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Speaker 1: Joining us now live on the program is Francis Young,

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Speaker 1: rate strategist at OCBC Bank. Francis, we all know that

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Speaker 1: for the FED, mission accomplished is way down the line.

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Speaker 1: That's that's you know, that's out there always uh closer

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Speaker 1: in from that would be some sort of moderation in

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Speaker 1: the commentary, and also whether they start moving to fifty

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Speaker 1: and indeed down to maybe twenty five basis points. I'm

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Speaker 1: curious whether you think that it needs time, like we

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Speaker 1: might need three meeting or three CPI readings in a

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Speaker 1: row that ticked down or is it magnitude If we

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Speaker 1: see a big drop in one of the CPI reports,

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Speaker 1: might that be enough for the FED to soften your thoughts? Yeah? Yeah,

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Speaker 1: hid rights. The uh the signs that we have been

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Speaker 1: seeing about this so called pecking of inflation, the distilleration

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Speaker 1: has not been very reppered. So for example, often night

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Speaker 1: we have pp I right aerated from uh say a

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Speaker 1: very elevated level to a still high levels. So it

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Speaker 1: does appear that a lot of the major central banks,

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Speaker 1: in particular the FAT still focus on fighting inflation. And indeed,

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Speaker 1: we do think that it takes time for inflation to

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Speaker 1: go back towards or somewhere near their two percent target.

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Speaker 1: The two percent target is just very low, and with

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Speaker 1: inflation still well above target, what the US needs is

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Speaker 1: a restrictive monetary policy environment, and taking their own estimate

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Speaker 1: of the new to rate two f five percent, which

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Speaker 1: we suspect is pretty much on the low side already,

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Speaker 1: then we can only say that the current monetary setting

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Speaker 1: is at best neutral. So that's uh why we and

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Speaker 1: also the market would continue to expect the fat tow

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Speaker 1: heights for at least a couple more times in order

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Speaker 1: to bring the pathan rates further higher. Yeah, and Francis,

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Speaker 1: what does that mean for the curve? Do we see

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Speaker 1: this inversion trend reversing any time soon? Because you've also

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Speaker 1: got not just investors but consumers getting quite nervous about

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Speaker 1: recession too. Yesterday's development is a bit rare that we

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Speaker 1: have uh stipending in the curve and rates arising. However,

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Speaker 1: the dynamics in the near term would still be somewhat

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Speaker 1: We have been seeing over the past few weeks that

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Speaker 1: if any increases in the gilds because of rate high expectations,

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Speaker 1: then you're imagine that when the market are expecting more

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Speaker 1: interest rate height. Uh that could mean that the long

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Speaker 1: term invasion expectation or the real deal which we present

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Speaker 1: the growth prospects tend to go lower. So this mechanic

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Speaker 1: is limiting the upside to the longer end DEW. So

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Speaker 1: when rates are going higher because of rate high expectation,

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Speaker 1: then the curve would still have kind of a flattening bias. However,

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Speaker 1: we do not expect the curve to get over the

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Speaker 1: inverted and as also evident by the overnight movement, that

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Speaker 1: some investors might already judge that some of the long

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Speaker 1: end has already richen too much and they are trying

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Speaker 1: to find values across the curve. And to what extent

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Speaker 1: are the movement in US yields impacting Asian rates over

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Speaker 1: the cycle. Of course, we would see Asian race and

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Speaker 1: US moving in the same direction as the U S

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Speaker 1: treasury ucer. We cannot avoid the influence from that market. However,

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Speaker 1: the performances thus far actually vary a lot across market,

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Speaker 1: and we do have a few Asian local currency markets,

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Speaker 1: like the government bonds market outprev forming the treasuries, and

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Speaker 1: these include for example, the Roman bi, the Wringer, the Tayba, etcetera.

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Speaker 1: So in other words, the pass through from all these

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Speaker 1: increases in US dollar rates and used onto Asia are

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Speaker 1: partial only the actually has been expected likely to continue

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Speaker 1: to be the case. First, a lot of the Asian

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Speaker 1: central banks are not aggressive entitening. Some actually have been

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Speaker 1: refraining from a hiking race because they hadn't really eased

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Speaker 1: so much, so there is less pressure. Invasion pressure also

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Speaker 1: seems to not be so severe in Asia as in

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Speaker 1: the U S or Europe. And second, remember the U

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Speaker 1: defen shows between Asian local currencies and treasuries are very white.

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Speaker 1: We're very white at the start of the cycle. So

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Speaker 1: there are ABU first again, So going forward, yes, your

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Speaker 1: defense shows nominal in terms of nominal have narrowed, but

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Speaker 1: we still have real real defense shows above multi year

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Speaker 1: historical average. So we continue to expect Asian markets to

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Speaker 1: stay relatively resilient. Francis, what did you really into the

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Speaker 1: MTI downgrade yesterday of Singapore's growth after that contraction in

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Speaker 1: the second quarter and the fact that they pointed as

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Speaker 1: well to the risks from aggressive monetary politry t upon

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Speaker 1: it policy tightening globally. When we look at the impact

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Speaker 1: on the market, for example, the same dollar it seems

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Speaker 1: to be moving or being affected more by the over

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Speaker 1: external positions that is actually true across Asia rather than

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Speaker 1: reacting to one or two GDP print. So Sinkapore still

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Speaker 1: have a huge external current account surplus and also FDI surplus,

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Speaker 1: especially in terms of percentage of GDP. So we are

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Speaker 1: seeing the single dollar still being fairly resilient in terms

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Speaker 1: of the MS policy. Uh, we actually would not rule

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Speaker 1: out another tightening at the October meeting that would sustain

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Speaker 1: some expectations for singular appecias and as well and feeding

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Speaker 1: that back into the rate market. That would mean singlar

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Speaker 1: rates should tend to still also increase less rapidly than

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Speaker 1: US dollar rates. Francis, I want to talk a little

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Speaker 1: bit about China. The inflation readings ticked up a little bit,

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Speaker 1: and it seems like the PBOC now is sounding a

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Speaker 1: little bit more hawkish and may even be ready to

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Speaker 1: drain liquidity in the financial system. What are the implications

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Speaker 1: of that for the capital markets now see to mention

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Speaker 1: the p BOC right, It was indeed a little be

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Speaker 1: surprising because when we are all assuming that the bedrock

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Speaker 1: in China is an easy one, then we have the

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Speaker 1: latest TBOC montary policy. We put uh sound somewhat hockish.

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Speaker 1: I'll say, not very hockish, but at least more hockish

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Speaker 1: than we have expected. That they spent one section talking

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Speaker 1: about structural inflation treasure, so it underlines our view that

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Speaker 1: there is unlikely to be an outright interest rate cut

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Speaker 1: and instead we are watching out for the next maturing

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Speaker 1: liam term planning facility next week. Uh. Their mount is

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Speaker 1: very huge, life relatively back like six hundred billion. So

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Speaker 1: not given that the PBOC seems to be paying some

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Speaker 1: attention to inflation and that the market liquidity is actually

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Speaker 1: quite flush, then we suspect the people may even take

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Speaker 1: the chance right to take back some liquidity from the

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Speaker 1: market through non not fully rolling over this liquidity. Yeah, alright,

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Speaker 1: francis always a pleasure. Thank you for joining us. Francis Young,

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Speaker 1: rate Strategist, OCBC Bank