Speaker 1: Our guest is Patrick Bennett, macro strategist dot CIBC. Patrick,
Speaker 1: let's start with BRAINERD. I mentioned a couple of times
Speaker 1: on the show today that one of the comments you made,
Speaker 1: besides the possible pause to assess how they're doing, was
Speaker 1: this line that liquidity is a little fragile in core markets. Now,
Speaker 1: that's kind of a scary comment. I'm wondering whether or
Speaker 1: not you're very concerned about that, or whether maybe this
Speaker 1: is just cover for a possible FED pause, which is
Speaker 1: a delicate issue. Yeah, I'm not sure. You look very
Speaker 1: interesting for sure. Look, I'm not convinced it's uh, it's
Speaker 1: cover for a pause or anything like that. But I
Speaker 1: think as we can always get into the the end
Speaker 1: of any period, and we're getting in towards the end
Speaker 1: of the year now, and and liquidity tends to get
Speaker 1: a little bit tighter. And we're facing the situation now
Speaker 1: where you know, we're rates, where rates are going higher,
Speaker 1: We're starting to see that it's starting to filter down
Speaker 1: into the real economy. So I think liquidity, for you know,
Speaker 1: for all Petus, it is you know, he's getting tight
Speaker 1: and getting and going to be tighter. Banks credit process
Speaker 1: is is a little tighter as well. So yeah, look,
Speaker 1: all these things are not coming together at a at
Speaker 1: a good time or at a good pace, and it
Speaker 1: really does present a lot of challenges I think to activity,
Speaker 1: not just in the US but elsewhere. You heading into
Speaker 1: three and to the other point, Patrick doesn't matter too
Speaker 1: much what Leo Brainard says. We're still waiting to hear
Speaker 1: from Powell himself as to whether or not there's going
Speaker 1: to be a pivot. Yeah, look, that's right. Look, the
Speaker 1: the overwhelming balance of of FMC members has been to
Speaker 1: continue to push the Hawkers story. I think if there's
Speaker 1: one thing with the market has probably got it wrong
Speaker 1: to date, is is trying to pick this terminal rate,
Speaker 1: trying to say, well, you know, I think the land here,
Speaker 1: I think, you know, there's only this much more to go,
Speaker 1: and you know, over the last week or so they
Speaker 1: have been trying to find the reason why we might
Speaker 1: you know, see a pause. I think a pivot is
Speaker 1: the wrong description of that. I don't think we don't
Speaker 1: think the rates will be will be eased anytime in
Speaker 1: the next twelve or fifteen months. So yes, I you know,
Speaker 1: powe is is where it's at. He's done very well
Speaker 1: to to follow what the market has priced in to date.
Speaker 1: So we're still we're still of the very hawkish camp.
Speaker 1: If Brainerd's comments gave a little sucker to the markets, um,
Speaker 1: the comments from Jamie Diamond perhaps a little scarier too many,
Speaker 1: saying that he could see, under certain conditions the SMP
Speaker 1: down another twenty percent. Do you do you see the
Speaker 1: conditions for that? Well? Yeah, Look, it's a scary one, isn't.
Speaker 1: And we've had a few people come out and talk
Speaker 1: about how far we could go down, and we've had
Speaker 1: these Uh what we'd say is beer market rallies you
Speaker 1: know last week and most beer markets or the majority
Speaker 1: of beer markets characterized by sharp retrace just as we
Speaker 1: saw last week. I think it's too early to say
Speaker 1: that the base is in. Uh, you know, we're going
Speaker 1: to face higher costs of capital for businesses, We're going
Speaker 1: to face, we could consumer demand of the impact of
Speaker 1: higher domestic interest rates for for borrowers. You know, so
Speaker 1: the you know, the earnings prospect look to be look
Speaker 1: to be challenged. And I think that that means that
Speaker 1: you know, equity markets overall look to face you know
Speaker 1: that the proponderance of risks is still to the downside,
Speaker 1: and it means that the dollar remains strong. Where are
Speaker 1: you shorting here? Yeah, absolutely, the dollar remains strong. We
Speaker 1: like we like shorting the Australian dollar. Australian dollars a
Speaker 1: high beata um to global activity. It's a high beata
Speaker 1: to Chinese activity as well, so you know that's one
Speaker 1: of our favorite trades at the moment. The end has
Speaker 1: been very weak to date. We think there's a prospect
Speaker 1: for the end to stay reasonably stable around this level.
Speaker 1: Stirling looks to be challenged as well. You know, the
Speaker 1: fiscal efforts era not not bearing fruit. You're saying that
Speaker 1: it's still too early to pick an end to and
Speaker 1: trall bank hawkishness and that they can still surprise. I
Speaker 1: wanted to ask you our m Live Pulse question though,
Speaker 1: in terms of when we're looking at the housing markets, inflation,
Speaker 1: the cost of living crisis, which big economy could I
Speaker 1: guess stop hiking at first, and which ourset class would
Speaker 1: be the first to pull out of a slump. Yeah, look,
Speaker 1: a very good question, thanks to Look. Yeah, we're looking
Speaker 1: at household and deadness. We think that's a very important trigger,
Speaker 1: and we look at places like Australia and Canada which
Speaker 1: have a high household and deadness, say versus the US
Speaker 1: or versus New Zealand, so we do expect them to
Speaker 1: end earlier. We did expect that, we have, in fact
Speaker 1: expected the aviator hike on near twenty five basis points
Speaker 1: last week. Uh, you know, we think that they will
Speaker 1: get to their you know, their peak earlier. We think
Speaker 1: they've still got some more work to do, you know,
Speaker 1: Canada in the same way. We still expect them to
Speaker 1: hike another fifty basis points next month, but sort of
Speaker 1: slowing down, and we think that's probably where the the
Speaker 1: market opportunities are going to come from. And the next
Speaker 1: the next few months is trying to decipher, trying to determine,
Speaker 1: you know, what the spread will be, because even though
Speaker 1: we believe that there's further hiking to be done, it's
Speaker 1: not going to be just a you know, across the board.
Speaker 1: I'm curious whether you think inflation stays with us a
Speaker 1: lot longer, or whether it's this kind of long and
Speaker 1: variable lag issue that if the if the hikes they
Speaker 1: have already done are going to be so dramatically felt
Speaker 1: that you're not gonna want to buy equities for a
Speaker 1: whole year because of that rather than inflation. Look, that's right,
Speaker 1: and I think you know, we we spoke earlier. Equities
Speaker 1: have already been under the pump. We think there's probably
Speaker 1: fear there's probably some more under performance to come from here.
Speaker 1: The normal lag or the normal considered lag for monetary
Speaker 1: policy six or nine months until it starts to feed through. Um,
Speaker 1: you know, services getting a real really hiking higher prices. Now,
Speaker 1: how often do you do three seventy five basis points
Speaker 1: in eight Well, I don't know that absolutely. It's a
Speaker 1: you know, not in not in people's knowledge that are
Speaker 1: in the market, in the market now. So look, I
Speaker 1: think we're getting towards that point, and central bankers are
Speaker 1: saying that that we're going to get towards the point
Speaker 1: where we are able to, you know, to pause and
Speaker 1: see how we go. But that doesn't mean that we're
Speaker 1: going to stop hiking, and that certainly doesn't mean that
Speaker 1: we're now pivoting to a point of suger ease. And
Speaker 1: I think that's perhaps the point where the market is
Speaker 1: a little bit confused on at the moment, or that
Speaker 1: that's where the contention is at the moment. So yea
Speaker 1: further hikes. But I think this this talk or notion
Speaker 1: about that we maybe then talk about easy and the
Speaker 1: middle or second half of next year is way way
Speaker 1: too early. Well, let's talk about one place where they
Speaker 1: are easing in China. How much further policy support support
Speaker 1: you're expecting, and whether or not we see a change
Speaker 1: in policy after the Party Congress. Yeah, look, I think
Speaker 1: we'll see. We could see a little bit more easy.
Speaker 1: I think they've been fairly measured in there in their
Speaker 1: steps so far. I don't know whether they're waiting for
Speaker 1: the you know, for the Congress to announced a great
Speaker 1: deal more. China's challenge has has been for some number
Speaker 1: of years to walk this this fine line between trying
Speaker 1: to reduce debt and trying to trying to reduce leverage
Speaker 1: and trying to reduce the excess leverage and trying to
Speaker 1: keep the economy still still moving along. Well, that's sort
Speaker 1: of really come to ahead this year with the property
Speaker 1: sector that was really a born out of the you know,
Speaker 1: the red line or the red the bright line tests
Speaker 1: that we had more than eighteen months ago now, I think,
Speaker 1: and so that's going to be a drag for some time.
Speaker 1: So continue to need more stimulus. We think that policy
Speaker 1: rates perhaps lowered by another ten or fifteen basis points
Speaker 1: by the first quarter of next year, which is helping
Speaker 1: to backstop the economy but not really providing a big boost.
Speaker 1: Do we get a nod to the private sector from
Speaker 1: Shi Jinping? Well, I think we're going to nod to
Speaker 1: the to the domestic sector for sure, whether that's you know,
Speaker 1: the private sector, um. I think when you know, when
Speaker 1: the private sector has not been doing so well, it's
Speaker 1: incumbent on the public sector to step up. So if
Speaker 1: we are going to see that we're talking about a
Speaker 1: pivot in that way, you know in China, then it
Speaker 1: probably means that we're going to see a more moderate
Speaker 1: outlook for growth for the next two days, three years. Alright, Patrick,
Speaker 1: always a pleasure. Thanks for coming into a Hong Kong studio.
Speaker 1: Patrick Bennett is micro strategist at CIBC. With us here
Speaker 1: on Daybreak Asia