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Speaker 1: Let's get to our guest. Clara Chung is with us

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Speaker 1: uh the global market strategist to JP Morgan Asset Management.

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Speaker 1: She's on the line from Singapore. Clara, thanks for being

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Speaker 1: with us today. It was all about the FED, obviously,

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Speaker 1: and the comments from the FED chairman seemed to really

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Speaker 1: strongly echo what we heard earlier in the year, a

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Speaker 1: couple of months back actually from in from Powell in

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Speaker 1: Jackson Hole. Shouldn't really be a surprise for markets that

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Speaker 1: the Fed is going to remain aggressively tight, and yet

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Speaker 1: here we are today with a spike in the yield

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Speaker 1: on the two year and to sell off in stocks.

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Speaker 1: Why do you think markets were not better prepared? Hey, morning,

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Speaker 1: thank you for having me so overnight. The Fed did

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Speaker 1: deliver semi five business points red hike, esper expected. But

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Speaker 1: at the same time I thought it was quite remarkable

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Speaker 1: that they were also able to pull off a Hawker

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Speaker 1: surprise because to your point, Uh, you know, expectations were

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Speaker 1: where you very hawkish going into the meeting. Now I

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Speaker 1: think the ready achieved this Hawker surprise was really twofold um.

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Speaker 1: The first is being the revisions to the dot part

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Speaker 1: and the second being chap House torn during the press conference.

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Speaker 1: So if we start with the dot part first, the

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Speaker 1: FMC now sees the end twenty twenty two and twenty

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Speaker 1: three policy rate at four point four at four point

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Speaker 1: six percent, respectively. So this was revised out very substantially

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Speaker 1: from the June forecast of three point four and three

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Speaker 1: point eight percent, respectively. And there was also a significant

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Speaker 1: downward revision to GDP growth in twenty two and twenty three,

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Speaker 1: which is in line with what the committee's priority is

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Speaker 1: and what they've been community communicating to actually fight to

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Speaker 1: contain inflation at all costs. And then during the press

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Speaker 1: conference and in chap how it made a very conscious

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Speaker 1: effort to be explicitly hawkish in order to avoid any

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Speaker 1: kind of youthening of financial conditions like what happened after

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Speaker 1: the July FLO i'm see meeting. So you know, in

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Speaker 1: terms of the market impact, this was clearly a negative

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Speaker 1: for risk assets. The SMP, as you mentioned, sold off

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Speaker 1: one point seven and the more growth sensitiveness that obviously

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Speaker 1: sort off a little bit more at one percent. But

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Speaker 1: what was interesting was that the tenure was quite steeple right,

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Speaker 1: it was mainly hovering around at three point five percent, level,

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Speaker 1: and I think that reflects a lot of the hawkishness

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Speaker 1: coming into the meeting. Clara also, I mean it is

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Speaker 1: this the right policy, right? I mean, you know there

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Speaker 1: are signs that in core PC, actually I say core CPI,

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Speaker 1: we do have some of the components on the biggest

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Speaker 1: components perhaps having peaked in terms of their price increases,

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Speaker 1: should be tightening quite as much. Yeah, well, I mean,

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Speaker 1: in our opinion, no, because I think there are a

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Speaker 1: lot of um current forces that are acting to slow

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Speaker 1: down growth in the United States. Ready, and you know,

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Speaker 1: to your point, even some of the more stickier, bigger

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Speaker 1: components of inflation, like Shulter inflation, even though it continues

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Speaker 1: to stay firm. But you know, we do know that

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Speaker 1: the Randal inflasion index actually lacks the actual observed vents

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Speaker 1: and the economy by about six months or so. And

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Speaker 1: if you look at the trajectory of actual events, that's

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Speaker 1: actually peaked back in February and March and have been

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Speaker 1: coming down since. So if you think about the timeline,

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Speaker 1: we're also probably pretty close to peeking in shelter inflation

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Speaker 1: as well. So that would argue for the FED UM

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Speaker 1: being able to be a little bit more patient. But

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Speaker 1: you know, given that the headline inflasion numbers still remains

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Speaker 1: relatively higher, they kept feeling a little bit of heat. Clara.

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Speaker 1: You know, with the Federal Reserve doing what it is,

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Speaker 1: you know, which are the asset classes in Asia that

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Speaker 1: are likely to be winners and losers from the federals

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Speaker 1: of considering also, of course that what we've been seeing

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Speaker 1: worldwide in terms of geopolitical risk and on the other hand,

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Speaker 1: which assets are the ones which can do better? Oh So,

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Speaker 1: in terms of Asia, I think the Federal Reserves outcome

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Speaker 1: is likely to keep pressure on risk assets in general

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Speaker 1: in the nearer term. Uh. And I think it could

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Speaker 1: especially hurt export oriented companies um due to the effect

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Speaker 1: of a strong dollar. And also if you look at

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Speaker 1: the increase in the discount rates, especially at different end,

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Speaker 1: that's also probably going to hurt growth stocks a little

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Speaker 1: bit more disproportionately than uh AF fector neutral or valua portfolios. Uh.

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Speaker 1: And then in terms of assets that can possibly do

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Speaker 1: well in an environment where there's still a lot of

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Speaker 1: macroeconomic uncertainty, we tend to believe that that's going to

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Speaker 1: be more incomproducing assets and specifically high quality investment grade

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Speaker 1: corporate bonds in the US base, especially the shorter maturity ones,

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Speaker 1: are starting to look really interesting with a year handle

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Speaker 1: above five percent. How do you view geopolitical risk right now?

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Speaker 1: To Risch's question that it's not only the situation in

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Speaker 1: Ukraine and Russian President Plutin declaring a partial mobilization. He's

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Speaker 1: called up about three hundred thousand reserves, but there's all

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Speaker 1: So the US China Taiwan situation, how do you handicap

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Speaker 1: political risk right now? Yeah, I think you know, on

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Speaker 1: the margin, the U S Taiwan China situation UM really

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Speaker 1: warrants a close eye and close monitoring because I think

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Speaker 1: while all of these countries are not willing to really

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Speaker 1: enter into conflict, but you know, the rising hawkish rhetoric

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Speaker 1: right from all three parties UH could really risk them

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Speaker 1: sleep walking into a conflict, which is really the outcome

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Speaker 1: that you know, markets would really hate. So I think,

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Speaker 1: you know, from that perspective, UM, this could probably warrant

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Speaker 1: slightly higher risk premium for Asia assets on a go

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Speaker 1: forward basis until you know, we see a more substantiative

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Speaker 1: the escalation from all sides with regards to US, China, Taiwan,

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Speaker 1: but that's not really the base case right now. In

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Speaker 1: the base cases more, you know, UM low intensity military

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Speaker 1: tensions continuing to persist until after the mixt re actions Clara,

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Speaker 1: when when you look at inflation, you know it's sort

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Speaker 1: of counterintuitive, but you know, with interest rates going up

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Speaker 1: and the uncertainty inflation of course depressing assets in depressing

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Speaker 1: should I say some of these equities I should say here, Um,

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Speaker 1: it becomes almost you know, a knee jerk correction to

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Speaker 1: stay in cash. But cash is perhaps the worst place

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Speaker 1: to be because sitting in cash is has got a

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Speaker 1: high cost as well because of inflation. So does your

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Speaker 1: investment thesis then turned towards wealth preservation rather than anything else? Yeah, definitely.

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Speaker 1: I mean you hit the nail on the head. Because

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Speaker 1: inflation is high, the cost of sitting in cash is

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Speaker 1: high too, so a JP mode. And what we've been

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Speaker 1: trying to do is really to focus on high quality,

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Speaker 1: defensive assets incomes in the income space to really help

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Speaker 1: clients to stay invested and get paid to be through

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Speaker 1: this macro econment uncertainty. And you know that's alluding to

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Speaker 1: what I've spoken to earlier with UM positioning in high

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Speaker 1: quality core bond exposure in the short to intermediate duration space,

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Speaker 1: UH and you know, really balancing that out with some

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Speaker 1: other exposures UM that doesn't really have credit risk, but

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Speaker 1: it's more related to prep him in this like securities example,

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Speaker 1: that's still really high quality. Very quickly in about thirty

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Speaker 1: seconds before we let you go, Clara. In terms of

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Speaker 1: the b o J meeting on Thursday, and a lot

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Speaker 1: of the weakness that we have seen lately in the

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Speaker 1: Japanese and against the green back, what choice does the

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Speaker 1: b o J have in defense of its currency. Well,

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Speaker 1: I think there was some top last week from the

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Speaker 1: BOG in terms of checking weights uh seeing putting it

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Speaker 1: out there that they could intervene uh if if they

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Speaker 1: wanted to. But realistically, if they're going to stick to

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Speaker 1: their yok of control policy, it's going to be very

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Speaker 1: difficult for them to you know, really strengthened the insignificantly

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Speaker 1: from from these levels. So you know, from our perspective,

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Speaker 1: we continue to expect that the b o J doesn't

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Speaker 1: see pleation as a parliament as it was. Out of that,

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Speaker 1: I'm not going to change their yoga control policy and hence,

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Speaker 1: you know, the yen should stay pretty weak on a

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Speaker 1: go for a basis. Clara, thank you so much for

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Speaker 1: joining us. Young the Global market Strategist to JP Morgan

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Speaker 1: as IT Managment with her take on the market