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Speaker 1: Good morning.

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Speaker 2: It's Thursday, the twenty eighth of January in London. This

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Speaker 2: is the Bloomberg Daybreak Europe podcast. I'm Stephen Carroll. Coming

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Speaker 2: up today. Global debt markets are close to their biggest

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Speaker 2: two month gain on record as investors gamble on central

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Speaker 2: bank interest rate cuts. The shipping firm Hapac Lloyd says

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Speaker 2: the red Sea trade route is still too risky for

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Speaker 2: its vessels, and Apple wins a reprieve to sell it

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Speaker 2: smartwatches while it fights a patent claim by a medical

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Speaker 2: device maker. Let's start with a roundup of our top stories.

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Speaker 2: Global bonds are on track to post their biggest two

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Speaker 2: month gain on record. The news comes as traders ramp

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Speaker 2: up expectations that major central banks will slash interest rates

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Speaker 2: next year. James camp, Managing director of fixed income at

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Speaker 2: Eagle Asset Management, is watching volatility in the market closely.

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Speaker 3: The Move Index the measure of treasury volatility. Unlike the Vicks,

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Speaker 3: the measure equity volatility is still extremely elevated. So the

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Speaker 3: highway of interest rate outcomes for the ten years still

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Speaker 3: very wide. So caution on duration, particularly on the taxable side,

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Speaker 3: is warranted.

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Speaker 2: Here CAP's comments of Bloomberg come as recession fears for summer,

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Speaker 2: strengthening the case to own bonds. The Bloomberg Global Aggregate

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Speaker 2: Total Return Index rose nearly ten percent over November and December.

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Speaker 2: That's its best run in data, which goes back to

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Speaker 2: nineteen ninety. The shipping joint HAPAC Lloyd says it will

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Speaker 2: keep its ships away from the Red Sea amid fears

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Speaker 2: of further attacks from militants. That's despite decisions by rivals

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Speaker 2: MERSK and CMACTM to return to the route after the

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Speaker 2: launch of a US led task force to protect ships

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Speaker 2: traveling in the area. Spot rates for container shipping have

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Speaker 2: jumped by twenty six percent over the past four weeks

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Speaker 2: as vessels take longer routes to avoid the Red Sea.

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Speaker 2: The United States has announced its final military aid package

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Speaker 2: of the year for Ukraine, worth two hundred and fifty

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Speaker 2: million dollars. That's his political wranglings held up agreement over

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Speaker 2: further support. The US Secretary of State Anthony Blak think

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Speaker 2: and called on Congress to act as soon as possible

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Speaker 2: to approve more spending. The Biden administration says it's provided

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Speaker 2: more than forty four billion dollars in military aid two

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Speaker 2: Kiev since Russia's full scale invasion began twenty two months ago.

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Speaker 2: A new Bloomberg survey of economists shows they think Britain

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Speaker 2: will avoid a recession next year. The aggregate of their

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Speaker 2: expectations is for growth of zero point three percent in

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Speaker 2: twenty twenty four. Avoiding a recession would be a boost

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Speaker 2: for the Chancellor, Jeremy Hunt, who set March the sixth

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Speaker 2: as the date of the spring budget, but Labour's Shadow

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Speaker 2: Financial Secretary to the Treasury, James Murray, says the government

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Speaker 2: is stuck in internal squabbles.

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Speaker 4: The briefings around inheritance stacks are a sign of desperation

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Speaker 4: from Rushie Sunak because he's desperate to keep his backbenches

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Speaker 4: on side. Naturally, its conservative internal politics which is driving

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Speaker 4: these briefings rather than any consideration of what's right for

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Speaker 4: people across the country.

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Speaker 2: Just by the Labor politicians' words, the spring budget will

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Speaker 2: likely be the Chancellor's last chance to change tax and

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Speaker 2: spending policies before the general election in the UK. Apple

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Speaker 2: has won the right to continue selling specific models of

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Speaker 2: its smart watches for the time being. The company says

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Speaker 2: its Series nine and Ultra two watches are back in

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Speaker 2: retail stores and will be available online on Thursday. Bloomberg's

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Speaker 2: Charlie Palace has more.

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Speaker 1: It comes after a court ruling in a patent fight,

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Speaker 1: providing a quick reprieve for its seventeen billion dollar business.

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Speaker 1: The US International Trade Commission had beenned the important sale

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Speaker 1: of the products at Apple's official channels after it ruled

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Speaker 1: in favor of Massimo Corpum medical device maker in a

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Speaker 1: patent infringement case. Apple pulled the watches from its website

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Speaker 1: on December twenty first and in retail stores on Christmas Eve.

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Speaker 1: In New York, Charlie Pellett Bloomberg Radio.

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Speaker 2: While turning two News from Here. In Europe, the former

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Speaker 2: President of the European Commission, Dolor has died, aged ninety eight.

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Speaker 2: He led the EU executive from nineteen eighty five to

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Speaker 2: nineteen ninety five, helping to build the single Market, pave

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Speaker 2: the way for the Common currency, and oversee the expansion

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Speaker 2: of the Union from ten to fifteen countries. Current Commission

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Speaker 2: President our Slavander Lyn described him as a visionary who

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Speaker 2: made our Europe stronger. Here he is in twenty twelve

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Speaker 2: speaking about the need for European cooperation in the face

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Speaker 2: of the Euro Area death crisis.

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Speaker 5: You will see them.

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Speaker 6: Among this, there was also a lack of spirit of cooperation.

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Speaker 6: Not all powers are in Brussels. We must remind systems

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Speaker 6: of this often because governments easily attack Brussels on this.

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Speaker 6: Not all powers in Brussels, they are shared. What we

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Speaker 6: need is a spirit of cooperation. This spirit of cooperation

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Speaker 6: was absent from the Economic Union and mainly from the

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Speaker 6: Council of Finance Ministers in Phenoes.

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Speaker 2: Jacques de Laurier there speaking through a translator. Back in

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Speaker 2: twenty twelve. The AFP news agency report that he died

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Speaker 2: in his sleep at home in Paris on Wednesday. Well,

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Speaker 2: in a moment, we'll be getting the latest on the

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Speaker 2: continuing disruption to shipping through the Red Sea. But one

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Speaker 2: Bloomberg piece that caught my eye this morning a column

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Speaker 2: from our Bloomberg opinion writer Lisa Jarvis about the phenomenon

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Speaker 2: of dry January. Perhaps but early to be thinking about

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Speaker 2: it for some of us, But according to data if

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Speaker 2: a Morning consult, fewer Americans gave up drinking alcohol in

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Speaker 2: January of this year. Lisa Jarvis suggesting in this piece

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Speaker 2: that perhaps instead of giving ourselves a hard and fast rules.

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Speaker 2: We should be thinking about a damp January rather than

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Speaker 2: a completely dry one. The idea being to focus on

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Speaker 2: the most important element, which is thinking about our relationship

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Speaker 2: with alcohol after perhaps an indulgent Christmas season for some

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Speaker 2: of us. She quotes George Coop, who's director of the

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Speaker 2: US National Institute on Alcoholbeast and Alcoholism, as saying, the

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Speaker 2: key guidelines are setting standards, sticking to them, and then

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Speaker 2: managoring your progress. Perhaps some food for thought as we

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Speaker 2: head into the new year from Lisa Jarvis from Bloomberg Opinion.

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Speaker 2: You can find that piece on the terminal and of

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Speaker 2: course on Bloomberg dot com as well. Let's get back

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Speaker 2: to the markets and that global bond rally. One Bloomberg

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Speaker 2: index tracking returns showing it's best run on record after

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Speaker 2: gains of nearly ten percent over November and December. This

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Speaker 2: as traders continue to focus on when central banks will

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Speaker 2: cut rates next year. Our currency and rights Stratis Venram

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Speaker 2: joins us now for more Van, great to have.

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Speaker 7: You with us.

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Speaker 2: Can you put the scale of this bond rally in

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Speaker 2: contacts for us? How big is it?

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Speaker 7: Morning, Stephen? It is pretty big? I mean if you

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Speaker 7: look at the global bond market rally, we haven't rallied

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Speaker 7: this hard in the past. The rally of the past

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Speaker 7: two months is the deepest that we have seen since

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Speaker 7: to since nineteen ninety to be precise. So it's a

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Speaker 7: big scale of rally that we are talking about. Some

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Speaker 7: of the recent enthusiasm towards bonds is imminently understandable considering

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Speaker 7: that major central banks except the BOG preparing the markets

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Speaker 7: to expect rate cuts in twenty twenty four. I think

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Speaker 7: the long bond trade as a sound basis in the US,

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Speaker 7: considering that the FED is the most restrictive policy rate

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Speaker 7: among the majors central banks. The ECB has less of

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Speaker 7: a real policy rate to boast off, while the BUE

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Speaker 7: is negative real policy rate if you take into account

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Speaker 7: the UK sticky services inflation, which is still holding about

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Speaker 7: six percent, So the global bond market rally is kind

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Speaker 7: of uneven. Is more sanctified in the US and to

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Speaker 7: a lesser degree in the US Eurozone, and is definitely

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Speaker 7: questionable to some degree in the UK if you ask me, yeah.

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Speaker 2: I'm very interesting. Given the move in the moving yields

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Speaker 2: perhaps has been more exaggerated than some places than others.

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Speaker 2: I'm interested in the US Treasury auctions in this week

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Speaker 2: as well, though the two in the five year auctions

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Speaker 2: that took place, both seeing very strong demand. What should

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Speaker 2: we be reading into that?

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Speaker 7: Absolutely with reads, with rates having reached the peaks for

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Speaker 7: the cycle, the hunger for shorter data notes is kind

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Speaker 7: of well founded in the US. After all, you're still

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Speaker 7: getting a four percent plus rate, which you can't find

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Speaker 7: anywhere else in the developed world. And it's not just

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Speaker 7: about the yield you get. You're also buying into this

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Speaker 7: notion of capital gains. Should the Fed cut traits as

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Speaker 7: deeply as the markets expect, which is some one fifty

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Speaker 7: basis points by the end of twenty twenty four, So

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Speaker 7: you've got a yield to speak of and potential capital gains.

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Speaker 7: So that's a combustible combination for the markets.

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Speaker 2: What does this mean for central banks?

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Speaker 7: Then?

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Speaker 2: Are some the markets doing some of their work for

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Speaker 2: them essentially by doing the easing and does that mean

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Speaker 2: that center banks will be able to keep rights higher

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Speaker 2: for longer? Is there sort of a strange cycle going

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Speaker 2: on here?

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Speaker 7: Yeah, it is kind of bizarre. You know, the rally

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Speaker 7: in the bond markets in a sense, makes life more

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Speaker 7: difficult for them some central banks because of the loser

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Speaker 7: financial conditions that it spawns. It is less of a

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Speaker 7: problem for the FED because it can affort some loosening

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Speaker 7: of financial conditions, considering that it's real policy rate is

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Speaker 7: the most restrictive, so it'll be happy for the markets

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Speaker 7: to do some of its work. But that's not the case.

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Speaker 7: For instance, if you look at the POE for example,

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Speaker 7: this breakneck rally has the potential to keep inflation simmering

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Speaker 7: away in the background, frustrating its efforts to get inflation

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Speaker 7: back down to two percent. So it's it's an odd

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Speaker 7: kettle of fish.

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Speaker 2: Yeah, and making it harder for some an instant point

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Speaker 2: on that front for the BOE. What does all of

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Speaker 2: this mean for other assets? Though you've been writing racing

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Speaker 2: by the prospects of the NASDAC in this environment.

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Speaker 7: Well, the NASTAC one hundred index is kind of highly

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Speaker 7: overvalued at current levels. If you imagine technology stocks as

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Speaker 7: very long duration bonds, estimate their cash flows in the future,

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Speaker 7: and then bring them back to present value, what you

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Speaker 7: find is that the intrinsic value is about twelve eight

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Speaker 7: seventy seven, So at current levels. The Nasdaq is overvalued

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Speaker 7: by staggering thirty percent, but you know we are in

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Speaker 7: so we are in a kind of a bubble territory

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Speaker 7: like we were in the Doorden during the days of

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Speaker 7: the dot com, except that dot Com is replaced by AI.

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Speaker 7: But as he knows, Stephen, the markets can remain irrational

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Speaker 7: for longer than one can remain solvent. Even so, it's

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Speaker 7: hard to see them, as sec Hunter doing as well

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Speaker 7: as in as well next year as it did this year.

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Speaker 2: Yeah, very interesting to think about that in that context

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Speaker 2: as well, and I do like your comparison to the

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Speaker 2: dot com bubble as well. Venram Our Currency Right Strategers,

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Speaker 2: thanks so much for joining us with the latest on

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Speaker 2: the markets. As we're watching that rally in bonds. Taking

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Speaker 2: a bit of a pause on treasuries this morning as

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Speaker 2: we look at the ten year yield holding at that

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Speaker 2: three point eight percent level, so up a basis point,

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Speaker 2: but just pausing it seems as we look at the

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Speaker 2: returns tracked by that Bloomberg aggregate index over November and

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Speaker 2: December reaching gains of nearly ten percent. Let's turn to

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Speaker 2: the Middle East next. The shipping company HAPAG Lloyd says

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Speaker 2: it'll keep its vessels away from the Red Sea trade

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Speaker 2: route after the recent spate of attacks on ships by

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Speaker 2: Huthy militants from Yemen. Are Managing editor for Economic and

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Speaker 2: Government News in the Middle East, Silvia Style joins US

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Speaker 2: now from more Sylvia. Great to have you with us.

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Speaker 2: So shipping companies are divided on whether or not to

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Speaker 2: use the Red CEA route. Now, does this mean that

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Speaker 2: the US led efforts to protect chips in this area

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Speaker 2: aren't working?

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Speaker 5: Yes, thank you. Yes, I think there's quite a bit

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Speaker 5: of confusion about what this ued US led plan will

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Speaker 5: actually do. It's this idea of having a protection for

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Speaker 5: shipping in this region. It actually already exists as actually

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Speaker 5: already forces based there. So I think some of the

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Speaker 5: companies are a bit confused as to what it will

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Speaker 5: really entail. And the U s Secretary of Defenses in

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Speaker 5: the region and is meant to outline some of those

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Speaker 5: plans over the coming days. So I think, you know,

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Speaker 5: based on this idea before of having this sort of

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Speaker 5: force and what's already there, I think it's more about

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Speaker 5: the uncertainty of what it will actually entail and if actually,

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Speaker 5: you know, additional ships or additional forces in that area

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Speaker 5: will actually in fact cause more risk because in a

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Speaker 5: various sort of tightly patched shipping area, the more you

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Speaker 5: know military ships that you have there, the easier it

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Speaker 5: is for things to kind of slip into something that escalates.

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Speaker 5: So I think that's probably where things are now. And

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Speaker 5: it's still quite unclear to companies about how this will

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Speaker 5: work and if it will work at all. So I

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Speaker 5: think that's kind of where we are now, and like

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Speaker 5: the companies we're you know, people covering the region are

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Speaker 5: still trying to understand what this will actually entail.

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Speaker 2: Yes, the situation unclear for shipping companies as well. Though

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Speaker 2: if we think about this more broadly, though, is the

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Speaker 2: Red Sea the biggest risk for wider escalation of the

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Speaker 2: Israel Hamas war something that we've been watching very closely

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Speaker 2: since the start of the conflict.

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Speaker 5: I think it's the biggest risk for things that wild

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Speaker 5: affect global markets, this shipment of goods and oil, for example.

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Speaker 5: In terms of where things could escalate on the ground,

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Speaker 5: you have Iraq right now, and in Syria where you've

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Speaker 5: got you know, in various areas groups and militia and

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Speaker 5: fighters backed by Iran, and you know, various sort of

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Speaker 5: proxy escalations happening there as well. You've had the US

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Speaker 5: strikes on groups in Iraq, which the US has said

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Speaker 5: we're targeting US troops. These are Iranian backgroups around denied involvement.

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Speaker 5: So I think in terms of actual escalation, the flashpoints

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Speaker 5: are on the ground in terms of how things could

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Speaker 5: sort of be more explosive, but in terms of how

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Speaker 5: things could affect global markets and shipments of goods and

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Speaker 5: the things that financial markets look at, it really is

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Speaker 5: the Red Sea that's in focus right now.

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Speaker 2: Meanwhile, diplomatic efforts to see progress in the Israel Hamas

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Speaker 2: war continuing. President Biden speaking to Katari ruler this week.

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Speaker 2: Is there any sign of another ceasefire being agreed or

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Speaker 2: being negotiated.

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Speaker 5: Well, it's very clear that countries that are watching what's

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Speaker 5: happening in terms of Israel's invasion of Gaza are putting

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Speaker 5: pressure on Israel to agree to another ceasefire, and it's

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Speaker 5: clear that there is a real desire and the international

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Speaker 5: community for things to de escalate and for that to

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Speaker 5: come to an end. Obviously, Israel says it won't end

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Speaker 5: its military operations in Gaza until Hamas has been destroyed,

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Speaker 5: which is kind of a kind of quite unclear how

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Speaker 5: long that will take and what they would consider to

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Speaker 5: be a success. So I think for now, at least

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Speaker 5: when you look at what Israeli officials are saying in

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Speaker 5: local media, there isn't any sign that those efforts are

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Speaker 5: moving forward anytime soon for there to be another pause.

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Speaker 5: But then, you know, the longer this goes on, you

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Speaker 5: know the pressure still will increase more. And it's been

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Speaker 5: reported that a US Secretary of State, Anthony Blinkn, is

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Speaker 5: on another trip to the region in the next few

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Speaker 5: days as well, where this is bound to be a

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Speaker 5: topic that comes up again.

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