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Speaker 1: So let's get to our guest, Mark Chandler, chief market

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Speaker 1: strategist and managing partner at Bannockburn Global. Mark, it's a pleasure.

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Speaker 1: It's been a while since we've had you on the program,

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Speaker 1: so thanks very much for taking out the time. So

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Speaker 1: we had a little bit of a risk on session

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Speaker 1: today that helped the euro ahead of the big ECB

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Speaker 1: meeting and we got back to parody. But the conditions

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Speaker 1: don't look particularly good, especially with the dollar being so strong.

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Speaker 1: What do you see for the euro moving forward here?

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Speaker 1: If we yet let's say seventy five basis points from

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Speaker 1: the ECB. Yeah, isn't that interesting? I mean seventy five

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Speaker 1: basis points of the ECB, and I think it's just

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Speaker 1: about christ and I'm looking at not just what they

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Speaker 1: do in September, but it seems to me between September

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Speaker 1: and October basis points. You know, the dollar has been strong.

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Speaker 1: It's been mostly a dollar strength story here, but I

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Speaker 1: think that we've been to be in for a period

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Speaker 1: of a bit of a correction of the US dollar.

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Speaker 1: I think once we get past the ECB meeting, the

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Speaker 1: next focus is going to be on its EPI next

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Speaker 1: week and we're don't remember what happened in July it

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Speaker 1: was flat, and the early call here for August it's

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Speaker 1: probably a small down number, a small fall in the

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Speaker 1: US headline CPI the first time since COVID first hit.

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Speaker 1: So I think that I think the dollar corrects a

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Speaker 1: bit lower ahead of that well mark. Obviously, the e

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Speaker 1: c B, the consensus is what basis points with headline

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Speaker 1: inflation at nine point one. They're a little bit late

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Speaker 1: to the tightening game, aren't they. Yeah. I mean the

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Speaker 1: problem that they have, like the problem that that other countries,

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Speaker 1: including the U S has, is a bit tightening into

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Speaker 1: an economic slowdown. And you know, just earlier on Wednesday,

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Speaker 1: the Eurozone revised up growth for Q two from zero

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Speaker 1: point six to zero point eight. I think those are

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Speaker 1: these those days are over. I think that we'll be

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Speaker 1: lucky to see point two percent growth. It's not negative growth,

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Speaker 1: that is contraction in the coming quarters. So the the

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Speaker 1: e CBS are a tough position. But I think the combination,

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Speaker 1: I mean, I think what we should be looking at

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Speaker 1: at for tomorrow, not just the rate height, but the

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Speaker 1: staff is going to provide their forecast and they can

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Speaker 1: I imagine what they're gonna be higher inflation and slower growth. Yeah,

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Speaker 1: It's it's more than just slower growth in in Europe.

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Speaker 1: It's a it's a full blown energy crisis, which is,

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Speaker 1: you know, not something that really looks like it can

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Speaker 1: be resolved anytime soon. It's true, and I think that's why.

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Speaker 1: You know, also tomorrow and Friday, the European energy ministers

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Speaker 1: are meeting and they're trying to work out another scheme

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Speaker 1: to cap prices. Uh, not the cap prices and gas

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Speaker 1: and electricity maybe in Europe, maybe the couple it's from

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Speaker 1: each other. Uh. And of course you know they're talking

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Speaker 1: still about that cap on Russian oil. So I I

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Speaker 1: agree with you. It's an energy shock. It's coming out

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Speaker 1: of COVID, is uh the climate to I mean I

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Speaker 1: kind of think it's three things really right, climate, COVID

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Speaker 1: and conflict. Yeah. But the one interesting part is that

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Speaker 1: all of a sudden, now we're seeing quite a lot

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Speaker 1: of fiscal support. How does that change the equation? Yeah,

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Speaker 1: we've seen that really big is really in the UK, right,

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Speaker 1: I mean with the new Prime minister talking about two

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Speaker 1: billions sterling package subsidies. But I think you're right now

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Speaker 1: we saw over the past weekend, Germany another stirred package.

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Speaker 1: It's largest package so far. I think this is the

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Speaker 1: challenge truly. I mean I had thought that after COVID

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Speaker 1: that the the budget deficit, that was budget spending that

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Speaker 1: was used for COVID would be switched for military. Thinking

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Speaker 1: about Germany stepping up defense spending, Japan stepping up defense spending,

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Speaker 1: a lot of countries stepping up defense spending. Mark. We

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Speaker 1: just heard from Brian about the weakness and the currencies

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Speaker 1: in this part of the world, with the Reman b

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Speaker 1: testing seven to the dollar weakening, strengthening and just a

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Speaker 1: little bit yesterday, but still approaching seven. But the yen

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Speaker 1: is an interesting one to me one forty five. It

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Speaker 1: came off a little bit one forty four. Uh. It's

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Speaker 1: it's interesting because you said before the break that you

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Speaker 1: expect that the king dollar of the dollar strength to

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Speaker 1: ease a bit. But still this this yen does not

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Speaker 1: seem to be moving. Uh, even though officials are trying

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Speaker 1: to talk against this weaker yen. What do you expect

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Speaker 1: is are we going to test one fifty? I think so.

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Speaker 1: I think that once you know, people are talking about

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Speaker 1: high but I don't think anything magical about this. But

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Speaker 1: my sense would be something like this. I think the

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Speaker 1: framing of the story is wrong. I think that's so

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Speaker 1: what the end's weak. It should be weak. They're the

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Speaker 1: only ones who have who's really are still saying that

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Speaker 1: inflation is transitory, and the funny thing about that is

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Speaker 1: that the market agrees with them. That is, I was

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Speaker 1: looking at the medium forecast the Blueberg survey of economists

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Speaker 1: for inflation co inflation Japan next year, and I'm surprised

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Speaker 1: by was that a converge that it meets exactly what

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Speaker 1: the b o J says. So the market believes Japanese

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Speaker 1: inflation is gonna be falling, that is, back to the

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Speaker 1: core rate, back below like one and a half or

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Speaker 1: sent next year. The feeder raising interest rates, the high

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Speaker 1: price of energy and food is driving Japan is a

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Speaker 1: deteration of Japan's current account and so of course again

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Speaker 1: should be weak. But I think it's I think this

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Speaker 1: is the way the markets work, and I think that

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Speaker 1: the risk of intervention is very slight. You know, Japanese

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Speaker 1: companies are reporting record earnings, I think, the best profitability

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Speaker 1: since the late fifties in Japan. So I don't see

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Speaker 1: the sense of a big crisis. In Europe, the weak

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Speaker 1: euro is adding to the insflation doub nine percent, But

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Speaker 1: in Japan it's not just yield differential in in in Europe,

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Speaker 1: I mean, you can see a lot of weakness there,

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Speaker 1: but I guess with with Japan and China, they're they're

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Speaker 1: just sort of quietly letting the currency weakend. Yeah. I

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Speaker 1: think what they're doing is like blowing air underneath the parachute,

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Speaker 1: manage the pace of the decline, not so much reverse it. Yeah. Yeah,

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Speaker 1: But I think politics, I think there's been a call

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Speaker 1: for a three way meeting between the BOJ, the Finance Ministry,

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Speaker 1: and the regulators to pass ably put a floor on this.

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Speaker 1: And look at the stocks despite this weekend and these

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Speaker 1: record profits, you've been talking about the topics down sixth

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Speaker 1: day in a row. Yeah, I know it's true. And

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Speaker 1: I think that we've seemed like sometimes it seems that

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Speaker 1: the stock markets globally are correlated more than perhaps the currency.

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Speaker 1: But I think that there's very little that Japan can

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Speaker 1: do or want to do, uh to really stop the end.

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Speaker 1: I mean, you know, people talk about the last time

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Speaker 1: that the b o J and really the Ministry of

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Speaker 1: Finance authorized that intervention to support the end. But I

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Speaker 1: think this is driven by fundamentals and in fact have changed.

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Speaker 1: I mean, I think that's the important thing that Corona

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Speaker 1: by his term maybe over next spring, but it's not

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Speaker 1: like there's a big push to tighten monetary policy and

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Speaker 1: he's standing in the way. The things standing in the

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Speaker 1: way is a low inflation. Let's talk a little bit

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Speaker 1: about the overall macro set up and whether or not.

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Speaker 1: I mean, if you think the dollar is going to weakend,

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Speaker 1: that might suggest that we get a little risk on phase.

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Speaker 1: Is there a trigger and you think team for that. Yeah,

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Speaker 1: what I'm looking at really is next week's CPI in

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Speaker 1: the US. I think that's gonna span ideas the inflations

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Speaker 1: peaked in the U S and thes inslations peak in

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Speaker 1: the US. The FED position seems to be we've got

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Speaker 1: to become convinced that it's that it really has been,

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Speaker 1: it really is on its way back to its it's target,

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Speaker 1: and so it's gonna take some time. I think the

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Speaker 1: market anticipates these kinds of things. So I think that

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Speaker 1: we kuld got to pull back in the dollar based

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Speaker 1: and it risks on that you mentioned based on the

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Speaker 1: big sell off, so bottom pickers and the idea that

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Speaker 1: maybe Mester, the Cleveland Fed president, was was overstaying the

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Speaker 1: case when she talked about above four percent Fed funds

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Speaker 1: right next year. The market doesn't think it's gonna get

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Speaker 1: above four percent. Oh and she also said no cut,

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Speaker 1: which I don't know how you can say that about

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Speaker 1: all of next year. Yeah, but I'm looking at it right.

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Speaker 1: I look at the so I look at the Fed

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Speaker 1: funds futures. The March contract is still pricing in about

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Speaker 1: a twenty two basis point increase December. But when I

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Speaker 1: look at the spread between the March contract and the

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Speaker 1: December next year contract, it looks to me like the

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Speaker 1: market is still pricing in about a one in three

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Speaker 1: chance of a rate cut late next year. Mark Mark Chandler,

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Speaker 1: Chief market strategist and managing Partner at Bannockburn Global. Always

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Speaker 1: great to have you on. Thanks for your insight.