are

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Speaker 1: genuine opportunities in Chinese equities at the moment because it's

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Speaker 1: such a critical part of the equation. When you look

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Speaker 1: at the region, I'm wondering, does that necessarily mean you're

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Speaker 1: you're bearish on the eight pack region overall? Right now?

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Speaker 1: I think, well, right right now, it's it's the case

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Speaker 1: that the broader region has been dragged down by by China,

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Speaker 1: has been dragged down by rates moving higher in the

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Speaker 1: US and what your stolid strengthening oil prices being high

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Speaker 1: up until recently, and all of those are sort of

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Speaker 1: a trifector of that news to the region. And it's

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Speaker 1: not surprising that there's been such strong under performance both

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Speaker 1: in the currency and in the equity markets, but that

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Speaker 1: we are seeing the region genuinely opening up now. We're

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Speaker 1: seeing travel come back through the borders are opening up,

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Speaker 1: Supply sides are starting to improve by side disruptions. And again,

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Speaker 1: I think if if you buy into the idea that

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Speaker 1: China's economy will recover throw three, then then that does

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Speaker 1: provide quite a lot of scope for the broader regions

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Speaker 1: to write a point of that. The flying appointment to

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Speaker 1: that argument is if the US and AS a deep

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Speaker 1: recession next year generated by the third hyping too much,

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Speaker 1: then the game is over. And if you're going to

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Speaker 1: see the region really suffering in that environment, is I

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Speaker 1: mean juxtaposed again against and we're talking about what you

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Speaker 1: just mentioned they say equities in the region more broadly

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Speaker 1: against the you know, the ball or bearcase in Europe.

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Speaker 1: What do you think looks better? But I think Europe

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Speaker 1: is out on its own as as a place with

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Speaker 1: structural issues that are certainly not helped by the sickly

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Speaker 1: do impact of the war in Ukraine and higher energy prices,

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Speaker 1: the impact that's having on concener confidence, and and a

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Speaker 1: central bank that simply will not hype as much as

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Speaker 1: the market would like, and we'll probably under deliver on

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Speaker 1: on rate heights in terms of frontloading them. So in

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Speaker 1: our view, Europe isn't a void and is likely to

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Speaker 1: underperform the risk of the world over the new term

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Speaker 1: and probably open the eight twenty four months as well.

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Speaker 1: So I may have some sav for you. Crude oil

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Speaker 1: it was down big here in New York by more

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Speaker 1: than three percent looks as though we are inching towards

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Speaker 1: some type of nuclear deal the West with Iran. One.

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Speaker 1: If there is the resumption of kind of Iranian exports

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Speaker 1: here and we see CREWD make a move let's say

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Speaker 1: sub eighty dollars a barrel, that would be w t

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Speaker 1: I does it change your outlook in any way? It

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Speaker 1: definitely helps. I think if we can see oil prices

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Speaker 1: i'd say normalized to around eighty dollars a barrel, so

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Speaker 1: and sit there for for next twelve months, it's going

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Speaker 1: to help not just Europe, it will help the rest

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Speaker 1: of the world. It will bring headline inflation down and

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Speaker 1: and give some breathing room to say the ECB and

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Speaker 1: the Bank of England as well for that case, in

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Speaker 1: a place where they're really at the moment called between

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Speaker 1: the rock and a hard place. And I do think

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Speaker 1: I do expect oil prices will settle around there. I

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Speaker 1: just think that there's there's been a momentum that's going

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Speaker 1: to be difficult to stop in Europe in slowing growth

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Speaker 1: and a real challenge for its equity markets. It's act

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Speaker 1: very quickly. Here. Let's book end. There's you. We started

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Speaker 1: out by you saying, you know, good duration and government bonds.

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Speaker 1: So let's say three point one percent on treasuries. Do

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Speaker 1: I take that on the two year or the thirty year?

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Speaker 1: I think right now i'd be looking, um, I'd be

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Speaker 1: quite comfortable with taking at the front end, because I

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Speaker 1: think you could see a bit of a rally there

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Speaker 1: over the next six or twelve months. Interesting. And yes,

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Speaker 1: that seems to be a non conviction call, contrarian call

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Speaker 1: that this point in time. But yes, Isaac, well, thank

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Speaker 1: you so much for joining US Global ce IO at

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Speaker 1: Oriona Financial Services