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Speaker 1: George. Bill Boris joins US head of Research at K

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Speaker 1: two Asset Management. George, I find it a little counterintuitive

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Speaker 1: that you're seeing a lot of rallies in industrials and

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Speaker 1: cyclicals are other cyclicals like materials and energy, Yet the

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Speaker 1: bond market is telling us that recession could be coming.

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Speaker 1: Help me sort that out? Is hello, Um, it's all

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Speaker 1: about predictive indicators. Bond market is a classic learning economic indicator,

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Speaker 1: and obviously the yeal curve, etcetera, and you are writer

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Speaker 1: is doing a certain signal. But equity markets are also

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Speaker 1: trying to be predictive, and what they're happy with at

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Speaker 1: the moment is that the US FED is increasing rates

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Speaker 1: at a decreasing level, and other leading economic indicators are

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Speaker 1: suggesting like prices paid components of the I s M

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Speaker 1: and other p M I prices paid components are turning.

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Speaker 1: Therefore the headline we'll be turning. Therefore call will follow that,

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Speaker 1: and that's the that's the story for recovery of earnings

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Speaker 1: because we know earnings will be flat to negative one

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Speaker 1: year forward valuations compelling. That's that narrative. Take a step back.

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Speaker 1: The bond market should challenge it. Um the Socratic method

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Speaker 1: as it's been around for two and a half thousand years,

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Speaker 1: keep asking the question and and always is this a

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Speaker 1: reasonable estimate for future earnings? And where would lands? And

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Speaker 1: and and then the final point very quickly on the

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Speaker 1: payrolls number. The last three months, it's averaging around about

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Speaker 1: that to nine level versus four hundred thousand levels from

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Speaker 1: the previous three months. So there's a slowdown, even though

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Speaker 1: it's a very very resilient US labor market, but at

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Speaker 1: this slowing down versus the pacer earlier this year. What

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Speaker 1: is not slowing down is the dollar strength. And you're

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Speaker 1: saying that's the story of particularly is it gives pain

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Speaker 1: to Asian markets? I mean, how much further do we

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Speaker 1: see this story continue? Yeah? So um when when asked

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Speaker 1: this question, is that the pain will persist for calendar two.

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Speaker 1: And while it's a reasonable assumption to say it won't

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Speaker 1: appreciate dollar index in the next year where it's been

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Speaker 1: the previous year, it will broadly hold this game to

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Speaker 1: be weakness d X Y dollar index like Friday Night

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Speaker 1: with risk on. There'll be some reverses on it, and

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Speaker 1: we'll keep playing these ranges, but broadly holding these strengths

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Speaker 1: against yen euro. You are cable and and obsie and commodity.

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Speaker 1: The currencies are cushioned a little bit. We didn't have

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Speaker 1: the falls or those other economies. But notwithstanding rarely accordingly.

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Speaker 1: So are you saying that the dollar confirms that what

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Speaker 1: you told us about what the bond market was sniffing

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Speaker 1: out versus what the stock market was sniffing out? That

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Speaker 1: the dollars confirming the bond markets right, exactly exactly. So

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Speaker 1: that so most leading indicating of the market is obviously currency.

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Speaker 1: Then bond markets and equities is generally delayed and lagged.

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Speaker 1: And then the excuse would always be we're looking three

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Speaker 1: years out on those earnings environment with compelling valuations. I

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Speaker 1: discuss how you play are the moves that we are

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Speaker 1: seeing in relation to China and sticking with its COVID

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Speaker 1: zero policy. I was talking about oil, they're retreating, but

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Speaker 1: you remain overweight energy and say that the energy sector

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Speaker 1: still has a lot of strong tail winds. Yes, exactly,

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Speaker 1: So we still overweight energy all year and also financials

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Speaker 1: and healthcare. If il um the energy again is predicated

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Speaker 1: on l energy, it's it's a key transition fuel. Lots

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Speaker 1: of list of companies Whutside, chevron X on Santos domestically

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Speaker 1: all have a big part of that up to their portfolio,

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Speaker 1: and it's key for for our s G targets, it's

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Speaker 1: key for COP twenty seven, it's key for the transition

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Speaker 1: for the develop world and then the emerging So it's

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Speaker 1: got tail wins that I meet him to long term

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Speaker 1: are very strong in the short term um and we

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Speaker 1: also prefer US dollar, Southeast Asia, Australia, and very underweight China,

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Speaker 1: like most underweight we've been for twenty three years. Again

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Speaker 1: compelling valuations, but very difficult to see anything predictive going

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Speaker 1: forward on the valuations. But energy prices are going to

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Speaker 1: be still linked to anything on to do with China.

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Speaker 1: Eventually they'll open up domestic economy. It would be a

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Speaker 1: very big stimulant domestic demand. They won't do international travel,

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Speaker 1: but that in itself will be a big driver for

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Speaker 1: energy as well. For calendar twenty three, you might have

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Speaker 1: heard us mentioned earlier that Nomura has raised its estimate

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Speaker 1: on the terminal rate all the way up to as

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Speaker 1: high as five and three quarters percent. That is seemingly

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Speaker 1: not factored in. It's just one house, but that would

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Speaker 1: be another two hundred basis points of hiking. Is that

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Speaker 1: something that you know people start to need to prepare for. Yeah,

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Speaker 1: I mean it's possible, but we have a subjective view

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Speaker 1: that's improbable. We think four seventy five five and a

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Speaker 1: quarter since more reasonable. We think that the Fed funds

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Speaker 1: increasing rates at a decreasing level, the next one at

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Speaker 1: fifty basis points. So the seventy five last week was

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Speaker 1: good news in that you're closer to the top. Again,

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Speaker 1: there's a more resilient economy in the US has a

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Speaker 1: more resilient earnings environment and more resilient labor market as

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Speaker 1: we discussed previously, but the rest of the world has

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Speaker 1: suffered with that US dollar strength. But we believe increasing

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Speaker 1: FED funds rate at a decreasing level gives you some

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Speaker 1: some look through into recovery. And that's what we're looking

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Speaker 1: for each to look for predictive indicators and credit conditions,

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Speaker 1: yield curves and earnings outlook. And that's our view at

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Speaker 1: the moment, So cautiously optimistic the FED is closer to

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Speaker 1: a peak. What about other central banks, particularly in your

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Speaker 1: region when we look at the AB and By and

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Speaker 1: z in, Yeah, another good question. But they're also they

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Speaker 1: clearly were one of the first central banks AREBA to

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Speaker 1: increase at the decreasing level. They will get to that

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Speaker 1: three in a quarter level, which would be very painful

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Speaker 1: for households in Australia. They will deliver that demand destruction

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Speaker 1: and looking for the CPI numbers to roll over down

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Speaker 1: Under and that would be a bit of pain yet

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Speaker 1: to come for Australia. But again the exporters for Australia

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Speaker 1: are still going to be benefiting. It's just domestic demand

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Speaker 1: will suffer a little bit. And then you just look

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Speaker 1: through it and say, is twenty four earnings outlook reasonable?

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Speaker 1: Compelling valuations and that's the play. Credit conditions seemed reasonable

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Speaker 1: as well, and there's some good offerings there. Still keep

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Speaker 1: duration to that to three year, you don't go to

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Speaker 1: too long, but there's compelling opportunities a different parts of

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Speaker 1: the capital structure. Yeah, I was going to ask you

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Speaker 1: about where you see the most value on the curve,

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Speaker 1: and I guess you're saying two to three years out

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Speaker 1: and some sort of mix between sovereigns and and and credit.

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Speaker 1: Um is that is that? Is that the right mix?

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Speaker 1: How How do you design that? Yeah? You design it

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Speaker 1: with some sovereigns and supers, but when you go to

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Speaker 1: the credit senior unsecured, it seems to be more than

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Speaker 1: compelling enough. You don't have to go to the high yield,

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Speaker 1: the deep subordinated high yield. Effectively is that this is

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Speaker 1: an over generalization. It's an equity proxy replacement. You'll be

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Speaker 1: playing in that basket. So we will play the equity

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Speaker 1: market for the future earning three years out, two years out.

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Speaker 1: Senior unsecured there's a good reliability and look through credit

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Speaker 1: conditions in the stage of the cycle was quite good. Uh,

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Speaker 1: and some supers and a little bit of sovereign there

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Speaker 1: as well, so again there's a good blend there. And

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Speaker 1: hopefully you know, next year we can go back to

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Speaker 1: traditional as allocation models and that is low as squares

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Speaker 1: between fixed incomers and asset class and equities. It would

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Speaker 1: be nice return to normal. H What is normal? Alright? George?

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Speaker 1: Thanks so much. Georgie barboris head of research at K

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Speaker 1: two Asset Management, on the line from Melbourne for us

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Speaker 1: here on Bloomberg Daybreak. Asia