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Speaker 1: Let's get to Sean Darby, chief level equity strategist at Jeffreys.

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Speaker 1: Sean Powell promised pain, and it's like we're going to

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Speaker 1: get some some pain here, not only from the Fed

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Speaker 1: but from the delatarious effects of of inflation and and

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Speaker 1: the thing is that it just takes some time. This

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Speaker 1: is not like the GFC and it probably isn't even

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Speaker 1: like the pandemic in that the Fed knows what to do.

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Speaker 1: It will raise interest rates, eventually inflation will come down,

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Speaker 1: but it takes some time. Cue the pain it does. Unfortunately,

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Speaker 1: we live in a world where rates tend to only

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Speaker 1: have a lag effect on economic activities, and that's these

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Speaker 1: rate assumptions that are being pushed around now for a

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Speaker 1: hundred basis points at the next meeting are really going

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Speaker 1: to only hit the economy sort of some some six

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Speaker 1: to nine months later, so that the irony maybe that

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Speaker 1: this curve and version that we have and have had

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Speaker 1: for now good three to four months is going to

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Speaker 1: go pas system from much much longer. And that runs

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Speaker 1: the risk subsequently of having some spillover effects into the

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Speaker 1: financial system, which is of course where the markets are

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Speaker 1: what I think are more worried about in the last

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Speaker 1: twenty four hours. Of course, those inflation numbers are a

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Speaker 1: lagging indicator as well. Yeah, they were hotter than expected,

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Speaker 1: but still luller Um. What's your timeline now for inflation

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Speaker 1: getting back within the FITS window? So there's a good question.

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Speaker 1: I think the reality is the headline number was sort

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Speaker 1: of heading towards a sort of three point eight percent

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Speaker 1: handled towards for the end of three That still looks

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Speaker 1: reasonably achievable. But the more difficult one is the core

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Speaker 1: CPI because that really showed that actually demand was pretty strong.

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Speaker 1: If you look at the service price inflation for things

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Speaker 1: like travel, education, they all rose. So the demand side

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Speaker 1: of the equation equation hasn't yet balanced and therefore that

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Speaker 1: course CPI is going to remain sticky. And that is

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Speaker 1: what I think again has prompted the sell off on

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Speaker 1: Wall Street last night, is that we're not only going

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Speaker 1: to have higher short rates, but they're going to remain

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Speaker 1: much much longer. And I think, you know, to say

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Speaker 1: this comes back to the curve in version. It's going

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Speaker 1: to be pretty painful going into the early part of

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Speaker 1: next year. So we're seeing proof positive the affair doesn't

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Speaker 1: care too much about start prices going down. It it

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Speaker 1: did care about them going up. But what it does

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Speaker 1: care about is the plumbing. And you just hinted a

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Speaker 1: few moments ago that we might see some issues in

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Speaker 1: the plumbing. Can you sort of give us the transmission

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Speaker 1: mechanism for that. Well, there's there's a lot of similarities

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Speaker 1: for this cycle to the Y two K period after

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Speaker 1: two thousand, where the central banks left policy way too

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Speaker 1: loose and then had to come back and tighten up again.

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Speaker 1: And what you found was that the credit markets seized up.

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Speaker 1: Actually there was no role as a capital markets conduit,

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Speaker 1: and the same for the stock market, and you actually

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Speaker 1: had a mini you had a recession during that period.

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Speaker 1: Companies not being able to refinance would go to the wall,

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Speaker 1: bankruptcies would rise, and then you have a typical and

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Speaker 1: more typical um downturn. And I think that's the risk

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Speaker 1: that's sort of coming coming into their headlights now, is

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Speaker 1: that we will get a pretty restrictive policy where loan

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Speaker 1: growth and capital markets are actually pretty tough for companies

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Speaker 1: to to raise money. But it's not seen in the

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Speaker 1: data yet. As I say, everything comes with a lag sean.

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Speaker 1: We've heard from a number of commentators about this harder

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Speaker 1: than expected inflation. Printer Larry Summers, No, mora. Now I

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Speaker 1: think that maybe the fird's going to high crates by

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Speaker 1: a hundred basis points when it meets next week. What

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Speaker 1: was already an interesting meeting just got a whole lot

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Speaker 1: more pointy. What are you usually the feed doing well?

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Speaker 1: The house few has been raised actually from fifty basis

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Speaker 1: points I think a week or so ago to seventy five.

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Speaker 1: And I don't think there was any necessary change to

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Speaker 1: that view last night. I think what it does do

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Speaker 1: is raised the prospects of maybe bigger hikes in subsequent meetings.

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Speaker 1: And I think the market consensus was that, you know,

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Speaker 1: this meeting would be the peak of peaks, if I

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Speaker 1: may use that euphemism, and that we wouldn't get any

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Speaker 1: you know, further shocks or surprises. And I think what

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Speaker 1: probably troubled Wall Street yesterday was that that was removed

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Speaker 1: from the table. It may, you know, there is a

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Speaker 1: reasonable probability of a of a of a of a

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Speaker 1: hundred basis points, but I think the more likely courses

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Speaker 1: that we're going to get bigger numbers at the subsequent meetings.

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Speaker 1: I think that's the way that Wall Street played out yesterday,

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Speaker 1: so Jackson Hole, the comments from j Pal seemed like

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Speaker 1: really soft landing was just not in the picture really,

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Speaker 1: And then we had Leo Brainer had sort of raised

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Speaker 1: that back up, and markets definitely responded to that. And

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Speaker 1: now we're back to this. I mean, should we really

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Speaker 1: forget about us landing here? They're going to have to

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Speaker 1: push the economy into recession to get inflation down to

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Speaker 1: acceptable levels. Well that's I think probably now more the

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Speaker 1: more likely course has has said. Unfortunately, the yield curve

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Speaker 1: is going to keep inverted, and the longer you have

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Speaker 1: that deep inversions, the more difficult it is really to

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Speaker 1: come out. So I looked last night, for example, and

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Speaker 1: you know, we had a pretty good thirty year treasury auction,

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Speaker 1: so you know, there's a lot of attraction or the

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Speaker 1: reach for yield was still there. But paradoxically, credit spreads

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Speaker 1: were well behaved. So perversely, I think if you want

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Speaker 1: to gauge about how much distress has got to be

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Speaker 1: pushed into the real economy, we're going to have to

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Speaker 1: see a widening of credit spreads from here, and that

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Speaker 1: you know, presages are much higher default rate and much

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Speaker 1: more difficult economic conditions in which you try to have

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Speaker 1: to revive yourself from Subsequently, well, we're probably going to

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Speaker 1: see a stampede for the exits when we get going

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Speaker 1: the top of the hour. Have you been changing your strategy?

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Speaker 1: How do your hedge against what's about to happen. So

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Speaker 1: we've been I've been wrongly playing wrong footed by by

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Speaker 1: the moves in the last twenty four hours. So I'm

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Speaker 1: you know myself, are going to have to probably issue

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Speaker 1: a mayor cooper, which is um, you know, just to

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Speaker 1: support something. It's it's difficult for the financials, I think

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Speaker 1: is where I would put things. At the moment. It

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Speaker 1: is hard to see any respite for home builders, the banks, um,

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Speaker 1: you know, consumer finance. That's the area that's really the

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Speaker 1: FED is going to have to target. He's got to

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Speaker 1: restrict loan growth, he's got to tighten up financial conditions,

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Speaker 1: and that's the sector that's going to bear the brunt.

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Speaker 1: So we're gonna have to issue a mayor coper on

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Speaker 1: being too early on the interest rate sensitives. I mentioned

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Speaker 1: that we wanted to talk a little bit about us China.

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Speaker 1: I know that it's really eclipsed by this big story

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Speaker 1: about inflation, but we we did see more from the

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Speaker 1: Biden administration. Now they're talking about sayings over Taiwan. We

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Speaker 1: heard about this push for the biotech industry, big sell

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Speaker 1: off here with wish biologics, wush A tech, these are

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Speaker 1: these are troubled waters. It is, I think in that

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Speaker 1: things are working on a number of different levels. I mean,

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Speaker 1: if you go back four or five months ago, there

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Speaker 1: was a great hope that their actual tariffs will be

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Speaker 1: removed and that hasn't happened. We've now we've had the

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Speaker 1: Chips Act go through in the United States, which is

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Speaker 1: subsidies for building the semiconductor plants in the United States,

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Speaker 1: and now of course funding for biotech. I think on

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Speaker 1: the biotech side, um, it's a little bit more of

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Speaker 1: a difficult one because actually the US leads in most

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Speaker 1: of those industries, so there's not a race to catch

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Speaker 1: up in that way. But I guess what it's saying

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Speaker 1: is that they'll they'll have to you know, they're going

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Speaker 1: to match China's pace of technology growth in that area,

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Speaker 1: and that's the funding route that's going to be given

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Speaker 1: to them. So it's a subsidy and we're coming back

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Speaker 1: to this thing about Nash champions alright. Sean Darby, chief

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Speaker 1: Global equity strategist at Jefferies, thanks, as always for joining

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Speaker 1: us on Bloomberg at Daybreak Asia