Speaker 1: In the meantime, let's bring in John Vale into the conversation.
Speaker 1: Johnny is the chief global strategist at NICO Asset Management.
Speaker 1: He joins from Tokyo. Thanks for being with us, John,
Speaker 1: I just brought up the two year yield on or
Speaker 1: the yield I should say, on the two years since
Speaker 1: Friday of last week when we had that employment report.
Speaker 1: So much volatility in the rates environment right now today
Speaker 1: the services p M I beat expectations, markets really rethinking
Speaker 1: FED strategy. How how do you see the rate story
Speaker 1: right now? Well, the market has been extremely enthusiastic about
Speaker 1: the FED softening it stands going forward. Any hint of
Speaker 1: that has been taken very very strongly by the market.
Speaker 1: So UM, I think now that we're in the blackout period,
Speaker 1: the FED has only recourse to UHL we say, leaks
Speaker 1: through the media to explain uh it's view on how
Speaker 1: markets are reacting. And I think it might have done
Speaker 1: at least a little bit of that through uh the
Speaker 1: media today. And and what in particular in the media
Speaker 1: struck you. Oh, it's an article by one of your competitors,
Speaker 1: UM and saying that the the FED is going to
Speaker 1: keep rates higher for longer you know that when you
Speaker 1: when you're tighten financial conditions. Though, if that's the objective,
Speaker 1: any type of rally that you're gonna get in risk
Speaker 1: assets where their stocks go up, whether the dollar weakens,
Speaker 1: whether yields continue to drop. I mean, that's only going
Speaker 1: to create a bit of concern here. I mean I
Speaker 1: understand that the part of the way in which the
Speaker 1: FED works is through the language that they use. I mean,
Speaker 1: do you feel like they're just gonna play this game
Speaker 1: of whack a mole any time the market gets a
Speaker 1: little bit of enthusiasm building that that maybe a pivot
Speaker 1: is in sight, that the FED has no choice but
Speaker 1: to deliver a heavy hand and a big remedy. Yes,
Speaker 1: actually I do. Just like Kathleen's made your scoob at
Speaker 1: Jackson Hole with whois George? Um, they come out and
Speaker 1: they make strong statements whenever the market gets over excited,
Speaker 1: don't you think, well? Actually, uh? I mean, Estra George
Speaker 1: is a very frank Yeah that's all right, but straightforward person.
Speaker 1: You know, she doesn't beat around the bush, and she
Speaker 1: hasn't been afraid to be hawkish or devish when others weren't.
Speaker 1: Coming back to the FED and communication. What I find striking, honestly,
Speaker 1: YouTube is that look at the FED has been saying
Speaker 1: that so clearly we think Greggs are going to go
Speaker 1: higher than we thought, and they're gonna stay longer. More
Speaker 1: than one has said. It's not going to be like
Speaker 1: a mountain where you go up and then climb down
Speaker 1: the other side. It's going to go up and then
Speaker 1: it's going to be a plateau potentially for the rest
Speaker 1: of the year. And no matter how many times the
Speaker 1: FED says that, the markets don't listen, and the history
Speaker 1: of inflation says you have to keep rates high for
Speaker 1: a long time when you let it get so far
Speaker 1: out of control. Right, absolutely right, And the market doesn't
Speaker 1: I want to listen to that. Fixed income UM asset
Speaker 1: managers UM. They tend to be relying on their historical models,
Speaker 1: I think, and they perhaps have a bias towards their
Speaker 1: asset class and want things to get better in the
Speaker 1: bond market. So it might be just wishful thinking. Because
Speaker 1: the economic data is extremely mixed. I mean, some things
Speaker 1: look quite strong, some looks though, some look weak. UM,
Speaker 1: it's very hard to get a picture of what's happening
Speaker 1: to the economy, right now in the US, I'm just wondering,
Speaker 1: listen to the listening to the two of your talk,
Speaker 1: whether or not when the market becomes enthusiastic. What it's
Speaker 1: really showing us is that there is still so much
Speaker 1: liquidity in the system that when you get these moments
Speaker 1: of reprieve, that you get a swelling in in risk appetite.
Speaker 1: But I want to pivot a little bit to your
Speaker 1: neck of the woods, John, because you're being in Tokyo,
Speaker 1: you're keeping a close eye on the end here. Today
Speaker 1: we had a powerful rally in the dollar. I get
Speaker 1: that that's a yield curve story, but the yen has
Speaker 1: been on an amazing terror lately. What do you make
Speaker 1: of this? It does seem correlated with the US bond
Speaker 1: market and the interest rate. Nominal interest rate differential has
Speaker 1: been the key determinant of the yen's movement, so it
Speaker 1: sort of makes sense from that regard. There's also more
Speaker 1: talk here in Tokyo about, you know, the Bank of
Speaker 1: Japan starting to do something I personally don't think they will,
Speaker 1: but they're at least looking at U easing um in
Speaker 1: some sort of conceptual way and starting to think about
Speaker 1: it UM think about thinking about it, I guess you
Speaker 1: could say um, with some fairly major voices out there
Speaker 1: saying um, there should be some sort of at least
Speaker 1: study of this. And as most of your listeners probably know,
Speaker 1: the Central Bank Governor um Kuroda, who has been a
Speaker 1: stalwart easing advocate UM for the last what is it
Speaker 1: ten years or so um Um is retiring or being um. Yeah,
Speaker 1: his him is over and so there's a lot of
Speaker 1: speculation too about who will replace him. And it's probably
Speaker 1: true that anybody is going to be a little bit,
Speaker 1: at least a little bit less dubblish than Kuroda, because
Speaker 1: he's been very stars. He certainly hasn't uh you know,
Speaker 1: the one who led the charge of yol curve control
Speaker 1: and all that. But we've had two great stories this
Speaker 1: week from our Tokyo team. Uh total Fujioka, for example,
Speaker 1: interviewed Asaki no Gucci. He's a b o J board member.
Speaker 1: He's considered to be quite a dove and quote unquote
Speaker 1: even he said, you can see signs of inflation finally
Speaker 1: taking hold, although he doesn't think any policy change will
Speaker 1: come soon. Uh, you know that death seems to me
Speaker 1: they are moving closer and I remember um. Mr yen
Speaker 1: Uh telling me about three years ago that he thought
Speaker 1: that the pivot would come when Krota's term ends. Do
Speaker 1: you think that's true? Well, um, I told him too
Speaker 1: much to Mr end beyond us, but I would listen
Speaker 1: more to Fujiokasan's articles and Okucci and also he wrote
Speaker 1: one by Takatoki Ito, who's all who's extremely close to
Speaker 1: Kroda and I guess is a contender for his replacement.
Speaker 1: I hadn't heard of that until Fugiokason mentioned it. But um, yeah,
Speaker 1: there's definitely, uh, you know, some consideration, um um of
Speaker 1: some kind of conceptual pivot, but the ramifications of of
Speaker 1: of a hike in Japan are very very severe. I
Speaker 1: would agree with that. John, good stuff. Thank you so
Speaker 1: much for being with us. John Vale of Nico Asset
Speaker 1: Management joining us here on dB A