1
00:00:05,120 --> 00:00:09,200
Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

2
00:00:09,200 --> 00:00:13,200
Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you

3
00:00:13,280 --> 00:00:18,600
Speaker 1: insight from the best and economics, finance, investment, and international relations.

4
00:00:18,840 --> 00:00:23,560
Speaker 1: To find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot

5
00:00:23,560 --> 00:00:30,040
Speaker 1: com and of course on the Bloomberg terminal. Trum Dudley

6
00:00:30,040 --> 00:00:33,559
Speaker 1: and mckelby to the era of Hatzius, Goldman Sachs research

7
00:00:33,640 --> 00:00:37,120
Speaker 1: has been about acuity. On this Friday, we're gonna lose

8
00:00:37,159 --> 00:00:40,559
Speaker 1: the numbers, the many numbers of Jan Hatzius work as

9
00:00:40,600 --> 00:00:43,520
Speaker 1: team's work, but we're gonna go to one number, which

10
00:00:43,560 --> 00:00:46,560
Speaker 1: is your queue four number. They've marked down g d

11
00:00:46,720 --> 00:00:52,879
Speaker 1: P from a sterling one three to sub one. That

12
00:00:52,960 --> 00:00:55,320
Speaker 1: gives you some of the direction of the recession call.

13
00:00:55,760 --> 00:00:58,960
Speaker 1: But at the same time, Jan Hatzius calls for a

14
00:00:59,160 --> 00:01:03,320
Speaker 1: shallow rees session. If we get a shallow recession, you

15
00:01:03,440 --> 00:01:06,560
Speaker 1: quantify what it will mean for jobs in America. How

16
00:01:06,560 --> 00:01:12,199
Speaker 1: does the magnitude of recession work into the dynamics of unemployment. Yeah,

17
00:01:12,280 --> 00:01:15,280
Speaker 1: let's just be clear that we don't have a recession

18
00:01:15,280 --> 00:01:18,800
Speaker 1: in our baseline forecast. We do have significantly below trend

19
00:01:18,880 --> 00:01:21,640
Speaker 1: growth zero point nine percent is only half the long

20
00:01:21,720 --> 00:01:25,920
Speaker 1: term trend pace, but our our best guess is that

21
00:01:26,040 --> 00:01:30,680
Speaker 1: will be below trend, that rebalances the imbalance in the

22
00:01:30,760 --> 00:01:35,600
Speaker 1: labor market, and that ultimately also helps bring inflation back down.

23
00:01:36,040 --> 00:01:38,640
Speaker 1: That said, there's a very significant risk of recession. I

24
00:01:38,640 --> 00:01:41,920
Speaker 1: think it has gone up because it's very difficult to

25
00:01:42,840 --> 00:01:48,160
Speaker 1: reduce labor demand without you know, the deterioration feeding on

26
00:01:48,240 --> 00:01:52,120
Speaker 1: itself and then ultimately culminating in a recession. So we're

27
00:01:52,120 --> 00:01:55,040
Speaker 1: giving one and three chance of a recession in the

28
00:01:55,080 --> 00:01:57,520
Speaker 1: next twelve months, and it's close to fifty fifty I

29
00:01:57,520 --> 00:01:59,720
Speaker 1: think over the next But you've got to to cernam

30
00:02:00,040 --> 00:02:03,440
Speaker 1: floyment rate baked into a two thousand one ish kind

31
00:02:03,480 --> 00:02:06,200
Speaker 1: of recession. In two thousand and one, it was a

32
00:02:06,200 --> 00:02:08,960
Speaker 1: two percentage point increase. That was the bottom end of

33
00:02:09,040 --> 00:02:10,959
Speaker 1: the historical range. If you look at all of the

34
00:02:11,040 --> 00:02:14,000
Speaker 1: recessions in post war history, the top end of the

35
00:02:14,120 --> 00:02:16,800
Speaker 1: range is five and a half percentage points. I think

36
00:02:16,840 --> 00:02:19,600
Speaker 1: if we do have a recession, it's likely that it

37
00:02:19,600 --> 00:02:23,400
Speaker 1: would be on the shallower end for two reasons. One,

38
00:02:23,840 --> 00:02:27,880
Speaker 1: private sector balance sheets are in better shape than at

39
00:02:27,880 --> 00:02:30,760
Speaker 1: the end of previous business cycles, and too, I think

40
00:02:31,040 --> 00:02:34,200
Speaker 1: while inflation was very high, I don't think it's as entrenched,

41
00:02:34,680 --> 00:02:37,920
Speaker 1: certainly not as entrenched and expectations as it was in

42
00:02:37,960 --> 00:02:41,840
Speaker 1: previous high inflation episodes seventies early eighties. Yeah. No, we

43
00:02:41,960 --> 00:02:43,600
Speaker 1: just got off a couple of weeks where people were

44
00:02:43,639 --> 00:02:46,400
Speaker 1: ratcheting up their expectations for the terminal Fed funds rate

45
00:02:46,480 --> 00:02:49,880
Speaker 1: about four percent as of at some point next year,

46
00:02:49,960 --> 00:02:52,040
Speaker 1: And here we are looking at a huge rally in

47
00:02:52,080 --> 00:02:55,000
Speaker 1: two year yields. Can you translate the rally that we

48
00:02:55,080 --> 00:02:57,880
Speaker 1: have seen through an economics lens in terms of what

49
00:02:57,960 --> 00:03:02,040
Speaker 1: people are forecasting and whether it's seems plausible in your mind? Well,

50
00:03:02,080 --> 00:03:05,120
Speaker 1: our forecast is a terminal rate of three and a

51
00:03:05,200 --> 00:03:07,600
Speaker 1: quarter to three and a half percent. We think we'll

52
00:03:07,639 --> 00:03:11,160
Speaker 1: get there by the end of two thousand and twenty two.

53
00:03:11,680 --> 00:03:14,680
Speaker 1: We don't have any additional rate hikes in two thousand

54
00:03:14,760 --> 00:03:19,320
Speaker 1: and twenty three, basically because the economy is decelerating, is

55
00:03:19,360 --> 00:03:23,119
Speaker 1: growing below trend, inflation is coming down, and I think

56
00:03:23,160 --> 00:03:26,639
Speaker 1: at that level the Fed would probably hold. You're right,

57
00:03:26,840 --> 00:03:31,520
Speaker 1: we had priced something around four percent, you know, immediately

58
00:03:31,600 --> 00:03:34,840
Speaker 1: after the ft C meeting or right around the fom

59
00:03:34,920 --> 00:03:37,400
Speaker 1: C meeting. But I think people have looked at the

60
00:03:37,400 --> 00:03:41,280
Speaker 1: fact that the economy actually is decelerating and that has

61
00:03:41,600 --> 00:03:44,400
Speaker 1: led to a reversal of that, and I think fundamentally

62
00:03:44,440 --> 00:03:47,120
Speaker 1: that's appropriate. But yeah, given the fact that we are

63
00:03:47,200 --> 00:03:50,640
Speaker 1: see a deceleration, but we're not seeing a deceleration when

64
00:03:50,680 --> 00:03:53,800
Speaker 1: it comes to the inputs into inflation. We're seeing rents

65
00:03:53,800 --> 00:03:56,240
Speaker 1: continue to climb at a record pace. We're continuing to

66
00:03:56,240 --> 00:03:58,800
Speaker 1: see some of the disruptions to oil supplies and the

67
00:03:58,880 --> 00:04:02,480
Speaker 1: food supplies that causing some of the price increases. When

68
00:04:02,520 --> 00:04:04,960
Speaker 1: do you start to talk stagflation? When do you start

69
00:04:04,960 --> 00:04:06,880
Speaker 1: to talk about a FED that is forced to act

70
00:04:07,000 --> 00:04:10,640
Speaker 1: despite an unemployment rate that's rising and despite weakening economic

71
00:04:10,720 --> 00:04:13,160
Speaker 1: data points. Well, I think it's a little bit more mixed.

72
00:04:13,200 --> 00:04:16,839
Speaker 1: If I look at the inflation indicators, No question, the

73
00:04:16,920 --> 00:04:20,440
Speaker 1: last CPI and the rent number there was bad. There

74
00:04:20,520 --> 00:04:23,240
Speaker 1: was an increase in the long term University of Michigan

75
00:04:23,800 --> 00:04:29,000
Speaker 1: Inflation Expectations measure. But the supply chain measures are actually

76
00:04:29,040 --> 00:04:32,320
Speaker 1: getting better. You look at the supply delivery indices in

77
00:04:32,360 --> 00:04:36,240
Speaker 1: the business surveys, those are coming down. Um, the wage

78
00:04:36,360 --> 00:04:39,960
Speaker 1: numbers in two thousand and twenty two have been sequentially

79
00:04:40,320 --> 00:04:43,560
Speaker 1: clearly slower than the second half of last year, and

80
00:04:43,600 --> 00:04:48,000
Speaker 1: I think broadly speaking, inflation expectations, look at just the

81
00:04:48,040 --> 00:04:51,080
Speaker 1: break evens in the bond market are still very well anchored.

82
00:04:51,120 --> 00:04:53,039
Speaker 1: So I think it's a it's a more mixed picture.

83
00:04:53,640 --> 00:04:56,479
Speaker 1: And in an environment where growth comes down to a

84
00:04:56,480 --> 00:04:59,560
Speaker 1: below trend pace, I just don't think that the FED would,

85
00:05:00,320 --> 00:05:04,159
Speaker 1: you know, keep hiking aggressively when the economy is already

86
00:05:04,200 --> 00:05:06,920
Speaker 1: slowing and inflation is already coming down. So yeah, And

87
00:05:07,000 --> 00:05:09,880
Speaker 1: essentially what you're saying is that when Chairman Powell was

88
00:05:09,920 --> 00:05:12,719
Speaker 1: speaking on Capitol Hill yesterday saying that our commitment to

89
00:05:12,760 --> 00:05:16,320
Speaker 1: fighting inflation is unconditional, that there actually are conditions in

90
00:05:16,360 --> 00:05:20,200
Speaker 1: which the FED blinks. I think there are conditions where

91
00:05:20,200 --> 00:05:24,200
Speaker 1: the FED blinks, but it's partly because there's a feedback

92
00:05:24,279 --> 00:05:29,120
Speaker 1: from economic activity into into inflation. If the economy weakens

93
00:05:29,240 --> 00:05:32,400
Speaker 1: and labor demand declines, and maybe the unemployment rate starts

94
00:05:32,520 --> 00:05:35,400
Speaker 1: edging up, then you also just go and become less

95
00:05:35,480 --> 00:05:39,960
Speaker 1: concerned about inflation. So I do think the commitment to

96
00:05:40,080 --> 00:05:43,960
Speaker 1: ultimately getting back down to two percent is unconditional, but

97
00:05:44,080 --> 00:05:47,400
Speaker 1: they will be, you know, factors other than the current

98
00:05:47,440 --> 00:05:50,320
Speaker 1: inflation prints that will sort of drive what they do

99
00:05:50,360 --> 00:05:52,800
Speaker 1: on a on a meeting by meeting basis. While we're

100
00:05:52,800 --> 00:05:55,640
Speaker 1: talking about the specific year words that your own Powell

101
00:05:55,720 --> 00:05:58,400
Speaker 1: has used. I've talked earlier in the show about the

102
00:05:58,440 --> 00:06:02,120
Speaker 1: tweets Bill Ackman posted overnight talking about how the FED

103
00:06:02,240 --> 00:06:04,520
Speaker 1: clearly has a credibility problem in the bond market is

104
00:06:04,560 --> 00:06:06,880
Speaker 1: misreading the Federal Reserve, and what he said is ultimately

105
00:06:06,920 --> 00:06:09,760
Speaker 1: that comes down to the communication of the chairman. Do

106
00:06:09,800 --> 00:06:12,080
Speaker 1: you think that Powell and others on the f O

107
00:06:12,200 --> 00:06:15,120
Speaker 1: m C are are accurately communicating to this market what

108
00:06:15,160 --> 00:06:18,240
Speaker 1: it is they intend to do. No, I think there

109
00:06:18,240 --> 00:06:22,960
Speaker 1: are accurately uh communicating. I think in ways that that

110
00:06:22,960 --> 00:06:25,240
Speaker 1: that are clear that that they do want to get

111
00:06:25,279 --> 00:06:29,560
Speaker 1: back down to two percent eventually. They're tightening policy aggressively,

112
00:06:30,000 --> 00:06:33,200
Speaker 1: much more aggressively than they expected to do six months

113
00:06:33,200 --> 00:06:37,160
Speaker 1: ago or twelve months ago, in part because inflation turned

114
00:06:37,160 --> 00:06:39,640
Speaker 1: out to be much higher. So I think at that

115
00:06:39,760 --> 00:06:42,800
Speaker 1: level it's it's all pretty clear on the credibility problem.

116
00:06:42,839 --> 00:06:46,280
Speaker 1: I would also say, you know, look at inflation break evens.

117
00:06:46,320 --> 00:06:50,560
Speaker 1: I mean the credibility from the bond market's perspective or

118
00:06:50,600 --> 00:06:53,960
Speaker 1: from the perspective of forecasters of the two percent inflation target,

119
00:06:54,080 --> 00:06:56,240
Speaker 1: it still seems seems intact. Yeah, And I want to

120
00:06:56,279 --> 00:06:58,880
Speaker 1: go to Peter Orzag of the London School of Economics

121
00:06:58,880 --> 00:07:01,280
Speaker 1: and a small banking up in New York. Computer Or

122
00:07:01,720 --> 00:07:05,640
Speaker 1: loves the phrase glide path, and maybe that's differential equations.

123
00:07:05,680 --> 00:07:08,600
Speaker 1: Let's just it's Friday. Let's just stay with calculus. Are

124
00:07:08,640 --> 00:07:12,240
Speaker 1: we completely misjudging the second and first derivative of core

125
00:07:12,320 --> 00:07:17,360
Speaker 1: inflation coming in where it may come in shockingly rapidly

126
00:07:17,640 --> 00:07:21,440
Speaker 1: and we underestimate that? Good news. I do think that

127
00:07:21,680 --> 00:07:24,520
Speaker 1: core inflation is likely to come down. In fact, if

128
00:07:24,560 --> 00:07:28,640
Speaker 1: you look at statistical measures of core inflation, like the

129
00:07:28,680 --> 00:07:33,320
Speaker 1: trimmed means, that has been improving over the last few

130
00:07:33,480 --> 00:07:37,880
Speaker 1: few months. It's so little, too early to tell, but

131
00:07:37,960 --> 00:07:40,640
Speaker 1: the last couple of readings have been more encouraging, and

132
00:07:40,680 --> 00:07:44,520
Speaker 1: I think that does suggest that over time core inflation

133
00:07:44,600 --> 00:07:48,520
Speaker 1: is going to come down. And you know, we were

134
00:07:48,600 --> 00:07:52,040
Speaker 1: at about four percent for core pc core in this

135
00:07:52,080 --> 00:07:55,400
Speaker 1: case to find us ex food and energy by the

136
00:07:55,960 --> 00:07:57,840
Speaker 1: end of the year, and then at about two and

137
00:07:57,840 --> 00:07:59,600
Speaker 1: a half percent by the end of next year. So

138
00:07:59,600 --> 00:08:01,880
Speaker 1: I don't think it is going to happen overnight. But

139
00:08:02,200 --> 00:08:04,080
Speaker 1: I think we're headed in that direct. So when your

140
00:08:04,080 --> 00:08:06,520
Speaker 1: own poulss we get back to two percent inflation, that's

141
00:08:06,640 --> 00:08:09,640
Speaker 1: what he's talking about, And Hatzius says Powell will get

142
00:08:09,720 --> 00:08:13,160
Speaker 1: his wish in eighteen months. Not quite. We're at you know,

143
00:08:13,280 --> 00:08:15,600
Speaker 1: two and a half, but that's not too far away

144
00:08:15,640 --> 00:08:18,720
Speaker 1: from two and two and a half. It's TV who's counting,

145
00:08:19,160 --> 00:08:24,000
Speaker 1: especially if you look at this as an average inflation target.

146
00:08:24,360 --> 00:08:26,840
Speaker 1: So at some point there will you know whether there's

147
00:08:26,840 --> 00:08:30,040
Speaker 1: a recession next year or not. You know, all best

148
00:08:30,080 --> 00:08:32,360
Speaker 1: guests is not, but there will be a recession at

149
00:08:32,400 --> 00:08:34,599
Speaker 1: some point, and that will bring inflation down further. I

150
00:08:34,600 --> 00:08:38,320
Speaker 1: should say, with great respect, I'm busting Dr Horts. Chapter

151
00:08:38,559 --> 00:08:40,400
Speaker 1: is a huge difference between two and two and a

152
00:08:40,440 --> 00:08:45,160
Speaker 1: half percent in the inflation game. With Goldman Sex, thank

153
00:08:45,200 --> 00:08:53,880
Speaker 1: you so much for coming in. Ian Lincoln is out

154
00:08:53,920 --> 00:08:57,040
Speaker 1: of Minnesota and the Carlson School of Finance. It is

155
00:08:57,200 --> 00:09:00,679
Speaker 1: absolutely definitive with a tour of dude to yell as

156
00:09:00,720 --> 00:09:04,199
Speaker 1: well in Old Court at Beamon Capital Markets and writes

157
00:09:04,400 --> 00:09:09,360
Speaker 1: absolutely the most dense note on fixed income dynamics on

158
00:09:09,480 --> 00:09:12,760
Speaker 1: the street. We're Thrilly Goad Jonas and Studio Today. Ian,

159
00:09:12,800 --> 00:09:15,360
Speaker 1: Welcome to Bloomberg. I'm gonna cut to the chase. Forget

160
00:09:15,360 --> 00:09:18,679
Speaker 1: about the y axis moving yields. Your note right now

161
00:09:19,080 --> 00:09:22,440
Speaker 1: is on the mystery of the X axis. Is Bullard

162
00:09:22,520 --> 00:09:25,960
Speaker 1: talks about front loaning and that give us the nuance

163
00:09:26,080 --> 00:09:30,160
Speaker 1: to the pro pro audience of the X axis dynamic,

164
00:09:30,280 --> 00:09:34,280
Speaker 1: the first and second derivatives of the time change we're

165
00:09:34,320 --> 00:09:36,560
Speaker 1: gonna see. Well, I think that this is the most

166
00:09:36,640 --> 00:09:40,320
Speaker 1: important conversation in financial markets at the moment. It's really

167
00:09:40,360 --> 00:09:43,000
Speaker 1: the answer to the question how can Bullard be talking

168
00:09:43,080 --> 00:09:46,719
Speaker 1: about a three fifty terminal rate when the reality is

169
00:09:46,880 --> 00:09:49,800
Speaker 1: that two year yields are trading at or below three.

170
00:09:50,520 --> 00:09:53,640
Speaker 1: It really comes down to the twenty four month moving

171
00:09:53,720 --> 00:09:57,400
Speaker 1: window represented by the two year notes, and effectively, what

172
00:09:57,520 --> 00:10:00,360
Speaker 1: the market is saying is you might hike now, but

173
00:10:00,480 --> 00:10:02,520
Speaker 1: you're going to have to start cutting much sooner than

174
00:10:02,600 --> 00:10:04,800
Speaker 1: in prior cycles. Lee fixed in coming. Go over to

175
00:10:04,880 --> 00:10:08,199
Speaker 1: Jan Nazis Globen Sex Economics, where he and I talked

176
00:10:08,320 --> 00:10:11,920
Speaker 1: about core c p I and the idea that we

177
00:10:12,160 --> 00:10:14,839
Speaker 1: don't have a real understanding of the rate of change

178
00:10:14,880 --> 00:10:17,120
Speaker 1: of how court c p I is going to come

179
00:10:17,200 --> 00:10:20,480
Speaker 1: down do you share that uncertainty, I certainly do. I

180
00:10:20,559 --> 00:10:24,559
Speaker 1: would add one nuance, however, and that is all inflation

181
00:10:25,000 --> 00:10:27,440
Speaker 1: is the same at this moment for the FED headline

182
00:10:27,440 --> 00:10:31,880
Speaker 1: inflation core inflation, they've made no distinction. That's interesting because

183
00:10:31,880 --> 00:10:35,199
Speaker 1: in the past they would always focus on core inflation

184
00:10:35,400 --> 00:10:39,480
Speaker 1: overheadline because it was less volatile. But the realities of

185
00:10:39,760 --> 00:10:43,360
Speaker 1: higher energy prices, higher food prices, and the fact that

186
00:10:43,640 --> 00:10:48,559
Speaker 1: inflation has become the political touchstone at this point makes

187
00:10:48,600 --> 00:10:51,520
Speaker 1: all inflation equal. And I think that will change, but

188
00:10:51,760 --> 00:10:55,920
Speaker 1: not intel the midterms. And it's peak rates, it's peak yields.

189
00:10:55,960 --> 00:10:58,360
Speaker 1: Have we already gotten past that? Are we basically out

190
00:10:58,400 --> 00:11:00,839
Speaker 1: of place where you can say definitively that that is

191
00:11:00,840 --> 00:11:03,959
Speaker 1: an accurate characterization of what we've seen. Well, that is

192
00:11:04,040 --> 00:11:07,240
Speaker 1: certainly our call. But I will note that I said

193
00:11:07,280 --> 00:11:09,520
Speaker 1: the same thing once we got to three twenty. So

194
00:11:09,840 --> 00:11:12,640
Speaker 1: at three fifty the logic holds a lot better. But

195
00:11:12,880 --> 00:11:16,280
Speaker 1: the reality is there's going to eventually be demand for

196
00:11:16,600 --> 00:11:20,640
Speaker 1: ten and thirty years paper and we haven't seen the

197
00:11:20,880 --> 00:11:24,920
Speaker 1: key investor classes of Japan or certain parts of Europe

198
00:11:25,000 --> 00:11:27,400
Speaker 1: really come in and start buying treasuries yet. And when

199
00:11:27,480 --> 00:11:31,280
Speaker 1: we do that will be worth thirty five to forty

200
00:11:31,360 --> 00:11:33,400
Speaker 1: five basis points in tens, and that gets you back

201
00:11:33,520 --> 00:11:37,520
Speaker 1: below three, the curve more inverted and the market even

202
00:11:37,600 --> 00:11:40,720
Speaker 1: more worried about a recession. So ian is this supportive

203
00:11:40,800 --> 00:11:42,920
Speaker 1: for risk assets if the market is going to get

204
00:11:43,000 --> 00:11:47,440
Speaker 1: more worried about recession and could potentially have to reduce

205
00:11:47,520 --> 00:11:52,440
Speaker 1: their estimates for margins and profits. So that is again

206
00:11:52,600 --> 00:11:55,880
Speaker 1: one of the key uncertainties. I would normally say, yes,

207
00:11:55,960 --> 00:11:58,079
Speaker 1: you have a less aggressive FED, you have lower race,

208
00:11:58,200 --> 00:12:01,560
Speaker 1: you should have a good set up for risk assets.

209
00:12:01,679 --> 00:12:05,480
Speaker 1: But this FED is behaving much differently than we might

210
00:12:05,559 --> 00:12:09,360
Speaker 1: have otherwise anticipated. So we could see a process the

211
00:12:09,400 --> 00:12:13,640
Speaker 1: possibility of recession increase. But the FED, instead of having

212
00:12:13,679 --> 00:12:16,319
Speaker 1: the traditional response just push forward and say yeah, three

213
00:12:16,320 --> 00:12:18,040
Speaker 1: and a half, we're going to get there. We might

214
00:12:18,280 --> 00:12:20,600
Speaker 1: push it into a recession. But the reality is it's

215
00:12:20,640 --> 00:12:24,880
Speaker 1: worth keeping the decades of hard one credibility as an

216
00:12:24,880 --> 00:12:28,040
Speaker 1: inflation fighter for the FED for this one cycle. Well.

217
00:12:28,160 --> 00:12:30,760
Speaker 1: Bill Ackman of Pershing Square says the FED already has

218
00:12:30,800 --> 00:12:33,559
Speaker 1: a credibility problem and that the bond market is misreading

219
00:12:33,600 --> 00:12:35,400
Speaker 1: the FED. To quote one of his tweets, he said

220
00:12:35,800 --> 00:12:37,760
Speaker 1: that the market is flat out ignoring Powell and the

221
00:12:37,800 --> 00:12:41,320
Speaker 1: governor's commentary. Expect even more hawkish commentary until the bond

222
00:12:41,440 --> 00:12:44,800
Speaker 1: market wakes up. Who's a sleepy and Bill Ackman or

223
00:12:44,840 --> 00:12:47,320
Speaker 1: the bond market? Well, I'll tell you this much. If

224
00:12:47,360 --> 00:12:49,839
Speaker 1: you look at break evens, what you can see is

225
00:12:49,960 --> 00:12:53,760
Speaker 1: that inflation expectations continue to move lower and lower and lower,

226
00:12:54,080 --> 00:12:57,280
Speaker 1: and that is a vote of confidence in the Fed's

227
00:12:57,360 --> 00:13:01,120
Speaker 1: ability to control inflation and forward and Asian expectations. So

228
00:13:01,880 --> 00:13:04,400
Speaker 1: one thing can be said, the tips market certainly isn't

229
00:13:04,440 --> 00:13:07,320
Speaker 1: asleep at the moment. Well and Jim Bowlard, as we said,

230
00:13:07,360 --> 00:13:09,920
Speaker 1: have said that the tips pricing is pretty much right

231
00:13:10,040 --> 00:13:12,120
Speaker 1: on at the moment. So as we put all of

232
00:13:12,200 --> 00:13:15,320
Speaker 1: this together, the market has confidence in the FED ability

233
00:13:15,440 --> 00:13:18,439
Speaker 1: to fight inflation. What it has less confidence in is

234
00:13:18,559 --> 00:13:21,360
Speaker 1: what the ultimate result of that inflation fighting is, how

235
00:13:21,480 --> 00:13:24,439
Speaker 1: deep a recession will be when and if one arrives in,

236
00:13:24,640 --> 00:13:26,959
Speaker 1: what is your assessment of that and ultimately what that

237
00:13:27,120 --> 00:13:30,280
Speaker 1: means for how low we could see yields going. So

238
00:13:30,520 --> 00:13:33,120
Speaker 1: I think that at this point, part of the conversation

239
00:13:33,440 --> 00:13:37,280
Speaker 1: that isn't occurring in markets is we're just coming off

240
00:13:37,600 --> 00:13:41,240
Speaker 1: of a negative real g DP print for Q one,

241
00:13:41,559 --> 00:13:45,000
Speaker 1: which was negative one point five after revisions. Right now,

242
00:13:45,640 --> 00:13:48,679
Speaker 1: GDP for the second quarter is tracking at zero. So

243
00:13:48,960 --> 00:13:51,800
Speaker 1: if we have a repeat of the higher than expected

244
00:13:51,920 --> 00:13:55,640
Speaker 1: inflation profile in the US, we could actually dip below

245
00:13:56,000 --> 00:13:58,480
Speaker 1: zero for real growth in the second quarter, and that

246
00:13:58,559 --> 00:14:02,920
Speaker 1: would make a recession a very near term event caveat

247
00:14:03,000 --> 00:14:05,640
Speaker 1: though that's not the same type of recession that the

248
00:14:05,720 --> 00:14:07,920
Speaker 1: market is talking about. The markets worried about a real

249
00:14:08,000 --> 00:14:11,959
Speaker 1: recession with higher unemployment, that we actually see an aggregate

250
00:14:12,080 --> 00:14:14,880
Speaker 1: hit to nominal demand, and that's not where we are

251
00:14:14,960 --> 00:14:16,959
Speaker 1: yet in Lincoln party order. If you're on radio and

252
00:14:17,000 --> 00:14:19,800
Speaker 1: television and lingo to bemo, Capital Markets joins us right

253
00:14:19,840 --> 00:14:22,640
Speaker 1: now the conversation of the week on fixed income. You

254
00:14:22,760 --> 00:14:25,840
Speaker 1: and I have never seen these bond losses, and I'm

255
00:14:25,960 --> 00:14:28,600
Speaker 1: fascinated and I wanted to ask you this question, which

256
00:14:28,680 --> 00:14:31,680
Speaker 1: is getaway from the nuances. The bottom line is the

257
00:14:31,720 --> 00:14:35,280
Speaker 1: total return index of Bloomberg Lincoln total return index is

258
00:14:35,360 --> 00:14:40,360
Speaker 1: negative twelve. How does bond psychology change if people are

259
00:14:40,400 --> 00:14:45,160
Speaker 1: looking out to two thousand twenty four to catch up

260
00:14:45,240 --> 00:14:48,960
Speaker 1: from these losses. I think an important aspect of bond

261
00:14:49,040 --> 00:14:51,320
Speaker 1: losses in the treasury market is to keep in mind

262
00:14:51,720 --> 00:14:54,600
Speaker 1: who the major players tend to be. All the people

263
00:14:54,680 --> 00:14:57,640
Speaker 1: taking a loss. A lot of the people taking the

264
00:14:57,760 --> 00:15:01,800
Speaker 1: loss are indexed or are or match attempting to match

265
00:15:01,840 --> 00:15:04,840
Speaker 1: their index. But everybody's been short and so on paper,

266
00:15:04,880 --> 00:15:07,400
Speaker 1: it's a pretty significant loss, but a good portion of

267
00:15:07,480 --> 00:15:11,360
Speaker 1: the investment community has fair reason. Come on, what about

268
00:15:11,400 --> 00:15:14,120
Speaker 1: mere mortals? They open up their statement from Demo Capital

269
00:15:14,240 --> 00:15:17,320
Speaker 1: Markets and go they start saying profanity about Lincoln the

270
00:15:17,440 --> 00:15:20,080
Speaker 1: real world out there. This is a bond market we've

271
00:15:20,160 --> 00:15:23,320
Speaker 1: never seen. It's worse than Boker's bond market. I think

272
00:15:23,360 --> 00:15:26,160
Speaker 1: that the person at home opening their statement what they're

273
00:15:26,240 --> 00:15:28,240
Speaker 1: really going to be thinking in the back of their

274
00:15:28,280 --> 00:15:31,120
Speaker 1: mind as well, mortgage rates are almost six percent, that

275
00:15:31,360 --> 00:15:33,600
Speaker 1: might be the problem. So a little bit of pain

276
00:15:33,720 --> 00:15:37,320
Speaker 1: in terms of the opportunity to invest in higher treasure

277
00:15:37,400 --> 00:15:41,160
Speaker 1: yields is one thing. But as the ramifications of the

278
00:15:41,240 --> 00:15:44,920
Speaker 1: feds tighter monetary policy continue to push through to the

279
00:15:45,120 --> 00:15:48,080
Speaker 1: the employment and the housing market, I think that's where

280
00:15:48,080 --> 00:15:50,000
Speaker 1: we start to get worried. Ian how much is your

281
00:15:50,000 --> 00:15:54,080
Speaker 1: peak yields thesis right now? Hinging on this idea that

282
00:15:54,400 --> 00:15:57,280
Speaker 1: the inflationary inputs our transitory that we still have this

283
00:15:57,440 --> 00:16:01,160
Speaker 1: stealth transitory narrative guiding a lot of investors and even

284
00:16:01,200 --> 00:16:04,360
Speaker 1: the Fedure Reserve. I think that the peak inflation of

285
00:16:04,440 --> 00:16:07,840
Speaker 1: the peak rates narrative is actually based more on the

286
00:16:08,000 --> 00:16:11,480
Speaker 1: hawkishness and the aggressiveness of the FED regardless of how

287
00:16:11,640 --> 00:16:15,120
Speaker 1: inflation plays out. What we know is that a lot

288
00:16:15,200 --> 00:16:16,960
Speaker 1: of what has occurred, at least over the course of

289
00:16:17,040 --> 00:16:19,040
Speaker 1: the last six or eight months, has been a function

290
00:16:19,120 --> 00:16:22,560
Speaker 1: of distortions created by the pandemic, the supply side on

291
00:16:22,720 --> 00:16:26,480
Speaker 1: the energy sector and now food inflation is very material.

292
00:16:26,920 --> 00:16:30,360
Speaker 1: Fast forward to UH this time next year, the year

293
00:16:30,400 --> 00:16:32,880
Speaker 1: over year inflation prints will not be as high. That

294
00:16:33,000 --> 00:16:35,680
Speaker 1: doesn't mean it was necessarily transitory. That either means that

295
00:16:35,760 --> 00:16:38,800
Speaker 1: the FED was that much more hawkish or in fact

296
00:16:39,160 --> 00:16:42,600
Speaker 1: prices moderated just based on demand. Ian While we're fast

297
00:16:42,600 --> 00:16:44,760
Speaker 1: forwarding fast forward to ten AM, when we get those

298
00:16:44,840 --> 00:16:47,280
Speaker 1: humish sentiment numbers, is the bond market going to latch

299
00:16:47,320 --> 00:16:50,320
Speaker 1: onto more the pure sentiment read how how bad it

300
00:16:50,560 --> 00:16:52,680
Speaker 1: is and what that means for growth prospects or the

301
00:16:52,760 --> 00:16:55,440
Speaker 1: inflation expectations, and what that means is to whether or

302
00:16:55,480 --> 00:16:57,080
Speaker 1: not the FED is actually going to have to be

303
00:16:57,160 --> 00:16:59,280
Speaker 1: more hawkish for longer if that is becoming entrenched in

304
00:16:59,320 --> 00:17:04,240
Speaker 1: the economy. I think that the headline consumer confidence figure

305
00:17:04,320 --> 00:17:08,359
Speaker 1: at record low levels is extremely telling. And when we

306
00:17:08,440 --> 00:17:12,119
Speaker 1: look at the correlation, it really comes down to gasoline

307
00:17:12,160 --> 00:17:15,800
Speaker 1: prices and equity performance, and both of those have been

308
00:17:15,840 --> 00:17:19,320
Speaker 1: going the wrong direction for the there to be any

309
00:17:19,440 --> 00:17:22,560
Speaker 1: additional confidence. I think that we are going to focus

310
00:17:22,640 --> 00:17:27,480
Speaker 1: on confidence over inflation expectations because the FED has communicated

311
00:17:27,520 --> 00:17:29,640
Speaker 1: that they're going to do everything it takes to keep

312
00:17:29,680 --> 00:17:34,320
Speaker 1: inflation anchored very quickly. Here do bonds have catharsis? We

313
00:17:34,400 --> 00:17:38,600
Speaker 1: think about stocks going down, vixiforty, etcetera. Does that happen

314
00:17:38,680 --> 00:17:41,680
Speaker 1: with bonds? Does everybody sell at the same time? So

315
00:17:42,119 --> 00:17:45,960
Speaker 1: there does tend to be key moments of capitulation in

316
00:17:46,240 --> 00:17:49,359
Speaker 1: one direction or the other. And right now, as I

317
00:17:49,440 --> 00:17:53,160
Speaker 1: mentioned of the vast majority of the market is short treasuries.

318
00:17:53,359 --> 00:17:55,040
Speaker 1: There will be a point where people wake up and

319
00:17:55,119 --> 00:17:57,720
Speaker 1: they say, I don't I don't want to miss out

320
00:17:57,840 --> 00:18:00,040
Speaker 1: on these higher yields. Wonderful to see. You have a

321
00:18:00,160 --> 00:18:02,720
Speaker 1: lot of message here onions research. Again, we protect the

322
00:18:02,760 --> 00:18:05,480
Speaker 1: copyright of all of our guests. Find that research at

323
00:18:05,520 --> 00:18:12,359
Speaker 1: BEMO Capital markets Ian Lincoln with his It's Tuna Fordam

324
00:18:12,400 --> 00:18:15,520
Speaker 1: with the futures of thirty Right Now founder and geopolitical

325
00:18:15,560 --> 00:18:19,959
Speaker 1: strategist Fordham Global uh Uh Foresight joins us right now,

326
00:18:20,200 --> 00:18:22,320
Speaker 1: thrilled to have her on this morning. Tina, I want

327
00:18:22,359 --> 00:18:25,159
Speaker 1: to digress to the British elections in the uproar of

328
00:18:25,359 --> 00:18:29,760
Speaker 1: Mr Dowton, the Conservative Tory Party leader resigning at five

329
00:18:29,880 --> 00:18:33,080
Speaker 1: thirty in the morning, London time, and I want to

330
00:18:33,119 --> 00:18:35,440
Speaker 1: go out far west of London on the way out

331
00:18:35,480 --> 00:18:38,480
Speaker 1: to Cornwall. And this is not the time of Paul

332
00:18:38,560 --> 00:18:42,240
Speaker 1: Dark this is the time of now and north of Exeter,

333
00:18:42,720 --> 00:18:47,560
Speaker 1: Tiverton and lovely Devon, I hopened pronouncing everything correctly and

334
00:18:47,680 --> 00:18:53,080
Speaker 1: Boris Johnson was absolutely crushed. What is the symbolism that

335
00:18:53,240 --> 00:19:01,000
Speaker 1: he was crushed in friendly Devon going back to nineteen Well,

336
00:19:01,119 --> 00:19:04,920
Speaker 1: it's it's another blow to to this Prime Minister, who

337
00:19:05,280 --> 00:19:08,080
Speaker 1: nevertheless is you will have seen Tom has vowed to

338
00:19:08,440 --> 00:19:13,360
Speaker 1: to carry on exactly as he has been. Um, we've

339
00:19:13,440 --> 00:19:17,800
Speaker 1: had scandal after scandal. The chairman of the Conservative Party,

340
00:19:17,840 --> 00:19:21,080
Speaker 1: as you've said, resigned this morning and a you know,

341
00:19:21,240 --> 00:19:25,000
Speaker 1: sternly worded letter. And yet Boris Johnson doesn't seem to

342
00:19:25,040 --> 00:19:28,920
Speaker 1: have plans to go anywhere, and that tells you a

343
00:19:28,960 --> 00:19:31,920
Speaker 1: lot about the times that we're living in Um. There

344
00:19:32,000 --> 00:19:35,520
Speaker 1: there certainly is no no shame in politics, knows no

345
00:19:35,680 --> 00:19:39,120
Speaker 1: sense of accountability. And as long as the labor leader

346
00:19:39,280 --> 00:19:43,560
Speaker 1: Kire starmer Um is not you know, a serious challenge,

347
00:19:43,920 --> 00:19:48,080
Speaker 1: Johnson will probably stay where he is. Um. It's you know,

348
00:19:48,200 --> 00:19:52,119
Speaker 1: defining the laws of political gravity by elections in the

349
00:19:52,320 --> 00:19:57,639
Speaker 1: UK aren't typically you know, very very much participated in.

350
00:19:58,000 --> 00:20:01,600
Speaker 1: Posters will tell you that they're miner importance. But again,

351
00:20:01,680 --> 00:20:05,360
Speaker 1: in the face of so many crises that this government

352
00:20:05,560 --> 00:20:09,080
Speaker 1: is spacing, um, how many times can Boris Johnson get

353
00:20:09,119 --> 00:20:12,080
Speaker 1: on a plane and go see his friend Zeninski in

354
00:20:12,400 --> 00:20:15,399
Speaker 1: Que when things are looking tough at home, Tina, you

355
00:20:15,600 --> 00:20:19,760
Speaker 1: point to this political gravity or lack thereof that Boris

356
00:20:19,880 --> 00:20:22,520
Speaker 1: Johnson has and other leaders may have as well. As

357
00:20:22,600 --> 00:20:24,800
Speaker 1: we face a lot of individuals who want to be

358
00:20:24,920 --> 00:20:26,760
Speaker 1: heard about the pain that they are feeling in the

359
00:20:26,800 --> 00:20:29,200
Speaker 1: face of inflation. And that brings us to some of

360
00:20:29,240 --> 00:20:31,400
Speaker 1: the strikes and some of the protests that we're seeing

361
00:20:31,520 --> 00:20:34,600
Speaker 1: erupt throughout Europe, throughout the world. What is the hotspot

362
00:20:34,680 --> 00:20:37,120
Speaker 1: that you're watching and what is the consequence both politically

363
00:20:37,160 --> 00:20:42,639
Speaker 1: and economically that will result. Well, strikes in inflation go

364
00:20:43,040 --> 00:20:47,240
Speaker 1: hand in hand, and uh, coming out of the pandemic

365
00:20:47,359 --> 00:20:51,520
Speaker 1: and probably heading into a recession, and with those workers

366
00:20:51,560 --> 00:20:54,520
Speaker 1: who are on kind of fixed contracts not having seen

367
00:20:54,720 --> 00:20:57,680
Speaker 1: a pay rise for a very long time. You know,

368
00:20:57,800 --> 00:21:02,040
Speaker 1: the old summer of discontent term is being bandied about

369
00:21:02,200 --> 00:21:05,440
Speaker 1: a lot. Um. You guys were talking about the price

370
00:21:05,560 --> 00:21:09,080
Speaker 1: of lobster rolls. Um. You know. Similarly, I can say

371
00:21:09,119 --> 00:21:12,840
Speaker 1: that British Airways is threatening I think meaningfully here in

372
00:21:12,880 --> 00:21:17,719
Speaker 1: the UK to start striking as soon as school vacations begin. Um,

373
00:21:17,880 --> 00:21:21,240
Speaker 1: that's going to be very unpopular. But the question is

374
00:21:21,280 --> 00:21:26,000
Speaker 1: whether it's going to to actually force a compromise in advance. Um.

375
00:21:26,359 --> 00:21:30,280
Speaker 1: In the UK, this is very acute. Uh. France also

376
00:21:30,400 --> 00:21:33,159
Speaker 1: is known to to have strikes and that will recur.

377
00:21:33,600 --> 00:21:35,560
Speaker 1: And I guess what I feel is there's a sense

378
00:21:35,640 --> 00:21:40,240
Speaker 1: of helplessness about this for so many public sector and

379
00:21:40,320 --> 00:21:43,800
Speaker 1: other workers. Wages have been staggnant through the pandemic, and

380
00:21:44,240 --> 00:21:47,639
Speaker 1: you know, it's just take the inflation focus mines, Tina,

381
00:21:48,040 --> 00:21:50,800
Speaker 1: we talked about lobster rolls tongue in cheek because this

382
00:21:50,960 --> 00:21:53,720
Speaker 1: is the least of our concerns. It's basic stables, it's wheat,

383
00:21:53,840 --> 00:21:56,959
Speaker 1: it's basic meat, it's all of these other uh, basic

384
00:21:57,280 --> 00:22:01,040
Speaker 1: groceries and gas prices that are impeding. As Tom said,

385
00:22:01,080 --> 00:22:04,640
Speaker 1: the lower deciles. How do we look at possible possible

386
00:22:04,680 --> 00:22:07,879
Speaker 1: fiscal spending to offset some of the pressures that are

387
00:22:08,080 --> 00:22:11,560
Speaker 1: very real, very tangible, and a big threat, and particularly

388
00:22:11,600 --> 00:22:13,840
Speaker 1: to the lower income individuals around the world, in Europe

389
00:22:14,000 --> 00:22:18,840
Speaker 1: in particular. Well, of course, the people most acutely affected

390
00:22:19,000 --> 00:22:21,600
Speaker 1: are are the very poorest in in Mia and those

391
00:22:21,680 --> 00:22:24,840
Speaker 1: who depend on on grain supplies that are being blockaded

392
00:22:24,880 --> 00:22:28,560
Speaker 1: by Russia out of the Black seaports. UM. And so

393
00:22:29,320 --> 00:22:31,680
Speaker 1: that's happening in the Middle East, where there are many

394
00:22:31,760 --> 00:22:34,680
Speaker 1: concerns which I've addressed elsewhere about kind of Arab spring

395
00:22:34,800 --> 00:22:37,760
Speaker 1: to point, oh and that sort of thing. In developed countries,

396
00:22:38,400 --> 00:22:40,840
Speaker 1: we don't get riot sort of civil unrest in the

397
00:22:40,920 --> 00:22:44,399
Speaker 1: same kind of way. We get more organized expressions of

398
00:22:44,640 --> 00:22:48,800
Speaker 1: popular discontent UM and that means strikes of course, UH

399
00:22:48,920 --> 00:22:53,760
Speaker 1: and protests. Governments, having responded with so much fiscal largest

400
00:22:53,920 --> 00:22:56,720
Speaker 1: during the pandemic, are really going to be expected to

401
00:22:56,840 --> 00:22:59,760
Speaker 1: step up. And what I think we're already seeing is

402
00:23:00,359 --> 00:23:03,600
Speaker 1: fuel prices and subsidies for fuel prices are going to

403
00:23:03,720 --> 00:23:07,400
Speaker 1: come first. Food is a bit more difficult in developed countries,

404
00:23:07,520 --> 00:23:11,600
Speaker 1: but winter heating, winter fuel allowances and those kinds of

405
00:23:11,640 --> 00:23:15,080
Speaker 1: subsidies UM in the UK and Europe, I think are

406
00:23:15,520 --> 00:23:18,520
Speaker 1: just a question of of when and not if. Tina,

407
00:23:18,560 --> 00:23:20,159
Speaker 1: we only have about a minute left. But as we

408
00:23:20,240 --> 00:23:22,720
Speaker 1: talk about the economic pain so many countries are feeling,

409
00:23:22,760 --> 00:23:26,040
Speaker 1: are we going to start seeing a dissolution of the

410
00:23:26,160 --> 00:23:29,240
Speaker 1: resolve of the allies to continue to support Ukraine inflict

411
00:23:29,280 --> 00:23:32,040
Speaker 1: economic pain on Russia when it's inflicting so much economic

412
00:23:32,080 --> 00:23:34,600
Speaker 1: pain on their own domestic populations in return. Are we

413
00:23:34,680 --> 00:23:39,000
Speaker 1: reaching that breaking point? We're not there yet. But at

414
00:23:39,000 --> 00:23:43,080
Speaker 1: the G seven meetings, the measures that are being contemplated

415
00:23:43,600 --> 00:23:48,040
Speaker 1: gas rationing in Germany for example, UM, the question of

416
00:23:48,080 --> 00:23:51,080
Speaker 1: whether Russia just slat out, you know, cuts gases lives

417
00:23:51,280 --> 00:23:57,119
Speaker 1: to Europe as punishment in what a tactic called coherstive diplomacy. Uh,

418
00:23:57,280 --> 00:24:00,840
Speaker 1: it's very real. It'll be winter before we see push

419
00:24:00,960 --> 00:24:03,240
Speaker 1: come to shove on this. But that's why getting the

420
00:24:03,359 --> 00:24:08,200
Speaker 1: gas storage facilities in Europe filled is crucial. They have

421
00:24:08,440 --> 00:24:10,720
Speaker 1: to fight this. They can't give into Russia. I think

422
00:24:10,840 --> 00:24:15,040
Speaker 1: leaders understand this. Can they communicate to two citizens? The

423
00:24:15,160 --> 00:24:18,960
Speaker 1: need to make sacrifices is a bigger question because politicians

424
00:24:19,040 --> 00:24:21,879
Speaker 1: don't like to to take. They like to give. Me

425
00:24:22,000 --> 00:24:24,119
Speaker 1: Tina ford and thank you so much, greatly appreciate it.

426
00:24:24,160 --> 00:24:33,399
Speaker 1: With Fordham Global Foresight, this is an immense joy right now.

427
00:24:33,520 --> 00:24:36,880
Speaker 1: Shop John Knows is global head of ex Strategy at

428
00:24:36,920 --> 00:24:39,720
Speaker 1: Credit Suite and joins us this morning. And I want

429
00:24:39,720 --> 00:24:42,320
Speaker 1: to go to the magnitude of your calls. I want

430
00:24:42,320 --> 00:24:46,119
Speaker 1: to go week yend well out past one forty and

431
00:24:46,240 --> 00:24:48,639
Speaker 1: Swiss Frank, We've been watching the last twenty minutes to

432
00:24:48,680 --> 00:24:53,359
Speaker 1: see if we go through parody strong Euroswissy coming down

433
00:24:53,520 --> 00:24:56,520
Speaker 1: nicely under parody, and you say, goes further. Why do

434
00:24:56,600 --> 00:25:00,560
Speaker 1: we get these magnitude of moves in foreign exchange? What

435
00:25:00,680 --> 00:25:04,760
Speaker 1: we're seeing the end of the former system of central

436
00:25:04,760 --> 00:25:09,280
Speaker 1: banks using balance sheets too essentially manipulate where effects rates trade,

437
00:25:09,520 --> 00:25:13,080
Speaker 1: and as that system frees up or comes under pressure,

438
00:25:13,119 --> 00:25:16,520
Speaker 1: you're seeing effects rates react to that. In Switzerland, they're

439
00:25:16,560 --> 00:25:19,240
Speaker 1: much further ahead than where Japan is right now in

440
00:25:19,400 --> 00:25:22,600
Speaker 1: making that transition. Japan is trying to stay stay the

441
00:25:22,640 --> 00:25:25,280
Speaker 1: course as long as possible. So that's what we're seeing

442
00:25:25,280 --> 00:25:27,560
Speaker 1: reflected in. So are you calling for a Brenton Woods moment?

443
00:25:27,600 --> 00:25:29,320
Speaker 1: I mean, is it a big enough shift coming off

444
00:25:29,359 --> 00:25:33,560
Speaker 1: of balance sheet dynamics that it's allah after World War

445
00:25:33,680 --> 00:25:36,160
Speaker 1: two and what Kains and the others did at Mount Washington.

446
00:25:36,400 --> 00:25:38,440
Speaker 1: It doesn't need to be as big as that to

447
00:25:38,560 --> 00:25:42,280
Speaker 1: still have very significant effects for effects investors. Let's let's

448
00:25:42,280 --> 00:25:44,280
Speaker 1: put it that way. So, for example, in the Euros

449
00:25:44,320 --> 00:25:47,359
Speaker 1: Swiss cross, it's very easy for us to imagine that

450
00:25:47,440 --> 00:25:50,720
Speaker 1: cross going down to ninety seven even lower in the

451
00:25:50,760 --> 00:25:53,119
Speaker 1: weeks to come. What does it do to a McDonald's

452
00:25:53,119 --> 00:25:55,320
Speaker 1: hamburger and the baron stuff just down from the credit

453
00:25:55,359 --> 00:25:59,119
Speaker 1: sweets of office asking for Yeah, it's a good idea

454
00:25:59,200 --> 00:26:01,960
Speaker 1: to to think about those things. I guess they will

455
00:26:02,000 --> 00:26:06,040
Speaker 1: get more expensive, but that's not something that is worrying. Yes,

456
00:26:06,119 --> 00:26:07,760
Speaker 1: and be at this point. So at least so they

457
00:26:07,800 --> 00:26:09,880
Speaker 1: have top ticks out of twenty dollars for a number

458
00:26:09,920 --> 00:26:12,639
Speaker 1: two value meal. I'm sure that there is some personal

459
00:26:12,680 --> 00:26:14,680
Speaker 1: experience worked in there. I can't figure it out, but

460
00:26:14,760 --> 00:26:18,320
Speaker 1: I think that's my hunch. Sah. But I wonder how

461
00:26:18,440 --> 00:26:20,720
Speaker 1: much you're looking at peak yield as we were just

462
00:26:20,800 --> 00:26:24,000
Speaker 1: hearing from Mike Bell of JP Morgan, and how much

463
00:26:24,080 --> 00:26:26,400
Speaker 1: does that mean peak dollar? Right? How much are these

464
00:26:26,480 --> 00:26:30,160
Speaker 1: two measures really trading in tandem. Well, look, it's it's

465
00:26:30,200 --> 00:26:34,320
Speaker 1: definitely been the case that rate differentials and the US

466
00:26:34,480 --> 00:26:36,920
Speaker 1: is much higher yields have been helpful for the dollar.

467
00:26:37,280 --> 00:26:38,760
Speaker 1: But to be honest, I think there's more to the

468
00:26:38,840 --> 00:26:42,400
Speaker 1: dollar story than just yields. For example, on the trade side,

469
00:26:42,440 --> 00:26:46,680
Speaker 1: there's been very big shifts in trade dynamics that really

470
00:26:46,720 --> 00:26:48,760
Speaker 1: need to be recognized. So for example, right now we

471
00:26:48,840 --> 00:26:51,800
Speaker 1: have the Ura area with a with a trade deficit.

472
00:26:52,119 --> 00:26:55,120
Speaker 1: We have Japan moving rapidly in this in the same

473
00:26:55,200 --> 00:26:57,680
Speaker 1: direction as well, So currencies like the year in the

474
00:26:57,840 --> 00:27:02,600
Speaker 1: end that historically we're backed by trade surpluses, current account surpluses.

475
00:27:03,040 --> 00:27:05,400
Speaker 1: The whole energy price shift and in terms of trade

476
00:27:05,440 --> 00:27:08,639
Speaker 1: shift has really changed that dynamic materially. And meanwhile, on

477
00:27:08,680 --> 00:27:10,960
Speaker 1: the U S side, you have record experts at this

478
00:27:11,080 --> 00:27:13,879
Speaker 1: point there's going to be nearly two hundred billion dollars

479
00:27:13,920 --> 00:27:17,359
Speaker 1: of just agricultural exports in this fiscal year according to

480
00:27:17,440 --> 00:27:21,439
Speaker 1: projections from from that side of the story. So when

481
00:27:21,520 --> 00:27:23,680
Speaker 1: you put all that together, to me, there's more to

482
00:27:24,119 --> 00:27:27,120
Speaker 1: the dollar strength story than just rate differentials. At this point.

483
00:27:27,240 --> 00:27:29,960
Speaker 1: This is a really important point. How does this translate

484
00:27:30,040 --> 00:27:32,560
Speaker 1: into some of the big crosses, whether it's your oparity

485
00:27:32,720 --> 00:27:35,760
Speaker 1: or just in general how strong the dollar can get. Well,

486
00:27:35,840 --> 00:27:39,040
Speaker 1: I think the dollar right now looks strong compared to

487
00:27:39,119 --> 00:27:41,760
Speaker 1: the last three to five years, that's for sure. But

488
00:27:41,840 --> 00:27:44,600
Speaker 1: I think if you go back much further, the dollar

489
00:27:44,640 --> 00:27:46,840
Speaker 1: has been a lot stronger for a variety of reasons.

490
00:27:46,920 --> 00:27:49,320
Speaker 1: And the key point I would make is it's not

491
00:27:49,440 --> 00:27:51,760
Speaker 1: the same dollar as the last time you're a dollar

492
00:27:51,880 --> 00:27:53,440
Speaker 1: was at one oh five. You know, when you have

493
00:27:54,000 --> 00:27:57,560
Speaker 1: your own now with trade deficits as a problem, you

494
00:27:57,680 --> 00:28:00,800
Speaker 1: basically need capital inflows into the year area and on

495
00:28:00,840 --> 00:28:02,840
Speaker 1: a net basis if you're going to have a current

496
00:28:02,840 --> 00:28:06,359
Speaker 1: account deficit, and that's something that hasn't been missing. The

497
00:28:06,440 --> 00:28:09,920
Speaker 1: EU has been a capital exporter for for many, many years.

498
00:28:10,000 --> 00:28:12,960
Speaker 1: So there's a new value proposition that the Euro needs

499
00:28:13,000 --> 00:28:16,359
Speaker 1: to offer at this point in time simply to avoid

500
00:28:16,440 --> 00:28:19,840
Speaker 1: going down, and I think that's absent right now. Well,

501
00:28:20,000 --> 00:28:22,480
Speaker 1: let's move from Europe to the island just next to it.

502
00:28:22,600 --> 00:28:25,680
Speaker 1: We had UK consumer confidence data earlier today showing a

503
00:28:25,760 --> 00:28:27,920
Speaker 1: record low, the lowest and forty eight years of data

504
00:28:28,040 --> 00:28:31,399
Speaker 1: clearer concern around inflation, the cost of living, the possibility

505
00:28:31,480 --> 00:28:33,320
Speaker 1: of a recession. How does that feed through to your

506
00:28:33,359 --> 00:28:37,320
Speaker 1: view on sterling? We think sterling is still going to

507
00:28:37,400 --> 00:28:39,920
Speaker 1: go lower. We are looking for a test of one

508
00:28:40,480 --> 00:28:44,640
Speaker 1: cable again and eventually a move through that level. The

509
00:28:44,720 --> 00:28:47,880
Speaker 1: problem for sterling really you still have that same trade

510
00:28:47,960 --> 00:28:50,840
Speaker 1: story developing that I mentioned for the for the ur

511
00:28:50,920 --> 00:28:53,880
Speaker 1: area in Japan. It's not like years of a weak

512
00:28:54,000 --> 00:28:58,200
Speaker 1: pound of created big trade surpluses or very competitive UK

513
00:28:58,480 --> 00:29:01,920
Speaker 1: exports that just hasn't happen. And for a variety of reasons. Uh,

514
00:29:02,040 --> 00:29:04,520
Speaker 1: And so you have a currency that doesn't really have

515
00:29:04,840 --> 00:29:07,520
Speaker 1: any reason to go up right now. Um, even when

516
00:29:07,560 --> 00:29:10,280
Speaker 1: you think about the Bank of England, the market is

517
00:29:10,320 --> 00:29:13,880
Speaker 1: pricing in fifty basis point hikes consecutively for a few

518
00:29:13,960 --> 00:29:16,480
Speaker 1: meetings ahead of us, and yet the Bank of England

519
00:29:16,600 --> 00:29:19,560
Speaker 1: is constantly pushing back against that narrative and makes it

520
00:29:19,680 --> 00:29:23,200
Speaker 1: very difficult to realize what's already priced in. So when

521
00:29:23,240 --> 00:29:25,800
Speaker 1: you put that those factors on the table, standing is

522
00:29:25,840 --> 00:29:29,400
Speaker 1: still going to go lower? Sum, I gotta get more questions, Um,

523
00:29:29,920 --> 00:29:32,800
Speaker 1: you gotta go but you know, please come back soon

524
00:29:32,800 --> 00:29:34,720
Speaker 1: as as you can. I got These are some abrupt

525
00:29:34,800 --> 00:29:37,720
Speaker 1: calls here from Shob Jones. It's a different landscape out

526
00:29:37,760 --> 00:29:41,400
Speaker 1: there for all of US investors, including Jerome Powell, with

527
00:29:41,520 --> 00:29:44,160
Speaker 1: a kind of moves of credit, sueez he is talking about.

528
00:29:44,440 --> 00:29:48,200
Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join

529
00:29:48,320 --> 00:29:51,719
Speaker 1: us live weekdays from seven to ten AMI Eastern. I'm

530
00:29:51,760 --> 00:29:55,960
Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six

531
00:29:56,080 --> 00:30:00,920
Speaker 1: to nine am for insight from the best in economics, finance, investment,

532
00:30:01,120 --> 00:30:06,080
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

533
00:30:06,200 --> 00:30:10,040
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on

534
00:30:10,160 --> 00:30:14,240
Speaker 1: the terminal. I'm Tom Keene and this is Bloomberg