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Speaker 1: Let's get to our guest, Isaac Pool, Global ce IO

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Speaker 1: at Oriana Financial Services. Isaac, good day to you. It's

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Speaker 1: always a pleasure to have you on the program. Um

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Speaker 1: markets just don't seem to be really all that nervous.

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Speaker 1: I mean, we had the FED chief say something that

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Speaker 1: seems kind of scary, that that the FED is not

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Speaker 1: close to the end of its anti inflation campaign and

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Speaker 1: likely rates would stay higher for longer. Is it because

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Speaker 1: of valuations or why are we seeing these these gains

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Speaker 1: and even you know today we're not seeing gains, but

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Speaker 1: we're seeing sort of markets hanging in there. What's up? Yeah,

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Speaker 1: I mean, I think there was a bit of a

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Speaker 1: ho hum reaction to that zero point five percent hike

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Speaker 1: because everyone knew it was coming and there wasn't a

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Speaker 1: lot of real news in the dot plot or the

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Speaker 1: or the statement, yeah, okay, we're going to get another

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Speaker 1: three zero point to five rate hikes potentially according to

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Speaker 1: the FED. But I mean, the markets not silly. They

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Speaker 1: can look at the data. They can see inflation is

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Speaker 1: slowing rapidly in the US, the housing market is seving

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Speaker 1: rapidly in the US. They know the FED can't get

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Speaker 1: that many hikes in so I think they're looking out

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Speaker 1: and saying, well, say that all you like, Chap, how

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Speaker 1: you won't be able to hike that far, And that

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Speaker 1: means that we could have earnings are a little bit

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Speaker 1: better than than the very barish expectations out there. Yeah,

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Speaker 1: we've got two tens and version at levels we haven't

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Speaker 1: seen since the nighties. But the bond market does, to

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Speaker 1: your point, seemed to be telling a rather different story

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Speaker 1: about the path of head here. Yes, that's that's right.

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Speaker 1: I think if it's it's helpful here to focus on

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Speaker 1: on the twos in particular, they think they're priced pretty

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Speaker 1: well for the likely pathway for rates we get maybe

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Speaker 1: another zero point five percent of hikes in total, but

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Speaker 1: probably only zero point to five and then at some

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Speaker 1: stage end there'll be cuts follow that two year yield.

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Speaker 1: It's really critical because if that inverted curve steepens and

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Speaker 1: it's a bull steep night, the two year yield falling aggressive, you,

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Speaker 1: it means recessions imminent. At the moment, we're just not

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Speaker 1: seeing that, and that's a that's a positive story for

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Speaker 1: the markets for the time being. Is the Fed's communication

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Speaker 1: policy in question now because we know they want to

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Speaker 1: talk tough. They don't want financial conditions to ease, and

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Speaker 1: everybody's looking at data that, as you say, seems to

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Speaker 1: have a slightly different story than what the FED is saying.

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Speaker 1: So what's the take away from that? Yeah, they're battling

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Speaker 1: a credibility problem here and have been a year. They

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Speaker 1: do want to keep a tough narrative out there that

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Speaker 1: they don't want inflation expectations to the anchor, but they

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Speaker 1: haven't an inflation slow and quickly. I think they need

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Speaker 1: to be really careful to keep control of the narrative

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Speaker 1: rather than letting the market rested away from them. Sticking

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Speaker 1: to this idea that five point one per cent or

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Speaker 1: higher is probable or possible, it will damage the credibility

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Speaker 1: ultimately be worse for the outcomes, I think, so they

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Speaker 1: need to mass o that narrative. What do you see

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Speaker 1: as the outlook for unemployment and growth in the US.

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Speaker 1: Growth is going to slow, and and it's going to

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Speaker 1: slow somewhere close to zero percent. I don't I don't

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Speaker 1: think a recession is inevitable or necessary in any sense

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Speaker 1: of the word. But you can't hike rates by almost

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Speaker 1: five percent and expect growth to be robusted. Just ye,

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Speaker 1: it'll slow and that means that unemployment will drift higher

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Speaker 1: than The critical thing here is it doesn't need to

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Speaker 1: snap two percent higher. We could drift a little bit

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Speaker 1: over the next twelve months without recession, and that would

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Speaker 1: be the goldilocks of this gold gold locks outcome for

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Speaker 1: the FED, and in their heart of hearts, that's what

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Speaker 1: they want. So if the market doesn't have full confidence

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Speaker 1: in the FED at the moment, what about with China?

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Speaker 1: Does the market have confidence in what the policy makers

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Speaker 1: are doing there are now shaking open the economy in

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Speaker 1: quick fashion. I think that Western markets are looking on

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Speaker 1: there with a little bit of skepticism. But of course

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Speaker 1: the Chinese government has a lot at stake here. They've

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Speaker 1: they've flipped their their policy and they need to be

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Speaker 1: able to show that they can navigate the exit from

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Speaker 1: zero COVID well. And and they have history on their

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Speaker 1: side when when economies have reopened, it's released a lot

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Speaker 1: of pent up demand. It's been very good for the economy.

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Speaker 1: I think there's doubt about that around the world, But

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Speaker 1: but I think that that will be proven probably wrong,

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Speaker 1: and I would expect China's economy to pick up relatively well.

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Speaker 1: It's always been a rough ride out though for the

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Speaker 1: experience of other countries anyway, have absenteeism, disruptions, etcetera. What

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Speaker 1: support do you anticipate from policy makers in China? There

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Speaker 1: is there is some luck there, I suppose for China's policymakers,

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Speaker 1: in the sense that they've got room to be more

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Speaker 1: supportive on the monetary side. Inflation is not driving higher

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Speaker 1: like it is in West and and there is room

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Speaker 1: to support more through either triple our cuts or right cuts.

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Speaker 1: There's also some possibility for more fiscal support, and we've

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Speaker 1: seen that on the property side. I think that will

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Speaker 1: continue to see a supportive government policy settings here. But

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Speaker 1: you're right, it will be bumpy. This isn't smooth sailing.

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Speaker 1: But but ultimately the direction is for better economic growth

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Speaker 1: as reopening picks up speed, in addition to more a

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Speaker 1: stimulus and in addition to just more economic activity because

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Speaker 1: of the opening up. I was reading a report yesterday

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Speaker 1: about how household savings are way up over the past

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Speaker 1: couple of years because of of COVID nineteen that seems

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Speaker 1: to actually put even possibly steroids on the story that

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Speaker 1: that's right, and this is a big part of it.

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Speaker 1: We've had very widespread, severe lockdowns across large parts of

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Speaker 1: the urban population in China. They have not been able

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Speaker 1: to spend even if they wanted to, and they didn't

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Speaker 1: want to, they have managed to save those savings will

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Speaker 1: be redirected eventually into spending. It may take a little

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Speaker 1: bit of time. As I say, there's there will be

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Speaker 1: volatility as this reopening takes place, but become three those

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Speaker 1: savings will not continue to sit in bank accounts, I

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Speaker 1: won't continue to sit under the bed, under the mattress.

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Speaker 1: They will be put to use as as consumers get

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Speaker 1: out and about and they and they begin to spending again.

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Speaker 1: Do you see any implications for inflation and China as

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Speaker 1: a result of that, Yeah, I mean disinflationary pressures that

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Speaker 1: they've got now really do reflect the fact that China

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Speaker 1: is in recession. This is a Chinese recession. This is

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Speaker 1: what it looks like. And and so no surprise that

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Speaker 1: there's disinflationary pressures there that will reverse and the at

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Speaker 1: some stage, just as we've seen in the US, just

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Speaker 1: as we've seen in Europe and Australia, the monetary policy

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Speaker 1: settings will have to stop loo sning and move to

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Speaker 1: a slightly more tightening position that though it doesn't need

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Speaker 1: to be early next year, I suspect it's probably a

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Speaker 1: story for late early So if the funds get unleashed

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Speaker 1: in China, the spending happens, how does that money find

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Speaker 1: its way into Isaac Pool's pocket. I think when when

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Speaker 1: we look at um at Chinese assets, Chinese equity markets,

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Speaker 1: you've had a fifty draw down peak to trough that

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Speaker 1: is well and truly priced in the recession that we've

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Speaker 1: already had. Now we have had a pretty strong rally,

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Speaker 1: we think there's more to go on that earnings can

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Speaker 1: genuinely pick up. Through three there's been a real reluctance

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Speaker 1: of international capital, international markets to reprice this to a

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Speaker 1: better outcome and and I think that is going to

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Speaker 1: start to gather pace early next year. So from our perspective,

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Speaker 1: a little bit positive there. Excellent Isaac, nice years and

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Speaker 1: positivity as a Pool Global c IO at Oriena Financial

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Speaker 1: Services