WEBVTT - Surveillance: Concern, Not Fear with Calvasina 0:00:00.080 --> 0:00:02.840 We bring you news and analysis every day on the 0:00:02.880 --> 0:00:06.840 Bloomberg Surveillance Podcast. But now you can get the latest 0:00:06.880 --> 0:00:11.639 news on demand whenever you want. Subscribe to Bloomberg News 0:00:11.640 --> 0:00:14.400 Now to get the latest headlines at the click of 0:00:14.440 --> 0:00:18.880 a button. Get informed on your schedule. You can listen 0:00:18.960 --> 0:00:22.720 and subscribe to Bloomberg News noow on the Bloomberg Business App, 0:00:22.760 --> 0:00:27.720 Bloomberg dot Com plus Apple, Spotify, and anywhere else you 0:00:27.800 --> 0:00:35.760 get your podcasts. Search Bloomberg News Now and subscribe today. 0:00:37.840 --> 0:00:41.160 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:41.200 --> 0:00:45.040 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:45.080 --> 0:00:49.519 for insight from the best and economics, geopolitics, finance and investment. 0:00:49.960 --> 0:00:54.800 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:55.000 --> 0:00:59.280 anywhere you get your podcasts and always on Bloomberg dot Com, 0:00:59.320 --> 0:01:02.480 the Bloomberg Terminal and the Bloomberg Business App. 0:01:02.560 --> 0:01:03.720 Lurri Cavsine joined us. 0:01:03.720 --> 0:01:03.920 Now. 0:01:04.000 --> 0:01:06.840 How do us secuity strategy at RBC Capital Markets? 0:01:06.920 --> 0:01:07.160 Laurie? 0:01:07.200 --> 0:01:08.680 What if I have you with us on the program 0:01:08.680 --> 0:01:10.559 to kick off this trade and week. There's a line 0:01:10.560 --> 0:01:13.039 in your recent note we aren't convinced this is the 0:01:13.160 --> 0:01:15.560 end of the current period of equity market weakness. 0:01:15.600 --> 0:01:16.600 Lorie. Why is that? 0:01:18.080 --> 0:01:20.319 Well, I think that basically what we did with the 0:01:20.360 --> 0:01:23.200 government shutdown is we took one of a number of 0:01:23.240 --> 0:01:25.640 different issues that have been weighing on market short term 0:01:25.680 --> 0:01:27.240 off the table, and we only took it off the 0:01:27.240 --> 0:01:28.840 table for you know, maybe a month and a half 0:01:28.959 --> 0:01:31.640 or so. We'll see how long it lasts. But I think, 0:01:31.760 --> 0:01:33.800 you know, we always look at these kind of episodes 0:01:33.840 --> 0:01:36.800 and markets and say where was sentiment? And I don't 0:01:36.800 --> 0:01:39.600 think sentiment got bad enough last week to serve as 0:01:39.640 --> 0:01:42.319 any kind of big springboard. So we were looking at 0:01:42.360 --> 0:01:44.160 some of the commentary that was coming out over the 0:01:44.160 --> 0:01:46.200 weekend saying you know, it's time to buy, We're in 0:01:46.240 --> 0:01:48.000 the clear, and said, well, this thing has just been 0:01:48.080 --> 0:01:49.680 kicked down the road. There's still a lot of other 0:01:49.720 --> 0:01:52.480 stuff we're going through, and sediment just never got that bad. 0:01:52.520 --> 0:01:55.320 We just really we saw concern comeback last week. We 0:01:55.360 --> 0:01:58.360 didn't see fear. And if you look at the AAII survey, 0:01:58.440 --> 0:02:00.800 net bulls got down to about minus thirteen percent on 0:02:00.840 --> 0:02:03.040 the weekly data point, but the four week data point, 0:02:03.320 --> 0:02:06.320 the four week average was about flat. You contrast that 0:02:06.440 --> 0:02:08.880 with back around the SBB period, we were at minus 0:02:08.919 --> 0:02:11.440 twenty percent or worse for four weeks in a row. 0:02:11.800 --> 0:02:14.440 So we're just not anywhere near the same kind of 0:02:14.480 --> 0:02:16.440 point where we can say, Okay, it's so bad, we 0:02:16.520 --> 0:02:17.600 got to go higher from here. 0:02:17.919 --> 0:02:21.560 Laurie, Once again, small caps disappoint. I have a chart 0:02:21.600 --> 0:02:24.280 a keep of a NASTAQ one hundred, granted seven or 0:02:24.280 --> 0:02:27.359 eight super stocks. Maybe they're Dow stocks, but we don't 0:02:27.360 --> 0:02:30.840 want to admit it. And the Russell two thousand, and 0:02:30.880 --> 0:02:34.680 it's a chart of failure. What should these companies do 0:02:34.800 --> 0:02:38.200 if they can't get value from the market. Should they 0:02:38.280 --> 0:02:43.880 go private? Should they merge? Should the zombies go away? 0:02:44.680 --> 0:02:46.760 Well, I think there's always going to be, you know, 0:02:46.800 --> 0:02:49.280 sort of that zombie element, and the Russell two thousand, 0:02:49.600 --> 0:02:52.280 I don't think they're going to you know, disappear anytime soon. 0:02:53.040 --> 0:02:54.639 I do think that we have to keep an eye 0:02:54.680 --> 0:02:56.079 out to see whether or not there's more m and 0:02:56.120 --> 0:02:59.679 a activity that comes up, particularly in an area, say 0:02:59.720 --> 0:03:03.200 like the industrial space, where we often hear from small 0:03:03.200 --> 0:03:06.120 cap portfolio managers that quality of management and quality of 0:03:06.160 --> 0:03:08.320 businesses is quite high. So I think that's one thing 0:03:08.320 --> 0:03:12.000 that we can look at I think, frankly, small caps 0:03:12.080 --> 0:03:14.200 just have a problem at this point in time after 0:03:14.240 --> 0:03:17.320 that last FED meeting, because while I do think twenty 0:03:17.320 --> 0:03:19.440 twenty four cuts are still on the horizon, that's still 0:03:19.440 --> 0:03:21.120 the call of our rate strategy team. I think there's 0:03:21.120 --> 0:03:24.080 starting to be some doubts about how many cuts, about when, 0:03:24.440 --> 0:03:26.639 and that was really the catalyst. I think that small 0:03:26.639 --> 0:03:29.480 caps needed to really get going, and it seems like 0:03:29.520 --> 0:03:31.480 it's been damaged. I think we're also just in an 0:03:31.480 --> 0:03:35.080 air pocket of economic uncertainty right now, and small caps 0:03:35.120 --> 0:03:37.840 I think also needed to see incremental enthusiasm about the 0:03:37.840 --> 0:03:40.320 twenty twenty four economy emerged, and instead we've gotten the 0:03:40.360 --> 0:03:41.880 return of uncertainty in here. 0:03:42.360 --> 0:03:44.480 Laurie, a couple of months ago, you came on and 0:03:44.560 --> 0:03:47.400 you expressed caution but said you were not bearish, that 0:03:47.480 --> 0:03:51.120 you did see equities muddling through. Am I hearing that 0:03:51.200 --> 0:03:55.360 you are more bearished now after seeing where bond markets are, 0:03:55.480 --> 0:03:59.480 how high yields are, the fact that yield cuts, that 0:04:00.120 --> 0:04:02.240 cuts are not being priced into the market maybe shouldn't 0:04:02.240 --> 0:04:04.120 be pricedge to the market for next year. 0:04:05.440 --> 0:04:07.119 Now, I think you know, our head is still really 0:04:07.160 --> 0:04:09.000 where it was at the beginning of August that we've 0:04:09.040 --> 0:04:11.920 got some short term issues that we've got to work through. 0:04:11.960 --> 0:04:14.240 We've had a tremendous run in the market this year. 0:04:14.600 --> 0:04:16.560 I would say, though, you know, there's definitely a camp 0:04:16.600 --> 0:04:19.200 of strategists out there right who are you know, very 0:04:19.279 --> 0:04:21.000 much in the doom and gloom camp for next year. 0:04:21.040 --> 0:04:23.120 And I wouldn't put me in that camp by any stretch. 0:04:23.440 --> 0:04:25.240 I do, you know, sort of subscribe to what you 0:04:25.320 --> 0:04:28.000 guys were living to us the neil do to you earlier, 0:04:28.200 --> 0:04:30.400 kind of the resiliency of the consumer. I just think 0:04:30.440 --> 0:04:32.279 we're not going to get a lot of information about 0:04:32.279 --> 0:04:34.200 that in the here and now. Companies seem to have 0:04:34.279 --> 0:04:37.200 planned up and they're frankly not saying anything that's all 0:04:37.200 --> 0:04:40.039 that useful, whether you're looking at conferences or the last 0:04:40.120 --> 0:04:42.719 round of earnings reports. And I think that's a problem 0:04:42.760 --> 0:04:44.840 when you've had the year like we've had, Doubts are 0:04:44.839 --> 0:04:47.599 starting to create about the economy again, and we're not 0:04:47.720 --> 0:04:49.839 getting a lot of stars to navigate by at this 0:04:49.920 --> 0:04:50.520 point in time. 0:04:50.640 --> 0:04:52.640 I think the interesting point about this moment, Laurie is 0:04:52.640 --> 0:04:55.080 that unlight through the most rest of this year, consumer 0:04:55.080 --> 0:04:57.720 discretion rey is starting to crack. The equity market is 0:04:57.720 --> 0:04:59.680 starting to show some real weakness that the story of 0:04:59.680 --> 0:05:02.479 the year is being consumer discretionary has really performed to 0:05:02.480 --> 0:05:05.159 perform quite strongly. What do you take away from the 0:05:05.200 --> 0:05:08.719 weakness we're seeing in the equity market for discretionary recently, Laurie, 0:05:09.160 --> 0:05:10.800 whether you see that as a buying opportunity if we 0:05:10.920 --> 0:05:12.800 discounted enough gun into Q four. 0:05:13.720 --> 0:05:14.200 I think it. 0:05:14.160 --> 0:05:16.840 Depends on what part of consumer discretionary you're talking about. 0:05:16.880 --> 0:05:18.920 You know, we talked a little bit about small cap earlier. 0:05:19.080 --> 0:05:22.320 Small cap consumer discretionary stocks which do tend to you know, 0:05:22.320 --> 0:05:25.120 sort of migrain order to lower end. They're more domestically focused. 0:05:25.279 --> 0:05:27.719 They priced in a recession last year. The big cap 0:05:27.839 --> 0:05:30.440 s and P five hundred consumer discretionary stocks did not. 0:05:30.600 --> 0:05:33.119 And while valuations don't look terrible right now, they haven't 0:05:33.160 --> 0:05:35.440 been looking cheap at any point in our model over 0:05:35.440 --> 0:05:37.760 the last year year and a half, So we think 0:05:37.800 --> 0:05:40.159 the risk reward there is not fantastic. And then, you know, 0:05:40.200 --> 0:05:43.679 we talked a little bit about higher bond yields. That's really, 0:05:43.720 --> 0:05:46.440 I think probably one of the biggest problems we're dealing with, 0:05:46.520 --> 0:05:48.560 and the problem is that it Traditionally, if you look 0:05:48.560 --> 0:05:51.440 at a post GFC world, the sectors that do most 0:05:51.480 --> 0:05:54.920 poorly when bond yields arising aren't things like consumer discretionary, 0:05:54.920 --> 0:05:58.320 communication services, kind of those growthier parts of the market. 0:05:58.480 --> 0:06:01.080 So you've got a sector that it never get cheap enough. 0:06:01.200 --> 0:06:04.320 Economic angst is rising, and you've got this bond yield 0:06:04.400 --> 0:06:06.800 negative catalyst hitting all of you know, kind of hitting 0:06:06.800 --> 0:06:08.159 them precisely the wrong time. 0:06:08.760 --> 0:06:11.559 Laurie James Diamond is going to get all the press today. 0:06:11.560 --> 0:06:14.360 He's going to do chit chat with Emily Chang and London. Great. 0:06:14.440 --> 0:06:16.160 It's all going to be, you know, the usual big 0:06:16.200 --> 0:06:20.600 bank stuff. The BKX chart is a train wreck. Are 0:06:20.640 --> 0:06:22.880 the banks some mother of all value traps here? 0:06:24.400 --> 0:06:27.800 You know, it's interesting financial should be outperforming in a 0:06:27.839 --> 0:06:30.440 higher bond yield environment. They're not doing that right now, 0:06:30.880 --> 0:06:33.320 not to the extent that they should be anyway, And 0:06:33.320 --> 0:06:35.560 we're seeing, you know, energy has really kind of sucked, 0:06:35.880 --> 0:06:38.520 you know, some of the benefit that the other parts 0:06:38.560 --> 0:06:41.159 of the value trade would see. I think it depends 0:06:41.200 --> 0:06:44.440 on your time horizon, you know. I do like financials. 0:06:44.440 --> 0:06:47.240 In the S and P we're overweight. We have said 0:06:47.279 --> 0:06:51.120 we like energy better. You are seeing a nice revisions 0:06:51.160 --> 0:06:53.599 recovery if you look at the bank space in particular, 0:06:53.640 --> 0:06:57.000 but we haven't quite crossed over into positive revision territory. 0:06:57.040 --> 0:06:57.760 Things have just been. 0:06:57.680 --> 0:07:00.400 Getting less negative. I do often find that when you 0:07:00.440 --> 0:07:03.359 see Earning's revisions turning, but they're not quite in positive 0:07:03.400 --> 0:07:05.240 territory yet, you still have a lot of doubters in 0:07:05.279 --> 0:07:07.440 the trade, and that's often a good opportunity to come in. 0:07:07.880 --> 0:07:09.760 I think there's money to be made here long term, 0:07:09.760 --> 0:07:11.480 but I do think you have to have a stronger stomach, 0:07:11.520 --> 0:07:13.400 and there, frankly may be other parts of the value 0:07:13.440 --> 0:07:14.840 trade that just don't have as much. 0:07:14.640 --> 0:07:15.120 Hair on them. 0:07:15.280 --> 0:07:17.280 Hey, Luri, thank you, good luck for the rest of 0:07:17.280 --> 0:07:20.760 this Waight Lo Cavasity, the of RBC Capital Markets. 0:07:30.720 --> 0:07:34.800 Joining us on Jordan Rochester g Ten, FX strategist at Nomura. 0:07:34.840 --> 0:07:38.160 What I see Jordan this morning that is absolutely distinct 0:07:38.240 --> 0:07:42.200 is finally Swiss Frank gives way to stronger Swiss Frank. 0:07:42.280 --> 0:07:45.480 It's ever so slight, but that's a distinctive tea leave 0:07:46.120 --> 0:07:51.200 link euro trajectory with the symbolism of a stronger Swiss 0:07:51.240 --> 0:07:52.000 Frank to come. 0:07:53.320 --> 0:07:56.280 Indeed, some I think last week's weakness in Swiss Frank 0:07:56.440 --> 0:07:58.160 was a lot to do in month fender as well. 0:07:58.360 --> 0:08:00.600 A lot of moves last week cool her to do 0:08:00.720 --> 0:08:02.520 that month end flow because of the equity sell off 0:08:02.560 --> 0:08:04.680 that we had. But when it comes to the sort 0:08:04.720 --> 0:08:07.000 of view on the Swiss and Stocky and all those 0:08:07.040 --> 0:08:11.240 sort of local Euro Area currencies, Swiss is one of 0:08:11.240 --> 0:08:14.640 those currencies where in a global slowdown it tends to strengthen. 0:08:14.880 --> 0:08:17.320 It's still got a banking repatriation flow as well. So 0:08:17.320 --> 0:08:19.239 if you think the Euro Area is going into a recession, 0:08:19.280 --> 0:08:22.760 which we do, that is usually to Swiss Frank's benefit, 0:08:22.960 --> 0:08:25.680 You've still got a central bank that is also intervening 0:08:25.680 --> 0:08:29.120 in the FX market as well, eleven billion euros per 0:08:29.200 --> 0:08:32.080 per month of in FX intervention to strengthen their currency. 0:08:32.320 --> 0:08:33.760 So even though we think the SMB is. 0:08:33.720 --> 0:08:36.920 Done with rate hikes, because of the impending global slowdown 0:08:36.960 --> 0:08:39.360 and potential for recession risks pretty much in Europe and 0:08:39.400 --> 0:08:41.800 the US, it's very hard to be selling the Swiss franc. 0:08:43.080 --> 0:08:45.120 Okay, sell Swiss Frank, I'll go with that. But then 0:08:45.160 --> 0:08:48.080 they got the euro. What is the appropriate pair to 0:08:48.360 --> 0:08:50.040 play weaker euro? 0:08:51.559 --> 0:08:53.199 Well, we're looking at it this morning. I mean, the 0:08:53.280 --> 0:08:56.199 view for US is euro dollar and EUROCAD. I think 0:08:56.240 --> 0:08:59.079 euro dollar towards one o two doors parity is very 0:08:59.120 --> 0:09:01.240 possible as long as oil prices don't find. 0:09:01.040 --> 0:09:02.520 A way to collapse. 0:09:02.840 --> 0:09:04.760 In the previous guest you had on Kit Jukes, he 0:09:04.800 --> 0:09:06.680 was talking about US yields rising higher. 0:09:07.000 --> 0:09:09.480 Well, US rates suggest that euro dollar should. 0:09:09.200 --> 0:09:11.040 Be at one oh one to one oh three already, 0:09:11.559 --> 0:09:14.360 and if oil gets to one hundred dollars a barrel 0:09:14.520 --> 0:09:17.080 to one hundred and ten dollars a barrel, it's very 0:09:17.160 --> 0:09:20.040 easy for the Euro Area to see their currency weaker 0:09:20.160 --> 0:09:23.120 because they are an energy importer. The problem for all 0:09:23.200 --> 0:09:25.400 of US this year and euro as a chart shows you, 0:09:25.440 --> 0:09:27.840 it's been a zigzag up down, up, down, up down, 0:09:28.240 --> 0:09:30.960 and this looks to be finally an exit of that 0:09:31.080 --> 0:09:32.080 rangebound price action. 0:09:32.240 --> 0:09:34.760 This looks to me more like a trend now. It's 0:09:34.760 --> 0:09:36.640 a bit of deja vu to last year. 0:09:37.360 --> 0:09:40.520 Last year euro broke through parity thanks to vadamir Putin 0:09:40.840 --> 0:09:43.880 natural gas supplies being squeezed. This year, it's more thanks 0:09:43.880 --> 0:09:45.640 to what's going on in the Middle East with the 0:09:45.720 --> 0:09:48.000 lack of oil supply, and that's going to help. 0:09:47.880 --> 0:09:49.800 The euro get towards those sort of figures. 0:09:50.120 --> 0:09:52.440 The main risk is if the US data starts to 0:09:52.440 --> 0:09:55.040 come in soft and US yields stop climbing. But I 0:09:55.080 --> 0:09:56.880 think we've had a bit of good luck in that respect. 0:09:56.960 --> 0:09:59.959 For this week, at least, US government shutdown has been avoided, 0:10:00.400 --> 0:10:02.320 which means that we're going to get non farm payrolls, 0:10:02.360 --> 0:10:05.240 we're going to get the jolts data, and crucially, we're 0:10:05.240 --> 0:10:07.120 not going to get all those government workers laid off. 0:10:07.120 --> 0:10:09.280 It was going to be really difficult for the market 0:10:09.320 --> 0:10:12.959 to buy the dollar with initial claims jobbers claims spiking 0:10:13.040 --> 0:10:15.960 higher on Thursday. Well, that shouldn't happen now thanks to 0:10:15.960 --> 0:10:17.280 that government shutdown being avoided. 0:10:17.480 --> 0:10:19.520 Jordan, we've got a natural bias here to ask questions 0:10:19.520 --> 0:10:23.240 about the US dollar. US rates better reserve the US economy. 0:10:23.360 --> 0:10:25.320 You touched on the international story. Can you have us 0:10:25.360 --> 0:10:27.839 understand how important that is, not just what's happening with 0:10:27.840 --> 0:10:30.040 the Middle Eastern crude, but also what's happened or hasn't 0:10:30.080 --> 0:10:31.360 happened over in China. 0:10:32.880 --> 0:10:36.320 Absolutely well, the situation in China has been that for 0:10:37.160 --> 0:10:39.640 the first half this year, most economists were quite disappointed 0:10:39.840 --> 0:10:41.880 with the growth data. We've had a more bear sho 0:10:41.880 --> 0:10:43.680 outlook on China than most when. 0:10:43.520 --> 0:10:45.080 It comes to our GDP forecast. 0:10:45.400 --> 0:10:47.719 But what's happened over the summer is that China has 0:10:47.760 --> 0:10:50.040 done little bits of policy here and there, and it's 0:10:50.120 --> 0:10:52.560 kind of built up to a much more mixed view 0:10:52.720 --> 0:10:55.640 in the market on China, which is is China slowing 0:10:55.679 --> 0:10:58.160 down or is it bouncing back? And the property measures 0:10:58.200 --> 0:11:00.920 such as cutting mortgage rates for first time buyers is 0:11:00.960 --> 0:11:03.960 a significant one because most of the Chinese property market 0:11:04.160 --> 0:11:06.520 is first time buyers. Well, that's going to lead to 0:11:06.559 --> 0:11:09.400 some of the Chinese data looking healthier over the short term. 0:11:09.559 --> 0:11:11.559 But for us, the long term is that China's trade 0:11:11.559 --> 0:11:15.040 balanced China's current account those flows are looking pretty weak, 0:11:15.760 --> 0:11:17.880 especially with the tourism outflows which are going to continue 0:11:17.920 --> 0:11:20.520 to pick up. So from a flow perspective, we're not 0:11:20.559 --> 0:11:22.800 seeing the inflows into China bonds like we saw from 0:11:22.840 --> 0:11:27.160 foreign investors either. All together, weaker outlook for China a 0:11:27.160 --> 0:11:29.800 bit messy in the short term for data surprises because 0:11:29.800 --> 0:11:32.000 of all of these sort of measures that were announced, 0:11:32.040 --> 0:11:34.200 But the big picture is a slowdown and a weaker 0:11:34.240 --> 0:11:35.400 Remember for us, does. 0:11:35.280 --> 0:11:37.120 That make it more difficult to make a call for 0:11:37.200 --> 0:11:39.079 next year, that goes beyond one ten. 0:11:41.200 --> 0:11:44.320 Well, the difficulty with the euro dollar view is that 0:11:44.480 --> 0:11:47.200 when the FED cuts rates, when you get liquidity, it 0:11:47.280 --> 0:11:49.520 leads to dollar weakness. Now we have the view that 0:11:49.520 --> 0:11:51.439 the FED could even cut rates as soon as March 0:11:51.520 --> 0:11:54.280 because of a recession call that the US economics team 0:11:54.280 --> 0:11:57.240 at number have that starts in Q four, by the way, 0:11:57.679 --> 0:12:00.199 but if they're wrong, if we get an actual off 0:12:00.240 --> 0:12:02.559 landing for the next few months, because soft landings can 0:12:02.720 --> 0:12:04.840 last a few months before it turns into a hard landing, 0:12:05.880 --> 0:12:08.280 if we have all the data in the US pretty 0:12:08.280 --> 0:12:11.360 healthy in Q four, it pushes those FED cuts out, 0:12:11.760 --> 0:12:14.480 so that one ten call is based on that a 0:12:14.559 --> 0:12:17.439 Q one story next year, really where the market quickly 0:12:17.440 --> 0:12:19.600 shifts to saying yep, FED cuts are coming in the 0:12:19.600 --> 0:12:21.960 next few meetings. At the moment, we're in the higher 0:12:21.960 --> 0:12:24.640 for longer phase. That's why the dollar's not selling off 0:12:24.679 --> 0:12:25.880 here Jordan. 0:12:25.880 --> 0:12:27.480 One reason why I love your research is because you 0:12:27.520 --> 0:12:30.079 always put the sort of conviction level that you have 0:12:30.360 --> 0:12:32.880 on each trade. Can you talk about how difficult it 0:12:32.960 --> 0:12:35.439 is to have conviction at a moment where you're dealing 0:12:35.480 --> 0:12:37.920 with so many variables. We're tracking the weather. Again, we're 0:12:37.960 --> 0:12:42.920 tracking you know, different congestion pricing and congestion emissions over 0:12:42.920 --> 0:12:45.440 in China. To understand the recovery, I mean, how do 0:12:45.520 --> 0:12:47.520 you have conviction in a market like this. 0:12:49.160 --> 0:12:50.840 You have to look at the local stories. 0:12:50.880 --> 0:12:52.680 I think, so you have the broad dollar view, which 0:12:52.720 --> 0:12:54.720 we've got a pretty high conviction on, you know, three 0:12:54.760 --> 0:12:56.880 to four out of five, I would say for the 0:12:57.120 --> 0:12:59.640 long dollar vie, then the local story. And what helps me, 0:12:59.679 --> 0:13:02.480 Lisa is positioning. So just a few weeks ago, maybe 0:13:02.559 --> 0:13:04.200 let's go about four weeks ago, you would have had 0:13:04.200 --> 0:13:06.520 guests on here saying the Bank of England could raise 0:13:06.559 --> 0:13:09.640 rates maybe to seven percent, And because of one week 0:13:09.760 --> 0:13:12.600 services CPI and one Bank of England meeting and a 0:13:12.600 --> 0:13:15.240 week labor report as well, it's quickly shifted to the 0:13:15.280 --> 0:13:18.439 Bank of England's done. And because of that shifting narrative, 0:13:18.440 --> 0:13:21.000 you've got a lot of stale positioning out there. So 0:13:21.080 --> 0:13:24.240 I think in Sterling there's still long Sterling position amongst 0:13:24.280 --> 0:13:27.040 some investors that needs to be unwound. We've gone through 0:13:27.040 --> 0:13:28.800 a lot of that already, but I think there's more 0:13:28.840 --> 0:13:30.360 to go. So that helps me have a four out 0:13:30.400 --> 0:13:33.520 of five on short cable for example. Or then you 0:13:33.559 --> 0:13:35.160 have to look at the other factors in Asia and 0:13:35.200 --> 0:13:38.199 elsewhere and think where is there less positioning? I think 0:13:38.240 --> 0:13:41.679 that's where you have lower conviction. So if there's less positioning, 0:13:41.720 --> 0:13:43.760 lesser positioning squeeze, there's not much of a. 0:13:43.720 --> 0:13:45.760 Trade to do. But short cable short ur. 0:13:45.920 --> 0:13:48.320 I think there's still some stale lungs out there that 0:13:48.400 --> 0:13:49.120 need to be unwound. 0:13:49.320 --> 0:13:49.560 Joan. 0:13:49.600 --> 0:13:51.600 This is a pretty toxic recipe for the Bank of 0:13:51.640 --> 0:13:53.680 England and for the European Central Bank. 0:13:53.800 --> 0:13:58.600 Right with inflation, well, inflation's coming down. The main thing 0:13:58.880 --> 0:14:01.440 is does it not fall to two percent? And that's 0:14:01.480 --> 0:14:03.080 what the center banks are really worried about. 0:14:03.280 --> 0:14:05.319 I personally look at all these charts that help us 0:14:05.360 --> 0:14:07.800 forecast inflation, and it looks like it's going even below 0:14:07.840 --> 0:14:10.079 two percent on some of them. So PPI, which is 0:14:10.120 --> 0:14:12.319 the manufacturing inflation in the UK. 0:14:12.280 --> 0:14:13.680 And Europe, it's pretty awful. 0:14:14.080 --> 0:14:16.480 I think in Norway it's minus thirty five percent year 0:14:16.520 --> 0:14:19.600 on year, So you get these extremes in manufacturing that 0:14:19.680 --> 0:14:22.560 will push the headline down eventually. So I think, look, 0:14:22.600 --> 0:14:25.080 we could be looking at CPI falling much closer to 0:14:25.120 --> 0:14:28.120 two percent than center banks think, and then Lisa, we'll 0:14:28.120 --> 0:14:30.400 be looking at global recession risks in the early part 0:14:30.400 --> 0:14:32.400 of next year, and a lot of these center banks 0:14:32.440 --> 0:14:35.520 that worried about inflation today will be very worried about 0:14:35.560 --> 0:14:38.440 growth and employment tomorrow. We've already got signs in the 0:14:38.520 --> 0:14:42.240 UK labor data, the Swedish labor data, there's layoffs happening, 0:14:42.480 --> 0:14:45.440 and when we get to the year end, I think 0:14:45.440 --> 0:14:47.680 a lot of center banks we're changing their focus on 0:14:47.920 --> 0:14:50.440 inflation was high today and focusing more on the fact 0:14:50.480 --> 0:14:52.240 that it was going to be quite low tomorrow. The 0:14:52.280 --> 0:14:54.400 main risk to that, of course, is oil and the 0:14:54.440 --> 0:14:57.280 supply side. So in the US, these UAW strikes and 0:14:57.280 --> 0:14:59.760 boosting car prices and as we know, the oil markets 0:14:59.760 --> 0:15:02.600 moving headline inflation higher as well. If we have another 0:15:03.000 --> 0:15:05.960 rise in oil to one ten per barrel, then inflations 0:15:06.000 --> 0:15:08.680 will be the center banks will be in a stagflationary 0:15:08.720 --> 0:15:11.760 mode and the markets won't like it. FX will be 0:15:11.760 --> 0:15:14.760 selling those sort of currencies like the pound, like Swedish krona, 0:15:15.280 --> 0:15:16.920 because that's what the sort of mix we had in 0:15:16.960 --> 0:15:19.240 twenty twenty two. So we could be going back to 0:15:19.240 --> 0:15:22.400 a twenty twenty two style FX market reaction, which was 0:15:22.960 --> 0:15:23.920 massive dollar strength. 0:15:24.040 --> 0:15:25.840 But twenty seconds for you, Jordan, you can have it. 0:15:25.840 --> 0:15:30.200 When was the last time Villa scored six goals? I 0:15:30.240 --> 0:15:30.840 can't remember. 0:15:30.880 --> 0:15:32.680 That's a good stat But it's bloody good, isn't em. 0:15:33.160 --> 0:15:36.440 It's bloody good to to hear that Jordan's words. 0:15:36.760 --> 0:15:38.600 I practice for a week in proper. 0:15:38.320 --> 0:15:40.080 Jordan Rochester any more? Jordnah, thank you? 0:15:40.120 --> 0:15:46.880 Proper Never with a crok in his mouth is Michael Darta, 0:15:47.320 --> 0:15:51.280 chief economist, macro strategist, dog keeper for Roth MKM. Just 0:15:51.320 --> 0:15:54.440 back from Japan, which is always a good and wonderful thing, 0:15:54.760 --> 0:15:58.760 Michael data in your political economics, What did you learn 0:15:59.240 --> 0:16:00.800 in Tokyo and Kyoto? 0:16:02.280 --> 0:16:06.200 Well, Tom, we were there on pleasure, not business. You know, 0:16:06.280 --> 0:16:11.040 incredibly beautiful cities, majestic if you're talking about Kyoto, and 0:16:11.120 --> 0:16:14.000 for people that have never experienced it, I mean in Tokyo, 0:16:14.080 --> 0:16:16.560 imagine a city three times the size of New York 0:16:16.640 --> 0:16:20.880 City with essentially no litter, no crime, and almost no 0:16:20.920 --> 0:16:24.400 one even disobeying traffic lights. I mean, it's quite a trip. 0:16:24.440 --> 0:16:27.360 You have to experience it firsthand really to believe it. 0:16:27.400 --> 0:16:32.160 Frankly, they are imputing inflation into their system. Some would 0:16:32.160 --> 0:16:36.359 say they're inventing an inflation. Do you see any historical 0:16:36.480 --> 0:16:42.480 analog that any country can manage inflation higher successfully? 0:16:43.280 --> 0:16:45.560 Well, sure, Tom, if you believe in the power of 0:16:45.560 --> 0:16:49.480 the central bank. And that's essentially what's happening the discussion earlier, 0:16:49.760 --> 0:16:52.280 Lisa really hit it on the head. The problem for 0:16:52.360 --> 0:16:55.040 the boj is that they can't hit two targets with 0:16:55.080 --> 0:16:57.800 one arrow. So if you're going to effectively peg an 0:16:57.800 --> 0:17:01.000 interest rate, you can't at the same time peg the 0:17:01.040 --> 0:17:06.800 currency or even you know, control the price level, you know, perfectly, 0:17:06.960 --> 0:17:09.320 So you know, what's happening is they've got to adjust 0:17:09.359 --> 0:17:13.399 the you know, the rate pegs based on macroeconomic conditions. 0:17:13.600 --> 0:17:16.639 It's different in the sense that typically central banks, you know, 0:17:16.720 --> 0:17:19.720 will target the you know, the short policy rate. In 0:17:19.840 --> 0:17:23.080 Japan because of the zero lower bound situation, they're targeting 0:17:23.119 --> 0:17:27.280 a long term interest rate. But the same basic concept applies, Mike. 0:17:27.320 --> 0:17:29.360 If we do get some sort of abandonment of yieldcraft 0:17:29.400 --> 0:17:32.240 control or the Bank of Japan losing the plot, losing control, 0:17:32.359 --> 0:17:35.400 losing the narrative when it comes to controlling bond yields 0:17:35.480 --> 0:17:38.720 and controlling the depreciation of the end, how much does 0:17:38.720 --> 0:17:41.640 that accelerate the move up in US yields that we've 0:17:41.680 --> 0:17:45.840 seen as we see just yields globally rise and maybe 0:17:45.880 --> 0:17:48.120 some of those buyers from over in Japan step away 0:17:48.119 --> 0:17:48.960 from the US market. 0:17:49.640 --> 0:17:51.960 Yeah, it's an interesting situation. I mean, if you look 0:17:52.000 --> 0:17:54.320 at what's happened in the US bond market, we've had 0:17:54.320 --> 0:17:57.560 a huge real rate shock, so this isn't really an 0:17:57.600 --> 0:18:01.880 inflation expectations story. So you do have movement in global 0:18:01.960 --> 0:18:05.320 yields on the back of central banks trying to persist 0:18:05.359 --> 0:18:09.040 in a tighter policy regime, but it's really driven by 0:18:09.480 --> 0:18:13.520 real interest rates. Inflation expectations in the US have really 0:18:13.560 --> 0:18:17.920 barely budged, so crude oil prices are spiking higher, coppers 0:18:18.040 --> 0:18:21.080 rolling over and FED rate hiking expectations. Or if you 0:18:21.119 --> 0:18:24.080 look at let's say the thirty six month FED fund's 0:18:24.280 --> 0:18:27.600 futures yield, it's moved up one hundred and fifty basis 0:18:27.640 --> 0:18:30.600 points since the spring of this year, So that really 0:18:30.640 --> 0:18:33.720 accounts for the entirety more than the entirety of the 0:18:34.119 --> 0:18:36.040 rise in the ten year yield. So it's a higher 0:18:36.040 --> 0:18:39.879