WEBVTT - Bloomberg Surveillance TV: April 29, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:36.960 Terminal and the Bloomberg Business app. Rri's with us for 0:00:36.960 --> 0:00:38.720 the aut She joins us around the table. Lorrie, good 0:00:38.720 --> 0:00:40.880 morning to you, Thanks for having fantastic to see you. 0:00:40.920 --> 0:00:42.680 I want to start with this. This came from Peachier 0:00:42.760 --> 0:00:44.880 Academy and he went through some of the big names 0:00:44.920 --> 0:00:47.080 in big tag over the last week. And he started 0:00:47.120 --> 0:00:50.000 with Nvidia two Fridays ago. So two Fridays ago, we 0:00:50.040 --> 0:00:52.440 had a ten percent move on absolutely nothing, a two 0:00:52.440 --> 0:00:55.640 trillion dollar company. Ten percent move just like that Tesla 0:00:56.000 --> 0:00:58.160 last Wednesday, and move a ten percent on a five 0:00:58.240 --> 0:01:01.520 hundred billion dollar market cap Meta. Another move a ten percent, 0:01:01.720 --> 0:01:03.960 this time to the downside on a one trillion dollar 0:01:04.000 --> 0:01:05.880 market cap, and then we had Alphabet with a move 0:01:05.920 --> 0:01:07.800 of ten percent on Friday on a two point one 0:01:07.840 --> 0:01:10.720 trillion dollar market cap. Painter Cheer asking the asking, the 0:01:10.840 --> 0:01:13.560 big question is ten percent the new one percent for 0:01:13.680 --> 0:01:15.959 megacap tech? And what's the message you take away from that? 0:01:16.440 --> 0:01:18.400 So I'll go back to my small cap days if 0:01:18.400 --> 0:01:19.319 I can, and I know these. 0:01:19.160 --> 0:01:21.200 Are the far stace. It feels like, yeah, this is. 0:01:21.120 --> 0:01:24.000 How small caps have always traded. You know, I think 0:01:24.000 --> 0:01:26.000 some of the price reactions in small cap to prints 0:01:26.000 --> 0:01:27.959 have gotten a bit worse than that, But you know, 0:01:27.959 --> 0:01:30.040 I think in small cap this is just something that 0:01:30.080 --> 0:01:32.120 was a normal, you know, sort of reaction to earnings 0:01:32.120 --> 0:01:34.280 for a long time. So it doesn't maybe throw me 0:01:34.400 --> 0:01:36.200 quite as much as it might some other folks. 0:01:36.360 --> 0:01:38.759 What should we take away from the fact that uber 0:01:38.840 --> 0:01:41.080 cap stocks are behaving like small caps though? 0:01:41.440 --> 0:01:43.280 Well, I think what we're seeing if we look at 0:01:43.319 --> 0:01:46.160 the earnings data and Bloomberg does some great work just 0:01:46.240 --> 0:01:48.640 forecasting where the earnings are expected to go based on 0:01:48.680 --> 0:01:51.760 bottom of consensus forecast. We've been talking about this since January, 0:01:51.840 --> 0:01:54.560 and you see a deccelerating growth rate. So coming off 0:01:54.600 --> 0:01:57.000 around I think thirty five percent twenty twenty three. If 0:01:57.000 --> 0:01:58.440 you look at the basket as a whole for the 0:01:58.480 --> 0:02:01.560 mag seven, that's four caps to drop to about fifteen 0:02:01.600 --> 0:02:04.640 percent or so in twenty twenty five and really basically 0:02:04.680 --> 0:02:06.240 come in line with the rest of the market. And 0:02:06.240 --> 0:02:07.760 there's one thing I've learned over the course of my 0:02:07.840 --> 0:02:10.720 career is that when you have these, you know, powerful 0:02:10.760 --> 0:02:13.440 momentum stocks and growth rates to celerate, it doesn't matter 0:02:13.520 --> 0:02:16.760 how good the growth is. Growth investors get angsty. And 0:02:16.760 --> 0:02:18.240 that's what I feel like you're seeing in the stock 0:02:18.240 --> 0:02:19.320 price reaction race is. 0:02:19.320 --> 0:02:21.560 Big questions right now about what's being rewarded and what's 0:02:21.560 --> 0:02:23.680 being punished going and get too numbers from Apple and Amazon. 0:02:23.680 --> 0:02:25.880 We talked about the days for those two names. Amazon 0:02:25.840 --> 0:02:28.600 adets coming tomorrow, Apple coming on Thursday. Can we focus 0:02:28.600 --> 0:02:30.160 on that a little bit more? What you sense has 0:02:30.200 --> 0:02:33.360 been rewarded really well discerning season, what's getting punished. 0:02:33.400 --> 0:02:35.320 So if you look at the Russell one thousand, and 0:02:35.360 --> 0:02:37.240 we have to look that big at this early in 0:02:37.280 --> 0:02:40.280 reporting season, the beats aren't getting rewarded. I mean they're underperforming. 0:02:40.320 --> 0:02:42.400 They're not performing as well as they typically do in 0:02:42.480 --> 0:02:45.520 kind of the one to two day post prints. So 0:02:45.680 --> 0:02:48.119 I think what I've noticed as we're going through commentary, 0:02:48.160 --> 0:02:50.200 and again it's still very early. We're reading as much 0:02:50.240 --> 0:02:52.280 as we can. We don't get through everything, you know, 0:02:52.320 --> 0:02:55.280 they're fast reads. But what I feel like I'm seeing 0:02:55.360 --> 0:02:57.840 is just kind of an intolerance for the we need 0:02:57.880 --> 0:03:01.360 to be patient conversation. We sensed a lot of that 0:03:01.440 --> 0:03:03.080 early on. I sort of felt like there was a 0:03:03.120 --> 0:03:06.320 shift last week kind of midweek where companies who were saying, Okay, 0:03:06.320 --> 0:03:08.000 we're getting the benefit of these things now, and I'm 0:03:08.000 --> 0:03:10.760 thinking about specifically on the AI discussion. You know, we're 0:03:10.800 --> 0:03:13.440 benefiting from the ramp that's going to continue in coming years. 0:03:13.639 --> 0:03:15.720 Investors were okay with that, but the sort of wait 0:03:15.760 --> 0:03:18.359 and see this is going to take time again. We've 0:03:18.360 --> 0:03:20.280 got to celerating earnings growth that you know, kind of 0:03:20.320 --> 0:03:22.560 twenty seven times multiples on a Media and PE and 0:03:22.600 --> 0:03:25.760 those biggest tech stocks. Investors just don't have a lot 0:03:25.760 --> 0:03:26.760 of patience for that right now. 0:03:26.800 --> 0:03:28.440 So is there time for a pullback now? 0:03:29.080 --> 0:03:31.120 So we've been getting a little bit of a pullback, 0:03:31.160 --> 0:03:32.919 and a lot of that has happened as we've had 0:03:32.919 --> 0:03:35.960 some volatility in these bigger names. You know, look I'm 0:03:35.960 --> 0:03:38.600 not looking for any kind of massive pullback in those 0:03:38.680 --> 0:03:40.720 names or massive pullback in the markets. We've said we 0:03:40.720 --> 0:03:43.080 thought the pullback would be worth about five to ten percent. 0:03:43.160 --> 0:03:45.600 We've had more than five. I don't think we're quite 0:03:45.680 --> 0:03:48.480 done yet. If you look at CFTC data on positioning 0:03:48.480 --> 0:03:51.160 in either Nasdaq one hundred futures, SMP futures, or the 0:03:51.200 --> 0:03:54.400 broader market, you know, we haven't even begun the correction. 0:03:54.520 --> 0:03:56.800 If you look at AAII, we've done some damage, but 0:03:56.840 --> 0:03:58.480 we've still got, you know, probably at least a couple 0:03:58.560 --> 0:03:59.840 more weeks of damage to do there. 0:04:00.080 --> 0:04:01.800 So if you look at the Peter tiernoon, he talks 0:04:01.840 --> 0:04:04.640 about how all these big companies are treating like little companies. 0:04:04.720 --> 0:04:07.160 Who's going to be leading If there's not a pullback 0:04:07.240 --> 0:04:08.680 right now, how do you see this rotation? 0:04:09.040 --> 0:04:11.000 So, you know, I think the financials have come through 0:04:11.000 --> 0:04:14.200 this reporting season so far reasonably well. I personally on 0:04:14.240 --> 0:04:17.120 my team read a lot of industrials and materials. I'm 0:04:17.120 --> 0:04:19.599 not really seeing any big kind of demand problems, you know, 0:04:19.640 --> 0:04:21.320 I'm seeing companies that are talking a lot of being 0:04:21.320 --> 0:04:24.359 able to manage through headwinds. I think it's not so 0:04:24.480 --> 0:04:27.360 much a particular sector. I think it's looking for industries, 0:04:27.440 --> 0:04:30.479 for companies within the value cyclical cohort of the market, 0:04:30.480 --> 0:04:33.080 so that could be energy and materials industrials. I think 0:04:33.120 --> 0:04:34.240 certain small caps as well. 0:04:34.320 --> 0:04:36.799 I want to talk about another big ubercamp company, Apple 0:04:36.839 --> 0:04:39.400 on Thursday. This from Bernsteain this morning, the latest note 0:04:39.440 --> 0:04:42.080 dropping from them by the fear of growding the stock 0:04:42.160 --> 0:04:45.839 to outperform. Apple is de rated significantly amid a weak 0:04:45.880 --> 0:04:49.400 iPhone fifteen cycle and fears that Apple's China business is 0:04:49.440 --> 0:04:51.839 structurally impaired. They're taking the other side of some of 0:04:51.839 --> 0:04:54.320 this lorry. I want to ask you specifically about Apple, 0:04:54.400 --> 0:04:56.800 but maybe some of the forces associated with that name 0:04:56.839 --> 0:05:00.960 at the moment. The difficulty navigating international waters, particular China. 0:05:01.200 --> 0:05:02.840 The strength of the US dollar a factor I think 0:05:02.880 --> 0:05:04.920 as well. I was reading through your note overnight. How 0:05:04.960 --> 0:05:06.960 many times have those two things come up on earning 0:05:07.000 --> 0:05:07.839 scolles so fast? 0:05:07.880 --> 0:05:10.120 So the FX headwinds are coming up. I'm noticing it 0:05:10.160 --> 0:05:12.320 more with the tech companies, to be honest, than others. 0:05:12.320 --> 0:05:13.680 When we'll see, you know, we've got a lot of 0:05:13.680 --> 0:05:15.440 stuff in the other parts of the market to hear from, 0:05:15.480 --> 0:05:17.200 but so far it seems mostly to be a tech 0:05:17.240 --> 0:05:20.960 company phenomenon, I will say on the Geographic commentary, and 0:05:21.000 --> 0:05:23.360 it's maybe a little hard to say because we've had 0:05:23.360 --> 0:05:25.360 a lot of financials so far, but at least in 0:05:25.440 --> 0:05:28.279 what I read last week the Geographic commentary, so Europe 0:05:28.400 --> 0:05:31.600 China kind of trends versus the US, things seem a 0:05:31.640 --> 0:05:34.080 lot more balanced, Whereas if you look last year, it 0:05:34.120 --> 0:05:37.400 was all China's not coming through as well as we anticipated. 0:05:37.400 --> 0:05:39.800 There's a lot of uncertainty. Things haven't bottomed yet, and 0:05:39.800 --> 0:05:41.279 I wouldn't say I'm seeing a lot of you know, 0:05:41.360 --> 0:05:43.680 jumping up and down and celebrating on China, but it 0:05:43.760 --> 0:05:44.800 just seems more balanced. 0:05:44.880 --> 0:05:46.720 What do you think the difficulty has been in China 0:05:46.800 --> 0:05:50.160 for tech firms specifically? What is unique about China to them? 0:05:50.720 --> 0:05:52.440 You know, I'm not sure I know the great answer 0:05:52.480 --> 0:05:54.160 to that question, to be honest. I know it's been 0:05:54.200 --> 0:05:56.760 a growth part of the business for many of these companies, 0:05:56.800 --> 0:05:59.240 and when you're encountering, you know, sort of difficulty in 0:05:59.279 --> 0:06:02.200 the post pandemic world. You know, there was so much 0:06:02.240 --> 0:06:04.479 excitement a year ago that we were sort of finally 0:06:04.520 --> 0:06:07.760 getting that recovery and that normalization, and that normalization I 0:06:07.800 --> 0:06:10.159 think just hasn't been as clean as a lot of 0:06:10.160 --> 0:06:12.040 companies would have anticipated. I think there's just not a 0:06:12.080 --> 0:06:14.680 lot of visibility necessarily on when that was going to 0:06:14.720 --> 0:06:15.240 turn around. 0:06:15.279 --> 0:06:17.200 When you read through these earnings reports, I think back 0:06:17.240 --> 0:06:19.559 to what Muhammed and Larian recently told us about how 0:06:20.120 --> 0:06:22.840 a lot of people missed what CEOs are saying, and 0:06:22.880 --> 0:06:26.279 they bought into this transitory inflation, but CEOs were saying, actually, 0:06:26.279 --> 0:06:28.840 we still feel inflation coming down the pipeline. What do 0:06:29.000 --> 0:06:31.480 you gather from reading all these reports about where inflation 0:06:31.600 --> 0:06:32.760 is right now for these corporates? 0:06:32.760 --> 0:06:35.120 So, you know, it's funny. Back in the last reporting season, 0:06:35.160 --> 0:06:37.680 so kind of calendar one Q for the four Q numbers, 0:06:38.360 --> 0:06:40.840 companies were raising the red flag right like, they were 0:06:40.880 --> 0:06:44.880 really complaining about costs, margin pressures. I'm not sensing quite 0:06:44.880 --> 0:06:47.400 as much of that now. It doesn't sound good. It sounds, 0:06:47.440 --> 0:06:49.679 you know, some companies are complaining a lot about inflation. 0:06:49.800 --> 0:06:53.400 Some people are talking about moderating disinflation, deflation. It's a 0:06:53.400 --> 0:06:55.640 little more mixed, but again it is still very early. 0:06:55.880 --> 0:06:57.640 Laurie, this was great. It's going to be fantastic to 0:06:57.680 --> 0:06:59.840 run through some of the top stories ten minute comes 0:07:00.360 --> 0:07:02.960 with Lori Cavasenior of RBC. Not a single mention of 0:07:03.000 --> 0:07:05.479 the federal reserve gone into that decision on Wednesday, which 0:07:05.480 --> 0:07:07.320 I guess is a good thing because we've actually been 0:07:07.360 --> 0:07:10.120 talking about nothing but the federal Reserve over the last 0:07:10.160 --> 0:07:22.640 month or so. As they made event in foreign exchange, 0:07:22.680 --> 0:07:24.800 the end bouncing off its weekest eleven and thirty four 0:07:24.880 --> 0:07:28.320 years dolly yen falling to one sixty before running back 0:07:28.360 --> 0:07:31.000 on thin trading due to a local public holiday. Japan's 0:07:31.000 --> 0:07:34.120 top currency officials saying no comment for now when asked 0:07:34.160 --> 0:07:37.160 by reporters if the government intervened, Mart McCormack, a TEDI 0:07:37.200 --> 0:07:40.720 Securities joins us right now to comment officially on the situation. 0:07:40.840 --> 0:07:42.800 Mart McCormick, what happened overnight? 0:07:44.360 --> 0:07:45.880 Yeah, I think it's pretty clear if you think of 0:07:45.880 --> 0:07:46.400 the sequence. 0:07:46.480 --> 0:07:49.800 We had some hot inflation data come through last couple 0:07:49.840 --> 0:07:51.920 of weeks in the US. Then we basically had BOJ 0:07:52.120 --> 0:07:54.960 that was standing pat basically said we're pretty much not 0:07:55.080 --> 0:07:57.600 changing our stands. We're not doing anything. I think one 0:07:57.600 --> 0:07:59.040 of the things is the BOG is very good at 0:07:59.080 --> 0:08:00.960 telling us what they did his But I don't think 0:08:01.000 --> 0:08:03.000 you should look at the BOJ for four guidance on 0:08:03.000 --> 0:08:06.000 what they'll do in the future. So dollar yen moved 0:08:06.160 --> 0:08:09.240 rapidly higher after those events. And essentially what you have 0:08:09.480 --> 0:08:12.120 is the BOJ and the Ministry of Finance seem to 0:08:12.160 --> 0:08:14.440 not have the same opinion about where they again should be. 0:08:14.840 --> 0:08:17.280 And it looks as if overnight that Japanese officials had 0:08:17.320 --> 0:08:20.320 intervened in the FX market to try to strengthen the 0:08:20.440 --> 0:08:20.920 end mark. 0:08:21.000 --> 0:08:22.960 Let's get into that distinction. It's important. So we've heard 0:08:22.960 --> 0:08:25.000 complaints from the Ministry of Finance, We've heard next to 0:08:25.040 --> 0:08:27.560 nothing from the Bank of Japan. We have to deal 0:08:27.600 --> 0:08:29.720 with the big question, is it a problem or not? 0:08:30.080 --> 0:08:31.520 Do you think it is a problem. 0:08:32.360 --> 0:08:33.319 Well, I think part of it is. 0:08:33.360 --> 0:08:36.400 The problem is is it speculative and does it have 0:08:36.679 --> 0:08:38.720 kind of somewhat of a negative impact. 0:08:38.720 --> 0:08:40.200 I think part of it with that fax is there's 0:08:40.200 --> 0:08:41.360 always winners and losers. 0:08:41.920 --> 0:08:43.920 So you know, if you think about it from one perspective, 0:08:43.960 --> 0:08:47.640 the BOJ they're helping tourism, they're helping profit margins, sourcings 0:08:47.679 --> 0:08:51.599 are good. You can see the exporters are accumulating larger surpluses. 0:08:51.880 --> 0:08:53.600 But again, at the same time, if you look at 0:08:53.640 --> 0:08:56.480 the correlation to the you know, whether or not the 0:08:57.360 --> 0:09:00.400 politics and the politicians are actually doing their job properly. 0:09:00.679 --> 0:09:01.960 I think what we can see is there's a very 0:09:02.000 --> 0:09:04.960 strong correlation with the disapproval rating and the diet versus 0:09:05.000 --> 0:09:06.040 the movement in dollar yen. 0:09:06.280 --> 0:09:08.560 So this is a big pain point for consumers. 0:09:08.760 --> 0:09:11.400 Also, if you look at oil based in yen prices, 0:09:11.400 --> 0:09:13.480 we're back to where we were in two thousand and seven, 0:09:13.480 --> 0:09:16.160 two thousand and eight, So there is a massive consumer 0:09:16.240 --> 0:09:18.679 shock here that's going on from the weakness in the end. 0:09:18.880 --> 0:09:21.360 So I think the Ministry of Finance is more focused 0:09:21.400 --> 0:09:23.559 on the broad based movement and whether or not it's 0:09:23.640 --> 0:09:26.400 kind of dislodged it tell from fundamentals, and the boj 0:09:26.600 --> 0:09:28.440 is essentially just kind of sticking to their party a 0:09:28.480 --> 0:09:31.840 line that this is not something that they want to control. 0:09:31.920 --> 0:09:33.520 They basically control interest. 0:09:33.320 --> 0:09:35.960 Rates and monetary policy, and the FX is basically a 0:09:36.040 --> 0:09:37.600 function for the Ministry of Finance. 0:09:37.800 --> 0:09:40.880 This currency's been bullied all month, Missila describing it as 0:09:40.920 --> 0:09:44.000 a dog chasing an airborne frisbee, which made me laugh 0:09:44.040 --> 0:09:46.199 at least this morning. Mark. Looking at the direction to 0:09:46.280 --> 0:09:48.520 travel over the last month or so, I want to 0:09:48.559 --> 0:09:51.400 know whether you believe we've actually put a sustainable ceiling 0:09:51.520 --> 0:09:54.160 now in this currency pair on Dolly yen. And I 0:09:54.160 --> 0:09:56.360 want your opinion on this from Kit Chooks of Silkgen, 0:09:56.400 --> 0:09:58.920 who said, basically, what we need to achieve that is 0:09:58.960 --> 0:10:01.720 more aggressive policy action from both the Ministry of Finance 0:10:02.040 --> 0:10:04.600 and from the BOJ. Then the BOJ would need to 0:10:04.640 --> 0:10:08.839 signal a willingness to normalize policy even further, which so far, Mark, 0:10:08.880 --> 0:10:10.880 as you know, they've been reluctant to do so. So 0:10:11.040 --> 0:10:14.480 do you think we've established a pretty durable, solid, resilient 0:10:14.600 --> 0:10:16.680 ceiling on dollien around one sixty? 0:10:18.120 --> 0:10:20.560 I think we have in part on the fact that 0:10:20.800 --> 0:10:24.280 what intervention does is it doesn't change the trend, it 0:10:24.360 --> 0:10:27.120 changes a psychology. So you know, typically what we can 0:10:27.160 --> 0:10:30.280 see is at least two weeks of this intervention working. 0:10:30.880 --> 0:10:32.520 I would say what we need on the other side 0:10:32.640 --> 0:10:34.920 is we do need to see the trajectory of the 0:10:34.960 --> 0:10:36.920 dollar change. We do need to see the fundamentals in 0:10:37.040 --> 0:10:39.320 US change. I don't think that's going to change in 0:10:39.360 --> 0:10:41.600 favor of a stronger again in the short term, but 0:10:41.679 --> 0:10:44.559 as you mentioned, the BOJ does have an impact, and 0:10:44.760 --> 0:10:46.120 you know, I think part of what if we go 0:10:46.200 --> 0:10:48.600 back to like every major central bank when they started 0:10:48.640 --> 0:10:52.400 normalizing policy over the last couple of years, everyone chronically 0:10:52.640 --> 0:10:54.680 underestimated what the terminal rate was. 0:10:55.160 --> 0:10:56.880 And I think this was a part of it. It's 0:10:56.880 --> 0:10:57.720 price discovery. 0:10:57.760 --> 0:11:00.840 Where in the new world central banks are are essentially 0:11:01.120 --> 0:11:04.120 their forward guidance and their forecasts themselves have not been 0:11:04.160 --> 0:11:06.600 able to articulate exactly where they think the terminal rate 0:11:06.640 --> 0:11:07.200 should be either. 0:11:07.520 --> 0:11:08.120 So it's bad. 0:11:08.200 --> 0:11:11.200 Basically, you know, the market has basically been forced to 0:11:11.280 --> 0:11:13.160 kind of go through this process of figuring it out 0:11:13.200 --> 0:11:15.560 for trial and error. And I think basically what we 0:11:15.559 --> 0:11:18.560 should think about is that the BOJ and the japan 0:11:19.520 --> 0:11:22.120 policy rate, the natural policy rate is. 0:11:22.160 --> 0:11:23.920 Much higher than what's being priced in the markets. 0:11:23.920 --> 0:11:26.880 If you look at one year one year Japanese basis 0:11:26.880 --> 0:11:29.360 price swap from basically around fifty basis points, I would 0:11:29.440 --> 0:11:30.960 argue it's much higher than that. 0:11:31.000 --> 0:11:32.200 It's probably above one. 0:11:32.800 --> 0:11:35.040 So I think at some point, whether or not it's 0:11:35.080 --> 0:11:37.320 because of the currency, or whether or not just because 0:11:37.880 --> 0:11:39.880 you know the level what's pricing the market and where 0:11:39.920 --> 0:11:42.719 inflation is a bit more sticky in Japan. You know, 0:11:42.720 --> 0:11:44.200 if you look at some of the stuff that's dropped 0:11:44.240 --> 0:11:46.640 out of the inflation basket in Tokyo, and some of 0:11:46.679 --> 0:11:49.840 the other indicators you track in Japan, they're more temporary, 0:11:49.880 --> 0:11:53.320 they're related to fiscal stimulus is come through if they've 0:11:53.360 --> 0:11:56.480 come through on subsidies. So but the level of inflation 0:11:56.520 --> 0:11:59.480 in Japan is generally pretty higher. So I would argue 0:11:59.520 --> 0:12:01.440 here that the BOJ is going to be forced to 0:12:01.520 --> 0:12:04.800 tighten more aggressively at what price in the market that. 0:12:04.720 --> 0:12:06.600 Will help stabilize the end. 0:12:06.920 --> 0:12:09.400 But for the process to turn lower, you just need 0:12:09.400 --> 0:12:13.280 a much more dubbish FED, which looks increasingly unlikely at 0:12:13.360 --> 0:12:14.720 least for the remainder of this year. 0:12:14.960 --> 0:12:17.040 Well, Mark Gouffo, I want to ask, if short term 0:12:17.080 --> 0:12:20.360 the US dollar is not going anywhere, won't the BOJ, 0:12:20.600 --> 0:12:24.200 the financial chiefs in the currency chiefs in Japan just 0:12:24.200 --> 0:12:26.200 be dealing with this episode again. 0:12:27.920 --> 0:12:29.679 Well, I think a big component here is if you 0:12:29.720 --> 0:12:32.680 think about what drives dollar yet, I think there's two 0:12:32.679 --> 0:12:34.560 factors right now that we could kind of see in 0:12:34.559 --> 0:12:36.480 some of the models in data we track. It's hedge 0:12:36.520 --> 0:12:39.439 funds because there's a trade in it, and it's Japanese 0:12:39.920 --> 0:12:41.079 institutional investors. 0:12:41.520 --> 0:12:43.240 So I think a big piece of it is the 0:12:43.280 --> 0:12:44.199 market wants. 0:12:43.960 --> 0:12:47.880 To see institutional investors kind of front run movements in 0:12:47.920 --> 0:12:50.760 the policy, and I would argue that they are lagging indicators. 0:12:50.760 --> 0:12:54.760 So if you think about pension funds, insurance companies, even corporations, 0:12:55.120 --> 0:12:59.000 you know, essentially these are probably some of the institutions. 0:12:58.360 --> 0:12:59.959 That are caught on the wrong side of this trade. 0:13:00.520 --> 0:13:02.280 I think a lot of these places we're probably thinking 0:13:02.360 --> 0:13:06.400 between that's top and dollar yen, So a lot of 0:13:06.400 --> 0:13:10.640 these institutions were probably essentially short dollars long en and 0:13:10.720 --> 0:13:13.000 basically the move to one sixty just was too much, 0:13:13.040 --> 0:13:13.480 too fast. 0:13:13.480 --> 0:13:15.200 So that's where you start to see the shoulder taps. 0:13:15.559 --> 0:13:18.080 But I think in terms of the movements in dollar 0:13:18.200 --> 0:13:21.640 yen over the longer term, the pension fund rebalancing, the 0:13:21.720 --> 0:13:26.480 insurance companies, all these these institutions that are really running low, 0:13:26.559 --> 0:13:29.520 unheaged levels in dollar yen, these are the ones that'll 0:13:29.559 --> 0:13:33.400 start to repatriate that capital. Yes, you need some movements 0:13:33.480 --> 0:13:35.880 coming from the FED and from the US curve, but 0:13:36.000 --> 0:13:37.600 essentially at the same time, you also if you have 0:13:37.679 --> 0:13:40.160 BOJ tightening policy a little bit more aggressively than what 0:13:40.320 --> 0:13:43.040 markets are pricing, we will see the repatrion of those 0:13:43.080 --> 0:13:45.120 flows over time, which is. 0:13:45.120 --> 0:13:47.120 Our expectations, but that's not going to be the short 0:13:47.200 --> 0:13:47.880 term trade. 0:13:47.960 --> 0:13:50.160 That is a process of how they look at an investment, 0:13:50.200 --> 0:13:53.280 which those rebalancings usually come quarterly or even annually. 0:13:53.320 --> 0:13:55.319 If you want just joining us big moves overnight in 0:13:55.360 --> 0:13:57.560 the FX market, allow me to run through them for you. 0:13:57.640 --> 0:14:00.599 We brought through one sixty late last night. Dolli en. 0:14:00.679 --> 0:14:03.000 This mark has just been bullying the Japanese yen, pushing 0:14:03.040 --> 0:14:05.240 it ever higher over the last month or so. Some 0:14:05.320 --> 0:14:08.040 big numbers taken out, numbers we haven't seen since the 0:14:08.040 --> 0:14:12.120 early nineteen nineties that range this morning one sixty seventeen 0:14:12.160 --> 0:14:15.120 at the high than the low, one fifty four, fifty four. 0:14:15.440 --> 0:14:18.120 Japanese yen kicking in some strength big time in the 0:14:18.200 --> 0:14:20.840 last few hours or so, and a lot of suspicion 0:14:21.240 --> 0:14:23.960 that the Ministry of Finance has intervened in this market. 0:14:24.080 --> 0:14:26.640 The official comment from them so far is no comment. 0:14:26.920 --> 0:14:30.680 This from Dow Jones that financial authorities have intervened in 0:14:30.720 --> 0:14:33.200 the FX market. Mark I want to wrap things up 0:14:33.240 --> 0:14:35.640 more broadly in foreign exchange. This came from Mary Robinson 0:14:35.640 --> 0:14:38.440 of Stanchart. He said this for EM the combination of 0:14:38.480 --> 0:14:41.480 weaker currencies and stronger commodity prices you alluded to them, 0:14:41.840 --> 0:14:44.200 is creating a major dilemma that could put rate cuts 0:14:44.200 --> 0:14:47.520 on hold indefinitely. Mark, how do you think this story 0:14:47.560 --> 0:14:49.760 at the moment? Pair what's happening with the US dollar 0:14:49.960 --> 0:14:52.360 with what's happening with commodities. How does it shape central 0:14:52.360 --> 0:14:54.000 bank decisions worldwide? 0:14:55.120 --> 0:14:58.160 Yeah, it's absolutely critical. It's a very strong point the two. 0:14:58.240 --> 0:14:59.640 There's a way to think about it, right, If you 0:14:59.720 --> 0:15:02.840 have strong growth, and strong growth is leading to central 0:15:02.840 --> 0:15:03.560 bank changes. 0:15:03.840 --> 0:15:06.200 That has one way of thinking the FX market. 0:15:06.240 --> 0:15:09.920 If it's strong growth and generally contained disinflation, that is 0:15:10.160 --> 0:15:12.920 bearish for the dollar, and that's where the commodity store 0:15:13.000 --> 0:15:13.320 kicks in. 0:15:13.360 --> 0:15:14.440 You get a terms of trade shock. 0:15:14.520 --> 0:15:17.000 That's good for em especially in the context that they 0:15:17.000 --> 0:15:19.480 have really high level of interest rates in terms of carry. 0:15:19.680 --> 0:15:22.120 What we've seen recently though, this is how it changes 0:15:22.160 --> 0:15:25.080 the market. These are policy shocks, and the policy shocks 0:15:25.160 --> 0:15:28.800 driven by inflation is what causes rate differentials to matter 0:15:28.840 --> 0:15:30.760 a lot. So I think you could see this last 0:15:30.760 --> 0:15:34.400 week Bank of Indonesia surprise markets by hiking rates. No 0:15:34.440 --> 0:15:36.800 one was expecting that we are now dealing with the 0:15:36.840 --> 0:15:40.640 policy trade off for G ten and emerging market central 0:15:40.640 --> 0:15:43.160 banks that if the FED is basically priced to the 0:15:43.200 --> 0:15:45.600 point where they can cut once or cut not cut 0:15:45.640 --> 0:15:47.880 at all, or even depending on who wins the election, 0:15:47.960 --> 0:15:49.640 whether or not they actually have to hike next year. 0:15:50.000 --> 0:15:52.840 What we're seeing is these policy shocks are usually risk off, 0:15:53.200 --> 0:15:55.400 good for the dollar. I think in the context of the 0:15:55.400 --> 0:15:57.160 commodities there's some cushion for the. 0:15:57.080 --> 0:15:59.960 Commodity exporters like Brazil and some of the. 0:15:59.880 --> 0:16:02.640 Other countries around the world, but it's very small and 0:16:02.680 --> 0:16:05.320 it's going to be marginal in terms of the context 0:16:05.400 --> 0:16:08.280 of whether or not these policy shocks driven by US inflation, 0:16:08.600 --> 0:16:11.200 which is starting to accelerate relative to other currencies that 0:16:11.240 --> 0:16:14.120 we track and is more bullish for the dollar, that's 0:16:14.160 --> 0:16:16.480 going to force central banks that will have the ability 0:16:16.520 --> 0:16:19.000 to cut to change their perspective. 0:16:19.080 --> 0:16:21.240 In that changing of perspective. 0:16:20.760 --> 0:16:24.000 Is what titans financial conditions, and it's what changes the 0:16:24.040 --> 0:16:26.400 growth outlook for the next six to twelve months, which 0:16:26.440 --> 0:16:29.800 can be mutually reinforcing and negative for risk and strong 0:16:29.840 --> 0:16:30.640 for the dollar and mark. 0:16:30.720 --> 0:16:42.640 This is great, just fantastic, gay fe' so no'll design 0:16:42.680 --> 0:16:45.560 Franklin Sampletson expecting cuts the stock in September at the 0:16:45.600 --> 0:16:48.040 earliest and rights in this I believe this will be 0:16:48.080 --> 0:16:51.000 a short and shallow right cutting cycle and expect that 0:16:51.120 --> 0:16:53.920 tenure notes will jump around in a full twenty five 0:16:54.000 --> 0:16:56.800 to four seventy five range. After the shallow right cut 0:16:56.840 --> 0:16:59.440 cycle is done, we're likely to see long gen yields 0:16:59.480 --> 0:17:00.920 moving kaigh due. 0:17:00.720 --> 0:17:02.240 To fiscal pressures. 0:17:02.440 --> 0:17:04.600 So now let's start the journey with Wednesday if we can, 0:17:04.640 --> 0:17:06.520 and great to catch up with you as always. What 0:17:06.520 --> 0:17:08.439 are you looking for from chair and Pow in that 0:17:08.480 --> 0:17:09.240 press conference? 0:17:10.440 --> 0:17:10.520 So? 0:17:10.600 --> 0:17:11.879