WEBVTT - John Vail on the Markets (Radio)

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<v Speaker 1>In the meantime, let's bring in John Vale into the conversation.

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<v Speaker 1>Johnny is the chief global strategist at NICO Asset Management.

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<v Speaker 1>He joins from Tokyo. Thanks for being with us, John,

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<v Speaker 1>I just brought up the two year yield on or

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<v Speaker 1>the yield I should say, on the two years since

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<v Speaker 1>Friday of last week when we had that employment report.

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<v Speaker 1>So much volatility in the rates environment right now today

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<v Speaker 1>the services p M I beat expectations, markets really rethinking

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<v Speaker 1>FED strategy. How how do you see the rate story

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<v Speaker 1>right now? Well, the market has been extremely enthusiastic about

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<v Speaker 1>the FED softening it stands going forward. Any hint of

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<v Speaker 1>that has been taken very very strongly by the market.

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<v Speaker 1>So UM, I think now that we're in the blackout period,

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<v Speaker 1>the FED has only recourse to UHL we say, leaks

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<v Speaker 1>through the media to explain uh it's view on how

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<v Speaker 1>markets are reacting. And I think it might have done

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<v Speaker 1>at least a little bit of that through uh the

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<v Speaker 1>media today. And and what in particular in the media

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<v Speaker 1>struck you. Oh, it's an article by one of your competitors,

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<v Speaker 1>UM and saying that the the FED is going to

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<v Speaker 1>keep rates higher for longer you know that when you

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<v Speaker 1>when you're tighten financial conditions. Though, if that's the objective,

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<v Speaker 1>any type of rally that you're gonna get in risk

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<v Speaker 1>assets where their stocks go up, whether the dollar weakens,

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<v Speaker 1>whether yields continue to drop. I mean, that's only going

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<v Speaker 1>to create a bit of concern here. I mean I

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<v Speaker 1>understand that the part of the way in which the

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<v Speaker 1>FED works is through the language that they use. I mean,

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<v Speaker 1>do you feel like they're just gonna play this game

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<v Speaker 1>of whack a mole any time the market gets a

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<v Speaker 1>little bit of enthusiasm building that that maybe a pivot

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<v Speaker 1>is in sight, that the FED has no choice but

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<v Speaker 1>to deliver a heavy hand and a big remedy. Yes,

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<v Speaker 1>actually I do. Just like Kathleen's made your scoob at

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<v Speaker 1>Jackson Hole with whois George? Um, they come out and

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<v Speaker 1>they make strong statements whenever the market gets over excited,

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<v Speaker 1>don't you think, well? Actually, uh? I mean, Estra George

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<v Speaker 1>is a very frank Yeah that's all right, but straightforward person.

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<v Speaker 1>You know, she doesn't beat around the bush, and she

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<v Speaker 1>hasn't been afraid to be hawkish or devish when others weren't.

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<v Speaker 1>Coming back to the FED and communication. What I find striking, honestly,

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<v Speaker 1>YouTube is that look at the FED has been saying

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<v Speaker 1>that so clearly we think Greggs are going to go

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<v Speaker 1>higher than we thought, and they're gonna stay longer. More

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<v Speaker 1>than one has said. It's not going to be like

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<v Speaker 1>a mountain where you go up and then climb down

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<v Speaker 1>the other side. It's going to go up and then

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<v Speaker 1>it's going to be a plateau potentially for the rest

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<v Speaker 1>of the year. And no matter how many times the

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<v Speaker 1>FED says that, the markets don't listen, and the history

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<v Speaker 1>of inflation says you have to keep rates high for

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<v Speaker 1>a long time when you let it get so far

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<v Speaker 1>out of control. Right, absolutely right, And the market doesn't

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<v Speaker 1>I want to listen to that. Fixed income UM asset

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<v Speaker 1>managers UM. They tend to be relying on their historical models,

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<v Speaker 1>I think, and they perhaps have a bias towards their

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<v Speaker 1>asset class and want things to get better in the

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<v Speaker 1>bond market. So it might be just wishful thinking. Because

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<v Speaker 1>the economic data is extremely mixed. I mean, some things

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<v Speaker 1>look quite strong, some looks though, some look weak. UM,

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<v Speaker 1>it's very hard to get a picture of what's happening

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<v Speaker 1>to the economy, right now in the US, I'm just wondering,

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<v Speaker 1>listen to the listening to the two of your talk,

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<v Speaker 1>whether or not when the market becomes enthusiastic. What it's

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<v Speaker 1>really showing us is that there is still so much

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<v Speaker 1>liquidity in the system that when you get these moments

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<v Speaker 1>of reprieve, that you get a swelling in in risk appetite.

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<v Speaker 1>But I want to pivot a little bit to your

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<v Speaker 1>neck of the woods, John, because you're being in Tokyo,

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<v Speaker 1>you're keeping a close eye on the end here. Today

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<v Speaker 1>we had a powerful rally in the dollar. I get

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<v Speaker 1>that that's a yield curve story, but the yen has

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<v Speaker 1>been on an amazing terror lately. What do you make

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<v Speaker 1>of this? It does seem correlated with the US bond

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<v Speaker 1>market and the interest rate. Nominal interest rate differential has

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<v Speaker 1>been the key determinant of the yen's movement, so it

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<v Speaker 1>sort of makes sense from that regard. There's also more

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<v Speaker 1>talk here in Tokyo about, you know, the Bank of

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<v Speaker 1>Japan starting to do something I personally don't think they will,

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<v Speaker 1>but they're at least looking at U easing um in

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<v Speaker 1>some sort of conceptual way and starting to think about

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<v Speaker 1>it UM think about thinking about it, I guess you

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<v Speaker 1>could say um, with some fairly major voices out there

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<v Speaker 1>saying um, there should be some sort of at least

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<v Speaker 1>study of this. And as most of your listeners probably know,

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<v Speaker 1>the Central Bank Governor um Kuroda, who has been a

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<v Speaker 1>stalwart easing advocate UM for the last what is it

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<v Speaker 1>ten years or so um Um is retiring or being um. Yeah,

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<v Speaker 1>his him is over and so there's a lot of

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<v Speaker 1>speculation too about who will replace him. And it's probably

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<v Speaker 1>true that anybody is going to be a little bit,

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<v Speaker 1>at least a little bit less dubblish than Kuroda, because

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<v Speaker 1>he's been very stars. He certainly hasn't uh you know,

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<v Speaker 1>the one who led the charge of yol curve control

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<v Speaker 1>and all that. But we've had two great stories this

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<v Speaker 1>week from our Tokyo team. Uh total Fujioka, for example,

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<v Speaker 1>interviewed Asaki no Gucci. He's a b o J board member.

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<v Speaker 1>He's considered to be quite a dove and quote unquote

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<v Speaker 1>even he said, you can see signs of inflation finally

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<v Speaker 1>taking hold, although he doesn't think any policy change will

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<v Speaker 1>come soon. Uh, you know that death seems to me

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<v Speaker 1>they are moving closer and I remember um. Mr yen

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<v Speaker 1>Uh telling me about three years ago that he thought

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<v Speaker 1>that the pivot would come when Krota's term ends. Do

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<v Speaker 1>you think that's true? Well, um, I told him too

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<v Speaker 1>much to Mr end beyond us, but I would listen

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<v Speaker 1>more to Fujiokasan's articles and Okucci and also he wrote

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<v Speaker 1>one by Takatoki Ito, who's all who's extremely close to

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<v Speaker 1>Kroda and I guess is a contender for his replacement.

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<v Speaker 1>I hadn't heard of that until Fugiokason mentioned it. But um, yeah,

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<v Speaker 1>there's definitely, uh, you know, some consideration, um um of

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<v Speaker 1>some kind of conceptual pivot, but the ramifications of of

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<v Speaker 1>of a hike in Japan are very very severe. I

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<v Speaker 1>would agree with that. John, good stuff. Thank you so

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<v Speaker 1>much for being with us. John Vale of Nico Asset

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<v Speaker 1>Management joining us here on dB A