Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferroll and Lisa Abramowitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot
Speaker 1: Com and of course on the Bloomberg terminal. Right now,
Speaker 1: on the economy, on what we saw on Friday and
Speaker 1: the adjustment forward. She is with a DP automatic data processing,
Speaker 1: is with our question most locked into our paychecks of
Speaker 1: any company in the country. She's their chief economist. Nila
Speaker 1: Richardson adds value. Nila, good morning to you, Um Nila,
Speaker 1: I really want to focus in here on what a
Speaker 1: d PC is. Not your proprietary stuff. I don't need
Speaker 1: the state secrets, but with the advantage of your payroll knowledge,
Speaker 1: what did you learn Friday and how does it amend
Speaker 1: your view forward? Well, we we learned that our firms
Speaker 1: are clients over a million clients that are still hiring
Speaker 1: rather aggressively. We also learned that that hiring intensity is
Speaker 1: coming from small and median firms that were blocked out
Speaker 1: through a lot of the hiring in two outmanned by
Speaker 1: larger firms when it came to benefits and wages. And
Speaker 1: then the third thing we learned, and I think this
Speaker 1: is really important when you talk about the next steps
Speaker 1: for the FED, is that wages are moderating. They are um,
Speaker 1: but they're not moderating quickly enough to make even a
Speaker 1: two percent inflation target seemed reasonable. At this point, they're
Speaker 1: still quite high, almost double what they were going into
Speaker 1: the pandemic. So there's still a lot of work to
Speaker 1: do when it comes to wages and getting them down
Speaker 1: to a tolerable UH pace of growth that meets the
Speaker 1: FED target. The economist John Pharaoh is really emphasized the
Speaker 1: I S M numbers on Friday is well, they show
Speaker 1: some soggyess. How does Nila Richardson define a soft landing?
Speaker 1: I have trouble with that phrase. But if we don't
Speaker 1: like the phrase soft landing, where are we going with
Speaker 1: that optimistic outcome? Well, to me, a soft landing as
Speaker 1: a landing you can walk away from. And I think
Speaker 1: the economy is strong enough right now at least it
Speaker 1: looks like that it'll do. So we pretty much got
Speaker 1: a Goldilocks report on the six um And I'm gonna
Speaker 1: say more about that in a second. But we got
Speaker 1: a report where you still saw a strong jobs growth
Speaker 1: and moderating wage growth. That's like the perfect scenario for
Speaker 1: a soft landing. The question is will that trend continue?
Speaker 1: And I think what people get wrong about the current
Speaker 1: state of the labor market is that all of this
Speaker 1: is cyclical, that it can be controlled by a slightly
Speaker 1: higher interest rate. Much of what we're seeing in the
Speaker 1: labor market right now is structural, and if you look
Speaker 1: at the hard data, you'll see that employment growth over
Speaker 1: the next decade is expected to be half of what
Speaker 1: it was the previous decade. That means labor shortages are persistent,
Speaker 1: and this vector of higher wages, especially in the service sector,
Speaker 1: will be with us for some time to come. So,
Speaker 1: in other words, Nila, if I were going to sort
Speaker 1: of put a bow on that, are you basically saying
Speaker 1: that hope of a soft landing based on the print
Speaker 1: that we got on Friday is perhaps more wish than reality.
Speaker 1: I'm saying that the doors still open, actually, but that
Speaker 1: door swings both ways. Uh. We still have a robust
Speaker 1: labor market three and a half percent unemployment rate. I mean,
Speaker 1: there's no getting around that. That's a strong labor market,
Speaker 1: and we're seeing initial jobless claims barely above two hundred thousand.
Speaker 1: That's a really strong labor market. However, that's a labor
Speaker 1: market that's also at risk of higher wage pressure at
Speaker 1: every turn. So this idea that the Fed can just
Speaker 1: get to this terminal rate and then pivot to me
Speaker 1: that door is closed. Uh, where I expect to see
Speaker 1: federal funds rates higher for longer, for some time to come,
Speaker 1: because the labor shortages aspect of the labor market isn't
Speaker 1: going away. Well, people to point to the services im
Speaker 1: which you mention that was weaker than expected, that came
Speaker 1: in with contractionary territory, and then areas like the housing
Speaker 1: market that have seen incredible destruction in terms of how
Speaker 1: much prices have come down, perhaps not that significant, but
Speaker 1: certainly the volume of sales. How much more is there
Speaker 1: to go in some of the industries that have been
Speaker 1: first hit by some of the tightening FED funds rate. Well,
Speaker 1: let me point out that the housing The issue with
Speaker 1: housing is more structural than it is cyclical. It's not
Speaker 1: just higher mortgage rates. People have bought housing a much
Speaker 1: higher mortgage rates than what we're seeing now it's about
Speaker 1: the monthly payment. What we're seeing in housing is just
Speaker 1: the lack of inventory and that had set a supply
Speaker 1: issue that has been an issue for over a decade,
Speaker 1: and that supply issue is likely to get worse with
Speaker 1: higher interest rates. So that's something that is structural the
Speaker 1: But to get that to your question, Um, we can't
Speaker 1: expect the labor market to behave in a uniform way.
Speaker 1: This is a very fragmented market, and so you're seeing
Speaker 1: interes straight sensitive sectors like manufacturing start to slow. We've
Speaker 1: seen that firms that overhired last year, like information technology,
Speaker 1: they're starting to pause and slow. But at the same time,
Speaker 1: when one door closes, another door opens. You see that
Speaker 1: in the Jolts data there's still a lot of job
Speaker 1: openings and there are firms waiting in line to scoop
Speaker 1: up that headcount right now in this very tight labor market.
Speaker 1: Well that's where I wanted to go. Look, I mean,
Speaker 1: I don't know if you've got any interior knowledge on this, Nila,
Speaker 1: but let's go there with all the bias. You have
Speaker 1: an excellence with a DP. There's this tech hemorrhage going
Speaker 1: on right now. Do those people find jobs. It's too
Speaker 1: soon to tell how quickly they find jobs, and I
Speaker 1: think that underlies your question how quickly they find jobs.
Speaker 1: We don't expect them to be part of the long
Speaker 1: term unemployed of six months or more that you see
Speaker 1: in other parts of their segments of the population. But
Speaker 1: it's how quickly they are observed. And my feeling and
Speaker 1: is that those skills are readily observed absorbed, not necessarily
Speaker 1: in tech, but in other sectors of the economy that
Speaker 1: benefit from advanced tech and data skills and software development.
Speaker 1: Some of these UH technologies that were really important during
Speaker 1: the pandemic have now gone mainstream, and companies are more
Speaker 1: likely to need tech tilent in the future than less,
Speaker 1: so I expect that these numbers will be quickly absorbed.
Speaker 1: Though it's highly disruptive for people in the short term.
Speaker 1: This is really really important, And Lisa, would you agree
Speaker 1: with me? This is in the zeitgeist that that there's
Speaker 1: a lot of carnage going on in technology, But I'm sorry,
Speaker 1: there's an American job economy out there. Maybe maybe on
Speaker 1: a on a stock basis or the hopes of a
Speaker 1: tech stock boom, you don't make the same compensation but
Speaker 1: it's not like they're going out into a nothingness, which
Speaker 1: is the reason why we haven't necessarily seen it in
Speaker 1: some of those numbers. Nila, this really racist a question,
Speaker 1: at what point do we start to see the destruction
Speaker 1: in the numbers that we're seeing in certain industries. Are
Speaker 1: we ever going to see it? Could we see a
Speaker 1: recession without necessarily an unemployment rate that picks up all
Speaker 1: that much? If we daily said it will be the
Speaker 1: weirdest recession in US history. I mean, I start from
Speaker 1: first principles, the jobless claims numbers. Those numbers are super low,
Speaker 1: and then I add the unemployment rate fifty year low,
Speaker 1: and then I see the best hiring. And yes, there
Speaker 1: could be some softness next year, and we could see
Speaker 1: weaker hiring next year. But the fact that firms are
Speaker 1: still hiring when all expectation is that the economy is slowing,
Speaker 1: slowing significantly from last year and definitely from that means
Speaker 1: makes the hiring even more remarkable. It tells me that
Speaker 1: what we're seeing is impervious to interest rate hikes, that
Speaker 1: there's something more going on, and that companies still need
Speaker 1: to hire and find qualified talent. So Nila, just to
Speaker 1: sort of wrap this all up. You said that you
Speaker 1: think that this ultimately will push the FED to raise
Speaker 1: rates to a higher level for longer and keep it
Speaker 1: there for longer than people currently are expecting. Can you
Speaker 1: give us some parameters of what you're expecting and when
Speaker 1: it will be felt by an economy that still has
Speaker 1: been resilient. Yeah. I don't know if the FEDS path
Speaker 1: is through the labor market. I know the narrative is
Speaker 1: that if we can cripple the labor market, we can
Speaker 1: slow down hiring, we can spike up the unemployment rate,
Speaker 1: and that we can crush wage pressures. That's going to
Speaker 1: lead to lower inflation. I'm not sure that's the path anymore.
Speaker 1: I think what we need actually is to see more
Speaker 1: people into the labor market, and unfortunately, what that means
Speaker 1: from for the FED is that it's not just a
Speaker 1: monetary response response, it's a fiscal response. So jobs retraining
Speaker 1: response is to get people into those interviews, response which
Speaker 1: needs more federal and local support, not just monetary support.
Speaker 1: So the idea that the FED can do this alone
Speaker 1: and fix the labor market, bring down inflation, and get
Speaker 1: people back into the labor market is I think is
Speaker 1: a little idealistic, so the Fed can only stay in
Speaker 1: its lane. I would expect to see a federal funds
Speaker 1: rate over five per cent, and I would expect them
Speaker 1: to hold there for a quite a bit of time.
Speaker 1: That means through Nila, thank you so much. A breath
Speaker 1: from Neila Richardson of ADP. Joining US now is Laurie Canvasina.
Speaker 1: How do US ancurity strategy? Obviously capital markets? Laurie, let's
Speaker 1: start there. Well, Lisa finished the bank earnings this week.
Speaker 1: What are you looking for from the likes of JP
Speaker 1: Morgan and others to get a broader rate on what's
Speaker 1: happening here? Well, I always love hearing the comment from
Speaker 1: the banks about what's going on in terms of consumer deposits. Um.
Speaker 1: We also like hearing, you know a lot about what's
Speaker 1: going on with our corporate clients. So that's really you know, Frankly,
Speaker 1: I care a little bit less about the actual bank
Speaker 1: earnings and I care more about those macro tidmets that
Speaker 1: we're gonna get. But I have to tell you, John,
Speaker 1: I pulled up this morning just looking at my Bloomberg
Speaker 1: about the sector performance over the past month. Financials have
Speaker 1: actually done pretty well in a relative basis, And I
Speaker 1: never liked that set up when financials have outperformed heading
Speaker 1: into recording season, because there's usually not that great at
Speaker 1: a set up. But we'll see what happens on Friday.
Speaker 1: Or I'm fascinated by the interviews we have away from
Speaker 1: your expertise talking about bi quality, which means Apple and
Speaker 1: three other stocks. Are there qualities small caps? I mean,
Speaker 1: if if somebody says in a big cap area, I
Speaker 1: want quality, can Laurie Kelvisina say that in mid caps
Speaker 1: and small caps you can. It's on a relative basis,
Speaker 1: and you don't necessarily, you know, have the ability to
Speaker 1: come in and make the argument to say your top
Speaker 1: quality small cap is better than you know, kind of
Speaker 1: your top quality of large caps. But within the small
Speaker 1: cap space, you to generally tend to find that stocks
Speaker 1: with better r o e s positive earnings tend to
Speaker 1: outperform over time. You really kind of have two different
Speaker 1: worlds within the small hap index. Is you have the
Speaker 1: teeny tiny microcaps that have no liquidity, nobody trades, that
Speaker 1: nobody pays attention to them, and they have that kind
Speaker 1: of upper echelon that does have some pretty good quality. Now,
Speaker 1: those typically get to be pretty crowded by small cap
Speaker 1: managers and typically get to be pretty expensive. But one
Speaker 1: of the reasons I love small caps right now is
Speaker 1: that upper echelon of market cap is actually pretty reasonably valued,
Speaker 1: and we don't get an opportunity to buy those high
Speaker 1: quality small caps like this all that often. Loria, How
Speaker 1: concerned were you though, by the I S m print
Speaker 1: that we got on Friday, the services components supposedly the
Speaker 1: strongest one coming in in contraction. Look what, whether or
Speaker 1: not this is a recession, something close to it, that's
Speaker 1: something that kind of smells like it but isn't quite
Speaker 1: this one. Whatever it is, we need to go ahead
Speaker 1: and get it done, and we need to go ahead
Speaker 1: and get it started. From an equity market perspective, and
Speaker 1: obviously there's a human cost to that, and we're we're
Speaker 1: not being disrespectful of that. But from a market pricing perspective,
Speaker 1: markets typically actually do well in negative GDP years and
Speaker 1: don't do well and sluggish GDP years, And that's historically
Speaker 1: because markets really can't handle that. Will we won't will
Speaker 1: we won't we They just want to know. They just
Speaker 1: want to rip off the band aid and get back
Speaker 1: to business. I think that certain parts of the equity market,
Speaker 1: like small caps, have been pricing in a plunge in
Speaker 1: I s M manufacturing for quite some time. The services side, though,
Speaker 1: is really what's been kind of feeding, uh, you know,
Speaker 1: kind of the the inflationary fears, and so I do
Speaker 1: think we needed to see some damage there really to
Speaker 1: kind of get this inflation narrative under control once and
Speaker 1: for all. So we talk about what's priced in, right,
Speaker 1: That's been a sort of one of the big question
Speaker 1: marks for a lot of the analyst reports we've been reading.
Speaker 1: And you took a look at how tech consumer discretionary
Speaker 1: communication services stocks accounted for of the decline last year
Speaker 1: on the SMP. But tech is still overvalued by some measures.
Speaker 1: So at what point how much more damage is necessary
Speaker 1: in that sector to become appealing to you. So I
Speaker 1: think that tech is an area if we do get
Speaker 1: another ballot of market volatility in the first order, and
Speaker 1: I do think that we're probably going to see that
Speaker 1: once reporting seasons set send. I do think that tech
Speaker 1: is going to have a problem because I do think
Speaker 1: that that's where some of the earnings expectations do still
Speaker 1: need to be pulled down um and typically we really
Speaker 1: want to buy tech as a recovery story, so we
Speaker 1: need to put that market bottom in before we can
Speaker 1: really get to a point where you want to buy
Speaker 1: the tech sector. But the we go back to this
Speaker 1: quality issue, Lisa, because if I take a look at
Speaker 1: all the SMP five hundred sectors and rank them in
Speaker 1: terms of quality, that classic tech sector, software, semi hardware,
Speaker 1: that component that really ranks is the highest quality part
Speaker 1: of the SMP five hundred. So you might not necessarily
Speaker 1: get super cheap valuations before investors will move back in.
Speaker 1: We do probably need to get better valuations, or at
Speaker 1: least more certainty around valuations than what you've got right now,
Speaker 1: before you'll really see sustainable buyers come back. We're spent
Speaker 1: the weekend trying to calibrate the gloom in economics. We're
Speaker 1: seeing a lot of gloom. Are you seeing an investment
Speaker 1: and it's linkage over to finance? Are you seeing a
Speaker 1: lot of gloom from OURBC Capital clients? We do. I
Speaker 1: mean I spent a lot of time in December overseas
Speaker 1: talking to non US based investors, and I would say
Speaker 1: what was surprising to me, Tom, is that the sense
Speaker 1: of bloom was probably not as dire as I would
Speaker 1: have expected, and not quite as dire as what I
Speaker 1: would have seen just from talking to US based investors.
Speaker 1: Still pretty low, UM, but I got the sense that
Speaker 1: talking to non US based investors, they were starting to
Speaker 1: sense opportunities out of the US, and so they were
Speaker 1: still concerned generally that the US was overvalued. But I
Speaker 1: was hearing actually sort of a benign discussion coming out
Speaker 1: of European based clients in particular, UM, And that was
Speaker 1: something that surprised me. It felt like maybe we had
Speaker 1: in certain corners of this market really saw that gloom
Speaker 1: start to receive just a little bit, and that is
Speaker 1: something you do tend to want to look for at
Speaker 1: market bottoms. You can fill this hope count for twenty
Speaker 1: three that this is the year that you get that
Speaker 1: international performance. Tom before that, I know, Laurie, thank you.
Speaker 1: Just fantastic. Laurie Cavastin of MBC Capital Markets, Let's just
Speaker 1: gotta writes holistic notes pulling in the economics into the
Speaker 1: fixed income space as well, and his recent note John,
Speaker 1: I mean, it's just extraordinary in its nuance, not only
Speaker 1: in the United States, but also the Transatlantic dynamics as well,
Speaker 1: people lining up to buy fixed income. That's the heart
Speaker 1: of the matter. That's the heart of the he joins
Speaker 1: us Sell, Michael Schumacher's global head of macro strategy at
Speaker 1: Wells Fargo, with exceptionally acute notes. Mike, your acute note
Speaker 1: says higher yields. Are we all gonna die if we
Speaker 1: have higher yields? I hope not, at least not quickly anyway, Tom,
Speaker 1: and it's it's interesting when you think about the move
Speaker 1: on Friday. I agree it was huge, but still the
Speaker 1: bond market has been so choppy, so volwerful now for
Speaker 1: early the past six months. I wouldn't take too much
Speaker 1: on a one day's move. A lot of events coming up,
Speaker 1: a lot of progress and inflation. Sure, but it's not
Speaker 1: yet time to signal. Hey, it's all clear for bonds.
Speaker 1: If we sum it all up into the Bloomberg Total
Speaker 1: Return index known over the years at Lehman Brothers and such,
Speaker 1: the answer is down ginormous with a little bit of
Speaker 1: a bounce. If you call for higher yields. Does the
Speaker 1: blended total return index seek new loads in price? It
Speaker 1: depends where you look on the curve time. So if
Speaker 1: you focus on the front end, you probably still get
Speaker 1: positive returns. Let's say the two year treasury. You've got
Speaker 1: such a high yield baked in that if you alter
Speaker 1: to go up twenty five or fifty basis points, yes
Speaker 1: it matters, but it's not going to knock out that
Speaker 1: four plus coupon in the tenure area. Very different story,
Speaker 1: a little bit of an uptick, long duration, and you're
Speaker 1: looking at negative returns. How much are you going to
Speaker 1: expect the market to move to a higher expectation of
Speaker 1: a terminal FED funds rate in a very violent manner
Speaker 1: as they start to realize that the Fed is serious
Speaker 1: about what they're saying. It's gonna take a while, I think, Lisa.
Speaker 1: And the problem is the Fed's credibility, frankly, is not
Speaker 1: very good if you look back a year. So go
Speaker 1: back to December of one, take a look at the
Speaker 1: terminal dot or take a look at the FED fund
Speaker 1: and stot for twenty two. At that point it was
Speaker 1: less than one percent. That didn't work out at all.
Speaker 1: So I think the market listens to Chair Powell. So yeah,
Speaker 1: it sounds pretty serious. He's been talking to off for
Speaker 1: four or five months. But let's see how this pans out.
Speaker 1: Let's see if the Fed hikes in February. Let's see
Speaker 1: if the Fed hikes in March. The market's going to
Speaker 1: give the Fed not much credit, frankly, because the forecasts
Speaker 1: have been so poor. Mike, I gotta ask you, because
Speaker 1: we've been talking about this and kind of questioning how
Speaker 1: much we have to care about this. Not to shift
Speaker 1: zones outside of A. J. Powell, but we've been talking
Speaker 1: about the debt ceiling debate and at what point this
Speaker 1: bond market will care about the potential for a default
Speaker 1: at two thousand and eleven. What's your expectation? Is it
Speaker 1: on your radar. We're more concerned than we would normally
Speaker 1: be this far out, simply because of all the pandemonium
Speaker 1: in Washington over the last week. But the markets seen
Speaker 1: this movie a bunch of times. So typically people in
Speaker 1: the market don't care about the debt ceiling until three
Speaker 1: maybe four weeks before the extraordinary measures appear to be exhausted,
Speaker 1: and then they care a lot. So cared none, none, none,
Speaker 1: a bunch and then you see market shift. Equities do
Speaker 1: strange things, T bill yield spike, that kind of stuff.
Speaker 1: But we're not there yet. I think it takes a while. Mike. Yeah.
Speaker 1: I look at the total Return Index and I know
Speaker 1: that guys like you are dealing in spread and relative
Speaker 1: yield analysis. Deborah Cunningham was on last week Confederated and
Speaker 1: she stopped the show where their caution on, it's going
Speaker 1: to be a clip a coup on year and prices
Speaker 1: are gonna go down if we breach last year's carnage
Speaker 1: in the total return indexs we go back to a
Speaker 1: price of two thousand and sixteen. Is that feasible that
Speaker 1: we could see a second year of price trauma in bonds?
Speaker 1: Last year was incredible, tom So thinking about the moves
Speaker 1: in the market relative to where the year began blowing
Speaker 1: away forwards, I think that's very tough to imagine, not
Speaker 1: impossible because things have been so strange. But think about
Speaker 1: let's say monetary policy for the e c B or
Speaker 1: the Fed. What's the upper bound we'd put on maybe
Speaker 1: Fed activity this year six percent something like that. So
Speaker 1: that's much less movement this year than we had last year.
Speaker 1: For the e c B. Maybe it goes a hundred,
Speaker 1: a hundred and fifty. Big moves, yes, but again not
Speaker 1: really shocking the market as we had a year ago,
Speaker 1: so I think the idea or at least hopefully the
Speaker 1: chance of being repeating something like last year in the
Speaker 1: bond market's pretty small. So you think that this year
Speaker 1: bonds will offer an offset to the potential risk in
Speaker 1: higher risk assets in the case of some sort of downturn.
Speaker 1: I think it's a really interesting point least. And you
Speaker 1: think about these correlations between bonds and equities. For let's
Speaker 1: say most of the last ten years, you have this
Speaker 1: case where equities that sell off bonds and rallies the
Speaker 1: bonds would provide that ballast to last year. And more
Speaker 1: recently it's been oh, yields are down, this is good
Speaker 1: for stocks, and we had this on Friday too, So
Speaker 1: we don't have that correlation normalizing quite yet. I think
Speaker 1: it will, but it's probably gonna take another quarter or two.
Speaker 1: Is my guests and Mike quite to catch up. As
Speaker 1: always interesting was out there at the moment, might show
Speaker 1: MCADA last fog. Right now, we are going to go
Speaker 1: to the deepest part of what we do in equities, bonds, currencies, commodities.
Speaker 1: Always it is a foreign exchange market, and we do
Speaker 1: it with Rubble Bank with their immense heritage of being
Speaker 1: on the other side of speculation making commercial transactions. Go
Speaker 1: Jane Folly holds court at Rubble Bank. Jane, wonderful to
Speaker 1: have you here and timely as well. Buried in your
Speaker 1: note at the bottom is dollar bulls do not give up?
Speaker 1: Why should the dollar bulls not give up? As we
Speaker 1: see weaker dollar moving into a trend? Well, you know,
Speaker 1: I think if there ever was a year of a
Speaker 1: two handed economists, I think this is going to be
Speaker 1: the year. There are so many different permutations, accommodations, I
Speaker 1: think hitting the market, so many different ways you can
Speaker 1: argue the issues that are at and I think particularly positioning. Now,
Speaker 1: I think we've got to look at the events before
Speaker 1: us through the prism of positioning. And what we've had
Speaker 1: in the last few months of the year into this
Speaker 1: year is is the market really selling off and on
Speaker 1: its long dollar position. So we're going into these fundamentals
Speaker 1: with the market no longer long dollars and the market
Speaker 1: very very long euro and that's got to color some
Speaker 1: of the some of the news that we've had. Particularly
Speaker 1: I think around the FED you do this differently because
Speaker 1: of the heritage of your bank. You people do a
Speaker 1: lot of hedging a lot of business transactions. Is there
Speaker 1: a dollar bet on the other side of speculation, Well,
Speaker 1: you know that there is, yes. I think the answer
Speaker 1: to that is yes. But I think if we look
Speaker 1: at the reasons that the market has been selling off
Speaker 1: the dollar in the last couple of months, and it's
Speaker 1: it's surrounding, you know, the attitude towards peak US and
Speaker 1: of course UH or the Fed now that the fact
Speaker 1: remains pretty hawkish, I think we can argue this both ways.
Speaker 1: You know, will the Fed cut interest rates this year?
Speaker 1: Will it not? There's lots of different views out there,
Speaker 1: but this argument is going to look different when the
Speaker 1: market is no longer long the dollars. And similarly, you know,
Speaker 1: we look at what's been ramping up the euro long
Speaker 1: positions over the last couple of months. This is all
Speaker 1: related to the gas prize, to less pessimism and about
Speaker 1: the European economic outlook. But again, the news flow is
Speaker 1: going to hit differently when the markets already long euros.
Speaker 1: So I think what we're in for is an awful
Speaker 1: lot of choppy trading as as as a market reacts
Speaker 1: to did the inv and flow of of this, you know,
Speaker 1: very volatile news flow from now this position have been
Speaker 1: not long dollars and very long euros. What's the range
Speaker 1: then you're looking for. I think the range is going
Speaker 1: to be large, you know. And I think this is
Speaker 1: a new world here, and I would go as far
Speaker 1: as to say is and did the low volatility that
Speaker 1: we had, you know, in in recent years was the outlier?
Speaker 1: I think that was a function of very cheap money
Speaker 1: in the coffee, the quantity of easy in years. And
Speaker 1: with that brain bag, I think all investors are much
Speaker 1: more exposed to economic fundamentals. They have to look at
Speaker 1: economic fundamentals and be more worried about it because money
Speaker 1: is more expensive. And I think that's going to make
Speaker 1: a much more choppy environment probably probably not just this year,
Speaker 1: last year, but actually in years to come until perhaps
Speaker 1: we we get cheaper money again for whatever reason. So
Speaker 1: I think we could be you know, seeing your dollar
Speaker 1: and you know one to two, maybe one eight, one, nine,
Speaker 1: one ten. You know, I think we've got a lot
Speaker 1: of shoppiness um to come over the course of this year. Jane,
Speaker 1: you raised a lot of really good points this question
Speaker 1: of which data this market responds to. We saw softer
Speaker 1: than expected inflation prints in Europe with inflation coming in
Speaker 1: more than expected. That on the headline number, but that
Speaker 1: I had to do a lot with the energy prices,
Speaker 1: not with respect to core inflation. The market didn't respond
Speaker 1: to that. We see the ECB coming out and saying
Speaker 1: consistently they are going to high rate more and that
Speaker 1: they see potential momentum in inflation. What is the market
Speaker 1: responding to with the optimism aside from just the strength
Speaker 1: because of the better than expected outcome with the winter
Speaker 1: and energy. Well, sometimes the market response to what it
Speaker 1: wants to to respond, it sees what it wants to see.
Speaker 1: And actually right now it's ignoring to some of the
Speaker 1: hawkishness from both the EUCB and from the Fed. And
Speaker 1: and I think in terms of the European data that
Speaker 1: we had last week, yes, those headline numbers were coming lower.
Speaker 1: Yes they're going to come lower because of lower energy
Speaker 1: prices and and because of base base effects as well
Speaker 1: into the year, but those core numbers were higher. There
Speaker 1: is the effect of tight labor markets. This does make
Speaker 1: it an unusual down tern because labor markets across almost
Speaker 1: the whole of the O E c D are so tight,
Speaker 1: and and this does mean that services sector inflation could
Speaker 1: remain more sticky. And this is what central banks are
Speaker 1: worried about. This is why they retain this This hawk
Speaker 1: is rhetoric and and the warning perhaps that the market
Speaker 1: you don't get too hut up on the fact that
Speaker 1: we're going to be cutting interest rates and in the
Speaker 1: foreseeable future they may not be. We have to wait
Speaker 1: and see what's your high beta trade e UM right now?
Speaker 1: I've got to make some money before our arsenal spurs
Speaker 1: here this week. And Jane, what's your high beta e
Speaker 1: M pair right now? Well, we've seen the dollar sell off,
Speaker 1: we see people go shorter on on the Mexican pay
Speaker 1: so I think that's probably going to carry on. But
Speaker 1: you know, if you talk about this, I always put
Speaker 1: let to put the Aussie in here because he has
Speaker 1: traditionally is seen as sort of the high risk trade
Speaker 1: within the G ten. And actually that's no longer Australia's
Speaker 1: running a current account surplus. It's an energy exporter. The
Speaker 1: interest rate differentials are much narrower than they used to
Speaker 1: be in and I think that means that Australia is
Speaker 1: no longer going to be seen as as this sort
Speaker 1: of high risk currency, and I think that one could
Speaker 1: perform quite well this year. Interesting Jane, Thank you, as
Speaker 1: always brilliant Jane Foudy there as Rapid Bank. This is
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