WEBVTT - Patrick Bennett on hte Markets (Radio)

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<v Speaker 1>Our guest is Patrick Bennett, macro strategist dot CIBC. Patrick,

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<v Speaker 1>let's start with BRAINERD. I mentioned a couple of times

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<v Speaker 1>on the show today that one of the comments you made,

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<v Speaker 1>besides the possible pause to assess how they're doing, was

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<v Speaker 1>this line that liquidity is a little fragile in core markets. Now,

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<v Speaker 1>that's kind of a scary comment. I'm wondering whether or

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<v Speaker 1>not you're very concerned about that, or whether maybe this

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<v Speaker 1>is just cover for a possible FED pause, which is

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<v Speaker 1>a delicate issue. Yeah, I'm not sure. You look very

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<v Speaker 1>interesting for sure. Look, I'm not convinced it's uh, it's

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<v Speaker 1>cover for a pause or anything like that. But I

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<v Speaker 1>think as we can always get into the the end

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<v Speaker 1>of any period, and we're getting in towards the end

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<v Speaker 1>of the year now, and and liquidity tends to get

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<v Speaker 1>a little bit tighter. And we're facing the situation now

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<v Speaker 1>where you know, we're rates, where rates are going higher,

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<v Speaker 1>We're starting to see that it's starting to filter down

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<v Speaker 1>into the real economy. So I think liquidity, for you know,

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<v Speaker 1>for all Petus, it is you know, he's getting tight

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<v Speaker 1>and getting and going to be tighter. Banks credit process

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<v Speaker 1>is is a little tighter as well. So yeah, look,

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<v Speaker 1>all these things are not coming together at a at

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<v Speaker 1>a good time or at a good pace, and it

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<v Speaker 1>really does present a lot of challenges I think to activity,

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<v Speaker 1>not just in the US but elsewhere. You heading into

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<v Speaker 1>three and to the other point, Patrick doesn't matter too

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<v Speaker 1>much what Leo Brainard says. We're still waiting to hear

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<v Speaker 1>from Powell himself as to whether or not there's going

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<v Speaker 1>to be a pivot. Yeah, look, that's right. Look, the

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<v Speaker 1>the overwhelming balance of of FMC members has been to

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<v Speaker 1>continue to push the Hawkers story. I think if there's

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<v Speaker 1>one thing with the market has probably got it wrong

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<v Speaker 1>to date, is is trying to pick this terminal rate,

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<v Speaker 1>trying to say, well, you know, I think the land here,

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<v Speaker 1>I think, you know, there's only this much more to go,

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<v Speaker 1>and you know, over the last week or so they

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<v Speaker 1>have been trying to find the reason why we might

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<v Speaker 1>you know, see a pause. I think a pivot is

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<v Speaker 1>the wrong description of that. I don't think we don't

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<v Speaker 1>think the rates will be will be eased anytime in

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<v Speaker 1>the next twelve or fifteen months. So yes, I you know,

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<v Speaker 1>powe is is where it's at. He's done very well

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<v Speaker 1>to to follow what the market has priced in to date.

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<v Speaker 1>So we're still we're still of the very hawkish camp.

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<v Speaker 1>If Brainerd's comments gave a little sucker to the markets, um,

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<v Speaker 1>the comments from Jamie Diamond perhaps a little scarier too many,

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<v Speaker 1>saying that he could see, under certain conditions the SMP

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<v Speaker 1>down another twenty percent. Do you do you see the

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<v Speaker 1>conditions for that? Well? Yeah, Look, it's a scary one, isn't.

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<v Speaker 1>And we've had a few people come out and talk

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<v Speaker 1>about how far we could go down, and we've had

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<v Speaker 1>these Uh what we'd say is beer market rallies you

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<v Speaker 1>know last week and most beer markets or the majority

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<v Speaker 1>of beer markets characterized by sharp retrace just as we

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<v Speaker 1>saw last week. I think it's too early to say

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<v Speaker 1>that the base is in. Uh, you know, we're going

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<v Speaker 1>to face higher costs of capital for businesses, We're going

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<v Speaker 1>to face, we could consumer demand of the impact of

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<v Speaker 1>higher domestic interest rates for for borrowers. You know, so

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<v Speaker 1>the you know, the earnings prospect look to be look

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<v Speaker 1>to be challenged. And I think that that means that

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<v Speaker 1>you know, equity markets overall look to face you know

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<v Speaker 1>that the proponderance of risks is still to the downside,

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<v Speaker 1>and it means that the dollar remains strong. Where are

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<v Speaker 1>you shorting here? Yeah, absolutely, the dollar remains strong. We

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<v Speaker 1>like we like shorting the Australian dollar. Australian dollars a

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<v Speaker 1>high beata um to global activity. It's a high beata

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<v Speaker 1>to Chinese activity as well, so you know that's one

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<v Speaker 1>of our favorite trades at the moment. The end has

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<v Speaker 1>been very weak to date. We think there's a prospect

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<v Speaker 1>for the end to stay reasonably stable around this level.

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<v Speaker 1>Stirling looks to be challenged as well. You know, the

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<v Speaker 1>fiscal efforts era not not bearing fruit. You're saying that

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<v Speaker 1>it's still too early to pick an end to and

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<v Speaker 1>trall bank hawkishness and that they can still surprise. I

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<v Speaker 1>wanted to ask you our m Live Pulse question though,

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<v Speaker 1>in terms of when we're looking at the housing markets, inflation,

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<v Speaker 1>the cost of living crisis, which big economy could I

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<v Speaker 1>guess stop hiking at first, and which ourset class would

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<v Speaker 1>be the first to pull out of a slump. Yeah, look,

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<v Speaker 1>a very good question, thanks to Look. Yeah, we're looking

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<v Speaker 1>at household and deadness. We think that's a very important trigger,

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<v Speaker 1>and we look at places like Australia and Canada which

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<v Speaker 1>have a high household and deadness, say versus the US

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<v Speaker 1>or versus New Zealand, so we do expect them to

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<v Speaker 1>end earlier. We did expect that, we have, in fact

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<v Speaker 1>expected the aviator hike on near twenty five basis points

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<v Speaker 1>last week. Uh, you know, we think that they will

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<v Speaker 1>get to their you know, their peak earlier. We think

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<v Speaker 1>they've still got some more work to do, you know,

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<v Speaker 1>Canada in the same way. We still expect them to

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<v Speaker 1>hike another fifty basis points next month, but sort of

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<v Speaker 1>slowing down, and we think that's probably where the the

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<v Speaker 1>market opportunities are going to come from. And the next

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<v Speaker 1>the next few months is trying to decipher, trying to determine,

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<v Speaker 1>you know, what the spread will be, because even though

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<v Speaker 1>we believe that there's further hiking to be done, it's

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<v Speaker 1>not going to be just a you know, across the board.

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<v Speaker 1>I'm curious whether you think inflation stays with us a

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<v Speaker 1>lot longer, or whether it's this kind of long and

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<v Speaker 1>variable lag issue that if the if the hikes they

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<v Speaker 1>have already done are going to be so dramatically felt

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<v Speaker 1>that you're not gonna want to buy equities for a

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<v Speaker 1>whole year because of that rather than inflation. Look, that's right,

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<v Speaker 1>and I think you know, we we spoke earlier. Equities

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<v Speaker 1>have already been under the pump. We think there's probably

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<v Speaker 1>fear there's probably some more under performance to come from here.

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<v Speaker 1>The normal lag or the normal considered lag for monetary

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<v Speaker 1>policy six or nine months until it starts to feed through. Um,

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<v Speaker 1>you know, services getting a real really hiking higher prices. Now,

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<v Speaker 1>how often do you do three seventy five basis points

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<v Speaker 1>in eight Well, I don't know that absolutely. It's a

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<v Speaker 1>you know, not in not in people's knowledge that are

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<v Speaker 1>in the market, in the market now. So look, I

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<v Speaker 1>think we're getting towards that point, and central bankers are

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<v Speaker 1>saying that that we're going to get towards the point

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<v Speaker 1>where we are able to, you know, to pause and

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<v Speaker 1>see how we go. But that doesn't mean that we're

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<v Speaker 1>going to stop hiking, and that certainly doesn't mean that

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<v Speaker 1>we're now pivoting to a point of suger ease. And

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<v Speaker 1>I think that's perhaps the point where the market is

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<v Speaker 1>a little bit confused on at the moment, or that

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<v Speaker 1>that's where the contention is at the moment. So yea

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<v Speaker 1>further hikes. But I think this this talk or notion

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<v Speaker 1>about that we maybe then talk about easy and the

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<v Speaker 1>middle or second half of next year is way way

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<v Speaker 1>too early. Well, let's talk about one place where they

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<v Speaker 1>are easing in China. How much further policy support support

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<v Speaker 1>you're expecting, and whether or not we see a change

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<v Speaker 1>in policy after the Party Congress. Yeah, look, I think

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<v Speaker 1>we'll see. We could see a little bit more easy.

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<v Speaker 1>I think they've been fairly measured in there in their

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<v Speaker 1>steps so far. I don't know whether they're waiting for

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<v Speaker 1>the you know, for the Congress to announced a great

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<v Speaker 1>deal more. China's challenge has has been for some number

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<v Speaker 1>of years to walk this this fine line between trying

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<v Speaker 1>to reduce debt and trying to trying to reduce leverage

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<v Speaker 1>and trying to reduce the excess leverage and trying to

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<v Speaker 1>keep the economy still still moving along. Well, that's sort

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<v Speaker 1>of really come to ahead this year with the property

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<v Speaker 1>sector that was really a born out of the you know,

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<v Speaker 1>the red line or the red the bright line tests

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<v Speaker 1>that we had more than eighteen months ago now, I think,

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<v Speaker 1>and so that's going to be a drag for some time.

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<v Speaker 1>So continue to need more stimulus. We think that policy

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<v Speaker 1>rates perhaps lowered by another ten or fifteen basis points

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<v Speaker 1>by the first quarter of next year, which is helping

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<v Speaker 1>to backstop the economy but not really providing a big boost.

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<v Speaker 1>Do we get a nod to the private sector from

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<v Speaker 1>Shi Jinping? Well, I think we're going to nod to

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<v Speaker 1>the to the domestic sector for sure, whether that's you know,

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<v Speaker 1>the private sector, um. I think when you know, when

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<v Speaker 1>the private sector has not been doing so well, it's

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<v Speaker 1>incumbent on the public sector to step up. So if

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<v Speaker 1>we are going to see that we're talking about a

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<v Speaker 1>pivot in that way, you know in China, then it

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<v Speaker 1>probably means that we're going to see a more moderate

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<v Speaker 1>outlook for growth for the next two days, three years. Alright, Patrick,

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<v Speaker 1>always a pleasure. Thanks for coming into a Hong Kong studio.

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<v Speaker 1>Patrick Bennett is micro strategist at CIBC. With us here

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<v Speaker 1>on Daybreak Asia