WEBVTT - Surveillance: ECB Policy with Ladha 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 0:00:23.920 --> 0:00:29.360 and of course on the Bloomberg terminal. Let's get right 0:00:29.400 --> 0:00:31.720 to in an advance or Global Wall Street the story 0:00:32.120 --> 0:00:34.280 of this February. We can do this with a side 0:00:34.520 --> 0:00:37.239 a lot of head of G ten rate strategy at 0:00:37.240 --> 0:00:40.920 America's at BMP Perry. But hey, I love your research. 0:00:41.000 --> 0:00:43.720 Note and what I note there is a migration from 0:00:43.800 --> 0:00:47.600 four to six rate hikes in the United States. What 0:00:47.680 --> 0:00:50.400 do you need to see to ever go more from 0:00:50.440 --> 0:00:55.560 six to eight rate hikes? Absolutely? Thank you, Tom, and 0:00:55.640 --> 0:00:58.560 thank you for having me. Um. Look, I think we've 0:00:58.600 --> 0:01:01.320 been on the hoky side for some time and really 0:01:01.440 --> 0:01:06.760 opening up the distribution to more UM. There is a 0:01:06.880 --> 0:01:09.200 question of of length of runway, and I think that 0:01:09.280 --> 0:01:12.480 question is even more asked now with the ECB and 0:01:12.760 --> 0:01:15.039 the Bank of England being a little more aggressive on 0:01:15.040 --> 0:01:17.960 on exit plants. The FED needs to move, The FED 0:01:18.040 --> 0:01:22.200 needs to move quickly, clearly, behind the curve M and 0:01:22.760 --> 0:01:25.520 six rate hikes may maybe more that the center of 0:01:25.520 --> 0:01:28.920 a distribution. We can see more. We could see one 0:01:28.959 --> 0:01:31.800 every meeting, and we don't rule out fifty or a 0:01:31.880 --> 0:01:34.560 FED funds right close to two year end. So hey, 0:01:34.640 --> 0:01:36.120 let's just build on what you just said. The length 0:01:36.120 --> 0:01:38.400 of the runway. Does it make it easier or harder 0:01:39.040 --> 0:01:43.480 that they're all trying to do this at the same time. Look, 0:01:43.480 --> 0:01:45.560 I mean we've heard from power this time is different 0:01:45.600 --> 0:01:48.680 that something we've said before. And how this time is different, 0:01:48.720 --> 0:01:51.360 we think is with velocity. This is about pace of 0:01:51.520 --> 0:01:56.000 the recovery, pace of the exit on both the fiscal 0:01:56.040 --> 0:01:59.560 and the monetary side. And the second is synchronization synchronization 0:01:59.600 --> 0:02:03.520 against again between the fiscal and monetary forces both heading 0:02:03.560 --> 0:02:07.360 for the exit post pandemic, but also the synchronization between 0:02:08.080 --> 0:02:11.680 different central banks moving at the same time. Look, ultimately, 0:02:11.919 --> 0:02:14.679 I think it might be more difficult press at markets 0:02:14.800 --> 0:02:19.440 and the global economy, you know, as central banks move 0:02:19.560 --> 0:02:22.880 increasingly together on the exits on both the balanty and 0:02:22.960 --> 0:02:25.040 the level of rate. This is what I think it's 0:02:25.040 --> 0:02:28.560 important to call it regime change, because in the previous 0:02:28.600 --> 0:02:31.560 regime we'd see a bond market sell off and believe 0:02:31.560 --> 0:02:34.120 it was self limiting in many ways because these central 0:02:34.120 --> 0:02:36.840 banks would have to back away when we think about 0:02:36.840 --> 0:02:39.560 a change in regime, Shahi, are you thinking about maybe 0:02:39.680 --> 0:02:45.040 that that dynamic doesn't exist anymore? Um? No, Actually, so, 0:02:45.080 --> 0:02:47.480 I think we can get to where we're going quicker, 0:02:48.080 --> 0:02:50.480 which is a velocity part, But I don't think the 0:02:50.560 --> 0:02:54.840 destination in itself has necessarily changed. We don't think that 0:02:54.960 --> 0:02:57.679 the new normal for the long term or neutral rate 0:02:57.919 --> 0:03:01.400 is above three. So we still feel like term yields 0:03:01.680 --> 0:03:05.919 somewhere cap below three probably intends two and a half 0:03:06.000 --> 0:03:08.080 or below. Do we think we can get We can 0:03:08.080 --> 0:03:11.040 get there quicker and get to two and above quicker, 0:03:11.320 --> 0:03:13.920 but we're not convinced we go above. There remains a 0:03:13.919 --> 0:03:16.440 lot of liquidity in the system and lots of fixed 0:03:16.480 --> 0:03:19.400 income duration demand, which we think comes in if and 0:03:19.440 --> 0:03:23.880 when the central banks reached their peak, perhaps quicker than before. 0:03:24.120 --> 0:03:27.840 So what you're describing sounds like it's screaming yield curve, 0:03:28.720 --> 0:03:32.200 yield curve going down, going negative for the first time 0:03:32.200 --> 0:03:34.800 in a long time, inversion. Excuse me, it's a Monday. 0:03:34.800 --> 0:03:37.680 I'm having trouble. But honestly, going forward how much is 0:03:37.720 --> 0:03:39.720 that a concern that basically you're saying the fet is 0:03:39.800 --> 0:03:41.839 way behind the curve, and that seems clear to you. 0:03:42.200 --> 0:03:45.840 Why are we not necessarily forecasting or sessions sooner if 0:03:45.840 --> 0:03:49.680 that really is your base case? Look, is a is 0:03:49.680 --> 0:03:52.720 a concern? We do have the curve flattening. We certainly 0:03:52.800 --> 0:03:56.200 see two stends of mechanically flattens basically to zero through 0:03:56.240 --> 0:03:58.240 the rate cycle and at the end of the rate 0:03:58.280 --> 0:04:01.440 cycle ends at zero. Like why five studies often moved 0:04:01.480 --> 0:04:04.120 the same So clearly the risk is the curve continues 0:04:04.160 --> 0:04:07.200 to flatten under the scenario with outline. But I would 0:04:07.200 --> 0:04:10.080 probably like to answer that with the counter which is 0:04:10.560 --> 0:04:13.840 what's worse a flat or slightly inverted curve or a 0:04:13.920 --> 0:04:17.160 super steep curve because maybe the market can't take all 0:04:17.160 --> 0:04:21.040 the duration, or because inflation becomes much more of a 0:04:21.040 --> 0:04:24.800 long term risk and fear than a relatively short term 0:04:24.800 --> 0:04:27.080 one which is priced. So I think the flat curve 0:04:27.160 --> 0:04:29.480 is not ideal for the FED, but I think it's 0:04:29.600 --> 0:04:34.000 perhaps a better evil than a very steep curve with 0:04:34.520 --> 0:04:38.040 credit implications as well. So you're talking about consumer sentiment, 0:04:38.120 --> 0:04:40.560 how much does that play into the e CBS perspective 0:04:40.600 --> 0:04:44.440 as well. We heard about their concern about oil prices. Sure, 0:04:44.960 --> 0:04:47.160 the labor market is not quite the same. How much 0:04:47.240 --> 0:04:50.320 they're trying to get ahead of people believing in inflation 0:04:50.360 --> 0:04:54.599 that they have not seen in decades. Sure, I mean 0:04:55.040 --> 0:04:57.800 look at the ECB and and I guess to some 0:04:57.880 --> 0:05:00.839 extent the b o J are in a very extreme 0:05:00.960 --> 0:05:03.479 level of monetary policy that they felt maybe they'd be 0:05:03.480 --> 0:05:05.520 stuck in for some time. And I'm talking about negative 0:05:05.560 --> 0:05:08.560 interest rate policy, and that comes with a bunch of 0:05:08.640 --> 0:05:13.159 costs and unintended consequences. So to some extent, I think 0:05:14.160 --> 0:05:18.560 the ECB should embrace the ability to get through negative 0:05:18.640 --> 0:05:21.000 rates back into positive territory, which we think they get 0:05:21.040 --> 0:05:23.240 to zero at the end of this year and positive 0:05:23.360 --> 0:05:27.080 next year. Um. But clearly we've seen from Belgium this week, 0:05:27.120 --> 0:05:30.400 Germany last week, and across the Eurozone in recent months, 0:05:30.760 --> 0:05:34.240 inflation is not a figment of the ECB or anyone 0:05:34.240 --> 0:05:37.920 else's imagination. It's real. Yes, the labor market is different, 0:05:38.200 --> 0:05:41.880 it will take time, probably for wage both in Europe, 0:05:41.880 --> 0:05:44.480 but we think it's coming and therefore we think the 0:05:44.440 --> 0:05:47.960 ECB needs to be a somewhat on the forefront of 0:05:48.320 --> 0:05:53.840 exiting and at least getting back to zero or positive rates. 0:05:54.440 --> 0:05:56.400 You've just finished on something that I think is is 0:05:56.440 --> 0:05:59.640 really important. We spent a long long time since the 0:05:59.640 --> 0:06:02.479 e C went into negative territory eight years ago in 0:06:02.480 --> 0:06:05.880 a summer of fourteen, discussing how beneficial that was actually 0:06:05.880 --> 0:06:09.039 for the CP to do so for the European economy. 0:06:09.320 --> 0:06:10.760 What do you think to the argument that maybe this 0:06:10.839 --> 0:06:14.080 might help the eurosound economy getting back to zero, getting 0:06:14.080 --> 0:06:18.480 back to positive territory. I think it can help. Um, 0:06:18.680 --> 0:06:20.839 I think it can help, you know, some some inflation, 0:06:21.320 --> 0:06:24.640 much better labor market wage both. I think we can 0:06:24.760 --> 0:06:28.839 change or we hope to see a shift in the 0:06:28.920 --> 0:06:33.680 structural level of growth and inflation in Europe to a 0:06:33.720 --> 0:06:36.760 better level or better plate. Hopefully we can see the 0:06:36.800 --> 0:06:39.680 same in Japan over time too. So now, yes, we're 0:06:39.680 --> 0:06:42.720 worried about inflation, and in the US and UK it's 0:06:42.760 --> 0:06:45.760 it's extremely high and perhaps it will be more of 0:06:45.760 --> 0:06:48.359 a challenge to bring it down. But in regions that 0:06:48.400 --> 0:06:52.159 have gone years, if not decades without proper you know, 0:06:52.200 --> 0:06:57.320 without positive inflation, and without a positive central bank, right, um, 0:06:57.360 --> 0:07:01.800 this is we think a positive outcome or good good 0:07:01.800 --> 0:07:06.480 evolution of b and Paige, she hate fantastic as always, 0:07:06.520 --> 0:07:08.440 super super smart and great to catch up with you, 0:07:08.520 --> 0:07:16.280 said John, As you know, and I think our audience 0:07:16.320 --> 0:07:19.200 has a good understanding of this, particularly global Wall Street. 0:07:19.280 --> 0:07:22.680 There's ways that you read research. And this was the 0:07:22.760 --> 0:07:25.520 weekend John, after the two models last week, where I 0:07:25.600 --> 0:07:29.960 really sat and read every word of the research. And 0:07:30.040 --> 0:07:34.280 what's fascinating is what this inflation report tells us about 0:07:34.320 --> 0:07:38.480 the importance of future inflation reports. Do we begin to 0:07:38.600 --> 0:07:42.520 embed seven or six or five percent inflation? Let's talk 0:07:42.520 --> 0:07:44.960 about the research from a b C. Laurie Camvasina, the 0:07:45.000 --> 0:07:48.880 head of US equity strategy at OBBC Capital Markets, joins us. Now, Laurie, 0:07:49.360 --> 0:07:51.440 you say five good things we sing in the dates 0:07:51.560 --> 0:07:53.120 right now? Can we start with the good stuff? Let's 0:07:53.200 --> 0:07:56.400 not that sure. I think you know one of those 0:07:56.440 --> 0:07:58.520 were right smack dab in the middle of right now. 0:07:58.560 --> 0:08:00.920 Earnings are holding it and I actually we've put out 0:08:00.960 --> 0:08:02.920 something over the weekend where we talked about how we've 0:08:02.920 --> 0:08:05.120 actually seen earnings estimates move up a little bit for 0:08:05.240 --> 0:08:07.400 this year and next year, complete opposite of what a 0:08:07.400 --> 0:08:09.760 lot of people were fearful of a few weeks ago. 0:08:09.800 --> 0:08:11.680 I would say another thing that's really good right now, 0:08:11.760 --> 0:08:14.920 John Um, I think that we've largely priced in a 0:08:14.960 --> 0:08:18.120 more aggressive fit now. We haven't priced in the economic 0:08:18.200 --> 0:08:20.720 damage that an aggressive FED bighting kerk. But if you 0:08:20.720 --> 0:08:23.040 look at the multiple contraction we've seen here to date, 0:08:23.120 --> 0:08:26.160 it's been about seventeen percent at the January lows. That's 0:08:26.280 --> 0:08:28.200 right in line with the average of the last five 0:08:28.280 --> 0:08:31.680 or six FED tightening cycles going back to the ES. 0:08:31.920 --> 0:08:34.080 So I think the FED is basically in the market 0:08:34.200 --> 0:08:36.520 right now. Again, if the FED damage is the economy, 0:08:36.559 --> 0:08:38.200 we still have to price het in and then I 0:08:38.200 --> 0:08:40.959 would lastly just give you a A II net bullishness. 0:08:41.440 --> 0:08:43.319 A couple of weeks ago, we got down to levels 0:08:43.360 --> 0:08:46.800 that we're actually below lows. Let that sink in for 0:08:46.840 --> 0:08:49.559 a second. But what we've seen historically is that when 0:08:49.600 --> 0:08:52.240 we get below minus ten percent on a four week 0:08:52.280 --> 0:08:54.600 average on the net bullishness, so the bears out number 0:08:54.640 --> 0:08:56.559 the bulls by ten percent or more, you see a 0:08:56.600 --> 0:08:59.719 fift pop in markets over the next twelve months. So 0:09:00.040 --> 0:09:02.080 that's something else that's telling me that we've priced in 0:09:02.200 --> 0:09:05.400 a lot of this bad news from that already. Laurid 0:09:05.480 --> 0:09:10.480 bed Layler Overdytrel calculates out of twenty lift and earnings. 0:09:10.520 --> 0:09:12.680 He makes a note that it's coming in again better 0:09:12.760 --> 0:09:18.040 than expected. Can you already model that confidence forward? Can you? 0:09:18.280 --> 0:09:22.480 Can you taken can you construct this morning a confidence 0:09:22.559 --> 0:09:27.000 in earnings for this Q one? So I think that 0:09:27.200 --> 0:09:30.080 we you know, Q one, As I've read through transcript, 0:09:30.200 --> 0:09:31.719 it seems to me like it's going to be a 0:09:31.800 --> 0:09:34.800 messy quarter. Now. We haven't really seen companies, you know, 0:09:34.880 --> 0:09:36.760 sit here and say things are a disaster, right like 0:09:36.800 --> 0:09:39.000 if you look at the consumer in particular, people are 0:09:39.040 --> 0:09:42.120 being vigilant, they're watching the low end. But I would 0:09:42.160 --> 0:09:44.079 say that the confidence level does seem to me a 0:09:44.160 --> 0:09:46.719 little bit shakier than what we've seen, um, you know, 0:09:46.800 --> 0:09:49.080 sort of the past few quarters, whether you're looking at demand, 0:09:49.160 --> 0:09:52.079 whether you're looking at reads on confidence less uncertainty, I 0:09:52.080 --> 0:09:53.880 would say there's maybe a little bit more, you know, 0:09:54.000 --> 0:09:57.240 kind of a nervousness right now. But by and large, 0:09:57.280 --> 0:09:59.880 companies are being given the opportunity to kind of re 0:10:00.040 --> 0:10:03.080 set expectations in a nasty way for this year, reset 0:10:03.120 --> 0:10:05.120 expectations in a nasty way for the quarter, and they're 0:10:05.120 --> 0:10:07.520 simply not doing it. They're still telling us that demand 0:10:07.640 --> 0:10:10.640 is generally okay, even though you know that we've we've 0:10:10.679 --> 0:10:12.120 come through a little bit of a rough patch and 0:10:12.160 --> 0:10:14.280 they've maybe had a little bit more trouble than usual 0:10:14.400 --> 0:10:16.120 dealing with that. Is there a sense, Laurie, of how 0:10:16.240 --> 0:10:20.640 much pricing power these corporate executives feel they have. It's 0:10:20.640 --> 0:10:23.040 a great question, Lisa, and we actually used the Bloomberg 0:10:23.080 --> 0:10:25.320 Transcript Analyzer tool. I'm gonna give you guys a little 0:10:25.360 --> 0:10:27.160 bit of a plug. It's a fantastic tool, and we 0:10:27.280 --> 0:10:29.760 did a search on pricing and we found that it's 0:10:29.760 --> 0:10:32.520 absolutely spiked so far this year. It had been moving 0:10:32.600 --> 0:10:34.280 up last year, and we've seen a really big spike 0:10:34.360 --> 0:10:36.840 this year. And I've noticed that, frankly, as I've gone 0:10:36.880 --> 0:10:39.439 through the transcripts, maybe a little bit less discussion on 0:10:39.520 --> 0:10:42.240 supply chain, obviously a lot of discussion on labor that 0:10:42.280 --> 0:10:44.160 seems to be the new big issue right now, but 0:10:44.320 --> 0:10:46.640 pricing has been much more in focus in a way 0:10:46.679 --> 0:10:48.720 that we haven't seen in the past. And I would 0:10:48.720 --> 0:10:50.760 tell you even companies that are expressing a little bit 0:10:50.760 --> 0:10:53.240 of concern about the low end consumer, they're saying, we're 0:10:53.240 --> 0:10:55.640 going to manage pricing very careful. We're taking as much 0:10:55.640 --> 0:10:57.959 as we can get, but we'll we'll we'll pull back 0:10:58.000 --> 0:10:59.439 a little bit if we feel like we need to 0:10:59.600 --> 0:11:02.160 be to the market that actually started delivering something for 0:11:02.280 --> 0:11:04.080 me last week With the banks. Banks had a massive 0:11:04.120 --> 0:11:06.880 week last week, Laurie, finally starting to see high rights 0:11:06.920 --> 0:11:09.920 translate into better performance for US banks. Do you see 0:11:09.960 --> 0:11:13.920 that continuing? You know, it's interesting, John, because we've seen 0:11:14.000 --> 0:11:17.200 that banks actually start in the financial space broadly. They 0:11:17.320 --> 0:11:20.319 looked they weren't cheap anymore coming into this recording season. 0:11:20.360 --> 0:11:22.120 They had a repricing you know, for about a week 0:11:22.240 --> 0:11:24.320 or so, and and the news has generally been fine 0:11:24.480 --> 0:11:27.600 outside of the higher comp expences. Um So, I think 0:11:27.640 --> 0:11:29.439 we kind of got some of that bad news out 0:11:29.480 --> 0:11:32.240 of the way. We reset the expectations on the valuation side, 0:11:32.320 --> 0:11:34.719 and it's allowed, you know, sort of the good fundamentals 0:11:34.760 --> 0:11:36.880 that are in place right now to propel the banks 0:11:37.000 --> 0:11:38.920 higher again. So we'll watch for that to continue a 0:11:38.960 --> 0:11:40.959 little bit longer. I was a little bit concerned that 0:11:41.000 --> 0:11:43.640 we wiped out the valuation story so quickly to start 0:11:43.720 --> 0:11:45.760 the year, but it's fact, so let's enjoy it as 0:11:45.800 --> 0:11:47.960 long as it lasts. Laurie, thank you as always. Lori 0:11:48.080 --> 0:11:56.560 canvasina of our BC capital markets. Right now, we're gonna 0:11:56.559 --> 0:11:59.800 get a clinic here. Every house is different HSBC as anything, 0:11:59.840 --> 0:12:03.400 you unique responsibility with a London and Hong Kong heritage. 0:12:03.440 --> 0:12:06.319 Stephen King and Janet Henry writing her there over just 0:12:06.440 --> 0:12:11.920 a wonderful interesting look and equities, bonds, currencies, commodities. Janet Henry, 0:12:11.920 --> 0:12:16.520 their global chief Economists, joins to synthesize this morning. Janet, 0:12:16.600 --> 0:12:19.760 I want to go to the idea that inflation is 0:12:19.840 --> 0:12:22.679 elevated and it's going to come down. Do you have 0:12:22.800 --> 0:12:26.800 a framework that it reversed to something we knew or 0:12:26.920 --> 0:12:30.320 is there a new higher level of inflation we need 0:12:30.400 --> 0:12:34.920 to get used to. I think it comes down, but 0:12:35.040 --> 0:12:37.959 I don't think it goes back to pre pandemic rates. 0:12:38.640 --> 0:12:42.120 Um so not in that sense of fully transit trade. 0:12:42.400 --> 0:12:45.280 But it's not just about yet when it comes down 0:12:45.600 --> 0:12:48.280 or how much it comes down. It's what happens in 0:12:48.400 --> 0:12:51.800 between and how much policy tightening actually has to be 0:12:51.920 --> 0:12:55.400 delivered in order to bring it back down. And that's 0:12:55.440 --> 0:12:57.640 for instance, what you saw on the on the Bank 0:12:57.679 --> 0:13:00.360 of England, wasn't it where you have fight for members 0:13:00.440 --> 0:13:04.480 voting for fifty basis points five members voting for five. 0:13:04.920 --> 0:13:07.640 The four members took the view that you needed to 0:13:07.679 --> 0:13:10.800 bring it down more swiftly to prevent it becoming more 0:13:10.880 --> 0:13:13.480 of a I suppose a wage price dynamic, and they 0:13:13.520 --> 0:13:17.120 were prepared to take the growth consequences by voting for 0:13:17.280 --> 0:13:20.640 a more aggressive response at an earlier stage. I would 0:13:20.640 --> 0:13:24.679 suggest Janitor cross Finance and Investment. There's gonna be a 0:13:24.760 --> 0:13:27.720 lot of discussion in your world of where the new 0:13:28.280 --> 0:13:33.200 neutral radars? Do you are critically PhD s at the FED, 0:13:33.559 --> 0:13:36.959 bo E, E, C B, etcetera. Does anybody have a 0:13:37.080 --> 0:13:41.679 clue at this point where the new neutral raders. I'm 0:13:41.720 --> 0:13:44.400 sure people have lots of thoughts, but there is just 0:13:44.720 --> 0:13:48.679 so much uncertainty about the pandemic itself and about some 0:13:48.840 --> 0:13:52.320 of the behavior changing behavior in labor markets, how permanent 0:13:52.400 --> 0:13:55.240 it is. We're all trying to get to grips. We've 0:13:55.280 --> 0:13:59.319 what the structural influence of energy transition costs are and 0:13:59.480 --> 0:14:03.120 indeed the longer term implications of this breadth of central 0:14:03.200 --> 0:14:06.120 bank mandates that we now have and some of the 0:14:06.200 --> 0:14:09.720 inflation risk premium that might be associated with that. If 0:14:09.800 --> 0:14:13.079 central banks are increasingly focusing not just on labor markets 0:14:13.160 --> 0:14:17.559 but flight that financial stability and incommin equality and climate 0:14:17.679 --> 0:14:20.520 change itself. So no, in terms of the long term 0:14:20.680 --> 0:14:23.920 neutral rate, I don't think anyone has a firm handle 0:14:24.360 --> 0:14:26.760 on where it is um and a lot of it 0:14:26.960 --> 0:14:29.920 really comes down to where do you see long term 0:14:30.000 --> 0:14:33.680 potential growth? Do you think as a consequence the consequence 0:14:33.720 --> 0:14:36.880 of the pandemic that long term potential growth has risen 0:14:37.280 --> 0:14:39.760 or has it fallen? And if so, how much has 0:14:39.800 --> 0:14:43.680 it's fallen. Ultimately that's will contribute toward is the long 0:14:43.840 --> 0:14:46.440 term neutral rate. Jennet, you're speaking against a lot of 0:14:46.520 --> 0:14:49.080 the harkishness where everyone's trying to out haark each other 0:14:49.240 --> 0:14:51.640 right now on the street talking about how the new 0:14:51.680 --> 0:14:54.000 normal will be very different from the old normal. And 0:14:54.080 --> 0:14:57.160 I think about your colleagues, Steve Major, who has believes 0:14:57.160 --> 0:14:58.960 still a one and a half percent target for the 0:14:59.000 --> 0:15:02.440 treasury ll tenure treasury by year end. Can you talk 0:15:02.480 --> 0:15:06.160 a little bit about why negative real rates will not 0:15:06.280 --> 0:15:10.960 necessarily disappear so quickly as a lot of people think, well, 0:15:11.040 --> 0:15:13.160 they can in the short term, but they might not 0:15:13.880 --> 0:15:17.160 over over the longer term. And I think this is 0:15:17.200 --> 0:15:19.080 where we are at the moment. You know, what if 0:15:19.120 --> 0:15:23.520 you think about policy rates. When central banks set policy rates, 0:15:23.920 --> 0:15:27.760 they're thinking, how will this influence really demand? You know, 0:15:27.840 --> 0:15:30.520 That's what central banks do. They try to align out 0:15:31.040 --> 0:15:35.040 periods of cyclical weakness or cyclical strength to bring it 0:15:35.200 --> 0:15:39.160 in line with where they see the potential supply of 0:15:39.320 --> 0:15:42.720 the economy. Now, where they see the potential supply right 0:15:42.840 --> 0:15:47.360 now in a world of extreme bottlenecks um and indeed 0:15:47.480 --> 0:15:49.680 some of these relate to energies, some of these relate 0:15:49.760 --> 0:15:52.760 to labor markets. Is that going to be more persistent 0:15:53.120 --> 0:15:56.800 or will we once the pandemic has eased, Actually, and 0:15:56.960 --> 0:15:59.800 maybe people have used up their financial cushion, whether that's 0:15:59.840 --> 0:16:03.520 from government handouts or indeed whether that's from bitcoin trading 0:16:03.560 --> 0:16:06.240 and search like, if that fiscal cushion has come back, 0:16:06.480 --> 0:16:09.880 will we see actually people return to the labor market. 0:16:10.280 --> 0:16:12.720 And I think this is the issue about the long 0:16:12.920 --> 0:16:16.040 term supply issues might be quite different to what we 0:16:16.200 --> 0:16:20.840 face currently. The current picture is actually, in the short term, 0:16:21.320 --> 0:16:25.040 demand has been stronger than expected, the supply constraints have 0:16:25.160 --> 0:16:29.080 been worse than expected, and monetary conditions are too loose, 0:16:29.560 --> 0:16:32.280 and therefore do we need just in the very short 0:16:32.400 --> 0:16:35.320 term slightly more aggressive tightening. We think the Bank of 0:16:35.400 --> 0:16:37.880 England will be done in August, if not before. In 0:16:38.040 --> 0:16:41.280 terms of policy rate tightening, it doesn't mean that the 0:16:41.400 --> 0:16:45.200 long term termin or rate is necessarily higher. It just means, 0:16:45.320 --> 0:16:47.720 given the looseness of monetary conditions, they need to get 0:16:47.720 --> 0:16:49.600 there a little bit more quickly. Jen, what would you 0:16:49.680 --> 0:16:51.440 have to see to think that inflation is a bit 0:16:51.480 --> 0:16:55.960 more entrenched than what you're describing? Well, I think I 0:16:56.000 --> 0:16:58.200 would need to see when you say in trench, I 0:16:58.280 --> 0:17:01.640 think we're getting back to what period it And increasingly, 0:17:01.840 --> 0:17:06.560 if inflation does continue to build and wages respond to it, 0:17:07.119 --> 0:17:10.440 the question will be do central banks play catch up? 0:17:10.800 --> 0:17:14.720 Are they willing to accept a much sharper downturning growth, 0:17:15.119 --> 0:17:18.320 possibly even something worse than a slow down in growth? 0:17:18.440 --> 0:17:21.000 We know that a lot of tightening cycles typically end 0:17:21.320 --> 0:17:24.119 in some kind of contraction in g d P or 0:17:24.320 --> 0:17:27.080 do they sit back and still take it to gradually 0:17:27.440 --> 0:17:29.800 and you see the wage pressures start to build, and 0:17:29.920 --> 0:17:32.560 I think the risks are that that the FED does 0:17:32.640 --> 0:17:34.600 have to move a bit more aggressively than the e 0:17:34.720 --> 0:17:36.520 c B. I think the ECB has got a bit 0:17:36.600 --> 0:17:39.240 more time on its hands, and arguably in the market's 0:17:39.240 --> 0:17:42.159 already pricing in too much in the near term um 0:17:42.280 --> 0:17:45.480 in terms of interest rate rises to to have to 0:17:45.560 --> 0:17:49.399 play catch up regarding bringing monetary conditions back in line 0:17:49.760 --> 0:17:52.399 with what needs to happen to lower inflation. Jen with 0:17:52.480 --> 0:17:54.920 a mental respect and we're thrilled your with us today. 0:17:54.960 --> 0:17:57.119 I want to stop the show and I want to 0:17:57.280 --> 0:18:00.520 ask you something inside baseball and four. This is for 0:18:00.560 --> 0:18:04.760 Global Wall Street listening on radio, listening on television, and 0:18:04.840 --> 0:18:06.879 I think back to Steve Roach and the way he 0:18:07.000 --> 0:18:11.520 built Morgan Stanley Economics and all of their research capability, 0:18:11.920 --> 0:18:14.920 and you've done the same thing with Stephen King at HSBC. 0:18:15.600 --> 0:18:20.960 I want you to explain how you at HSBC Economic 0:18:21.160 --> 0:18:26.200 synthesize the fixed income call of Steve Major over in 0:18:26.400 --> 0:18:29.200 Hong Kong. I think for our Global Wall Street audience 0:18:29.680 --> 0:18:33.119 this is of critical importance to talk about how a 0:18:33.240 --> 0:18:38.800 given house has such interesting research, not controversial, but just 0:18:39.040 --> 0:18:42.880 so thought provoking his major looks for lower rates. Talk 0:18:42.920 --> 0:18:47.560 about that well. We discuss everything about the global economy. 0:18:47.680 --> 0:18:50.560 And I don't pretend to tell any fixed income strategists 0:18:50.600 --> 0:18:53.600 how bond markets work, but we know at the moment 0:18:53.680 --> 0:18:56.600 when we're moving into a world where we're getting different 0:18:56.720 --> 0:19:00.320 rates of rate rates increases coming through from central banks 0:19:00.680 --> 0:19:04.240 and also talking quite calmly about the rate with which 0:19:04.320 --> 0:19:07.560 they're willing to scale back their balance sheets in this world. 0:19:08.080 --> 0:19:10.920 As much as I suppose many of us try to 0:19:11.000 --> 0:19:13.879 assume a certain degree of science with which this works, 0:19:14.359 --> 0:19:18.720 even the most qualified economists in academics circles, and indeed 0:19:18.800 --> 0:19:22.000 in central banks have a different view on how that 0:19:22.240 --> 0:19:25.320 increase in rates and that shrinkage of the balance sheet 0:19:25.440 --> 0:19:28.440 is actually going to operate. Um. I suppose as a 0:19:28.520 --> 0:19:31.479 house we do not subscribe to the view that actually 0:19:31.520 --> 0:19:34.879 shrinking the balance sheet at the same time as raising 0:19:34.960 --> 0:19:38.760 interest rates is necessarily going to be successful at pushing 0:19:38.920 --> 0:19:41.959 up long term interest rates. Um. The fact is, if 0:19:42.000 --> 0:19:44.640 we do see a lot of monetary tightening, it wouldn't 0:19:44.640 --> 0:19:47.320 be unusual to see the yield curve reach some kind 0:19:47.359 --> 0:19:50.439 of inversion. Janet, awesome as always, thanks for being with us. 0:19:50.480 --> 0:19:59.920 Janet Henry there of HSBC right now angin us during 0:20:00.080 --> 0:20:02.840 US She is well known resident senior fellow at Brookings 0:20:03.160 --> 0:20:06.680 Holds Court at George Town as well. But far more 0:20:06.920 --> 0:20:10.119 is our definitive voice on Mr putin her book of 0:20:10.200 --> 0:20:13.760 a number of years ago, was absolutely definitive, on reframing, 0:20:14.440 --> 0:20:18.080 reframing the early Putin to the later Putin, and right 0:20:18.119 --> 0:20:21.920 now with the Putent Doctrine in Foreign Affairs magazine, she 0:20:22.080 --> 0:20:26.440 holds the high ground and on our analysis of this moment. 0:20:26.920 --> 0:20:30.080 Dr Stan, thank you so much for joining us this morning. 0:20:30.440 --> 0:20:32.960 I want to talk about a single sentence in your 0:20:33.119 --> 0:20:37.960 the Putent doctrine. This is his fifth president. I found 0:20:38.000 --> 0:20:41.840 that extraordinary. Explained to me the importance of the Putent 0:20:42.040 --> 0:20:47.840 longevity and that Mr Biden is his fifth president. Well, 0:20:48.000 --> 0:20:50.359 thank you very much for having me on. So, you know, 0:20:50.480 --> 0:20:53.159 Putin said side in the Kremlin, he's seen these U 0:20:53.320 --> 0:20:58.159 S presidents come and go. He's become quite cynical about everything. Uh, 0:20:58.520 --> 0:21:01.280 he hasn't been very impressed by a lot of these presidents. 0:21:01.680 --> 0:21:03.679 And he's now at the point where he looks at 0:21:03.720 --> 0:21:07.280 the US. We obviously have our domestic political troubles. He 0:21:07.400 --> 0:21:11.600 throws down the bout like these two ultimatums at the 0:21:11.800 --> 0:21:15.680 US and NATO um and we are essentially dancing to 0:21:15.880 --> 0:21:19.159 his tomb. We're responding to his agenda. You have a 0:21:19.240 --> 0:21:22.359 flurry of diplomatic activity going on all the time, and 0:21:22.480 --> 0:21:26.520 he's sitting there watching us essentially scrambled to try and 0:21:26.600 --> 0:21:30.359 avoid obviously a major war in Europe. Angela's stand. You 0:21:30.720 --> 0:21:34.520 brilliantly review the three choices here were all very familiar 0:21:34.560 --> 0:21:36.880 with the collapse of the Soviet Union. I think Lisa 0:21:36.920 --> 0:21:40.280 has got some important questions on that. But you go back, 0:21:40.400 --> 0:21:43.280 you have the courage to go back to Yalta and 0:21:43.400 --> 0:21:47.600 to say there was a tripolar outcome of the Yalta system. 0:21:48.080 --> 0:21:51.480 Explain what a shock that would be to America to 0:21:51.600 --> 0:21:56.200 see Russia, China in America with their own parts of 0:21:56.280 --> 0:22:00.399 this world. So they Alta is prutents model. He has 0:22:00.440 --> 0:22:02.680 praised it all the time. And now and we've just 0:22:02.840 --> 0:22:06.320