WEBVTT - Surveillance: Yield Forecast with HSBC's Major 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keene, along with Jonathan Farrell and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best an economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.439 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.880 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:30.080 --> 0:00:31.880 A huge debate, and of course our theme on this 0:00:31.960 --> 0:00:34.680 Monday morning is the many narratives that are out there. 0:00:34.800 --> 0:00:38.519 Stephen Major is Global head of Fixed Income Research at HSBC, 0:00:38.760 --> 0:00:42.280 joins us here and on through this half hour. Stephen, 0:00:42.360 --> 0:00:46.360 you are iconic for a lower yield call. There is 0:00:46.400 --> 0:00:50.400 a camp aggressively looking for lower yields, led by the 0:00:50.520 --> 0:00:56.080 IMF in a stunning five year GDP projection globally reaffirm 0:00:56.160 --> 0:00:57.240 now the low yield call. 0:00:57.600 --> 0:01:02.560 Yeah, the IMF also have ident the low are style numbers. 0:01:02.800 --> 0:01:04.520 I know you're not a big fan of that from 0:01:04.520 --> 0:01:05.080 what I've. 0:01:05.120 --> 0:01:06.440 I had to be yesterday and Friday. 0:01:06.640 --> 0:01:09.160 I was sitting next to Olivia Blanchard on Friday at 0:01:09.160 --> 0:01:12.800 a panel, so I love our start at right. 0:01:13.000 --> 0:01:14.760 The reason you have to be a fan of it, 0:01:14.880 --> 0:01:16.400 or at least consider it. Is that you need an 0:01:16.440 --> 0:01:19.960 anchor in your process. Now, the word anchor is sometimes 0:01:20.000 --> 0:01:22.880 taken negatively. Are you that you're starts? You can't change 0:01:22.880 --> 0:01:25.679 your mind? But I like it as a sort of 0:01:25.760 --> 0:01:30.199 ballast to the thinking process in that we're anchored around 0:01:30.240 --> 0:01:33.240 this low our style because we seriously believe it. We 0:01:33.400 --> 0:01:36.160 believe that the debt levels in the system, and the 0:01:36.160 --> 0:01:39.679 demographics and the total factor productivity, these are key drivers 0:01:39.720 --> 0:01:43.720 of this destination point. Now, most people seem to spend 0:01:44.000 --> 0:01:46.840 nearly all their time talking about the policy rate today, right, 0:01:46.920 --> 0:01:50.960 but you need both and I think it's completely reasonable 0:01:51.040 --> 0:01:51.800 to have that debate. 0:01:52.000 --> 0:01:54.840 A strategist away from what you do is Ian Lingen, 0:01:54.880 --> 0:01:58.760 who's widely acclaimed in America. He aggressively said today the 0:01:58.840 --> 0:02:01.640 ten year three point five six percent, if it gets 0:02:01.680 --> 0:02:06.080 to three points sixty five percent, that's a buying opportunity, 0:02:06.400 --> 0:02:07.320 yield down. 0:02:07.200 --> 0:02:07.920 Price up. 0:02:08.440 --> 0:02:10.320 Do you have that nuance now or are you just 0:02:10.360 --> 0:02:11.200 saying by the take? 0:02:11.320 --> 0:02:15.799 Yeah, Well, I think people look at me, they read 0:02:15.840 --> 0:02:18.040 the stuff and they think I'm just one way, just 0:02:18.080 --> 0:02:20.560 the bomb ball, And I guess you guys have done 0:02:20.560 --> 0:02:23.160 that to me as well over the years, and it's 0:02:23.160 --> 0:02:26.400 fair enough. I guess consistently we have forecast lower yields. 0:02:26.480 --> 0:02:29.240 There's a tactical overlay as well. We want to buy 0:02:29.360 --> 0:02:32.440 at more cheap at cheaper levels, right, So I think 0:02:32.960 --> 0:02:36.720 somewhere between here and three and three quarters is a 0:02:36.720 --> 0:02:41.119 good entry level. If if if someone says three sixty five, 0:02:41.200 --> 0:02:43.160 then really you want to go in at three sixty four. 0:02:43.760 --> 0:02:47.040 But you know, I think it's very difficult to imagine 0:02:47.120 --> 0:02:49.520 us getting back to four percent on the tenure. 0:02:49.639 --> 0:02:52.240 I'm actually less interested in the tactical movements that I 0:02:52.280 --> 0:02:54.600 am the sort of larger destination call, because that is 0:02:54.639 --> 0:02:57.320 one that I have never seen such a disagreement on 0:02:57.440 --> 0:02:59.600 as I have seen now or so many people say 0:02:59.600 --> 0:03:02.040 this is a new era, that the fragmentation that we're 0:03:02.040 --> 0:03:04.959 seeing with China and with the US and with Europe 0:03:05.120 --> 0:03:08.040 is going to lead to higher costs, that we're going 0:03:08.120 --> 0:03:10.840 to see some sort of more persistent inflation. Why do 0:03:10.880 --> 0:03:11.880 you push back against that? 0:03:12.080 --> 0:03:14.800 Well, look, I respect these views, and we have to 0:03:14.840 --> 0:03:20.720 try and consider all available information. It's intuitively quite logical 0:03:20.760 --> 0:03:24.280 what you just said, So defense spending, the transition to 0:03:24.520 --> 0:03:29.280 net zero, there are questions about the behavior of aging 0:03:29.320 --> 0:03:32.120 populations as well, so they could change. So there's all 0:03:32.120 --> 0:03:34.920 sorts of pushbacks to the lower for longer view. But 0:03:35.000 --> 0:03:37.800 the thing is, I didn't see much science in any 0:03:37.920 --> 0:03:40.960 in any of this. And I've got an observation that 0:03:41.000 --> 0:03:44.480 goes back for decades that says that there is a 0:03:44.480 --> 0:03:49.080 trend in place and the higher debt has been associated 0:03:49.160 --> 0:03:51.640 with lower yields, and I dare say it's even causal 0:03:52.160 --> 0:03:54.640 now until until we can overcome that, until you have 0:03:54.680 --> 0:03:57.000 a tipping point and it goes the other way. I 0:03:57.000 --> 0:04:02.280 think that's that's the central tenant of the hypothesis, if 0:04:02.320 --> 0:04:04.480 you like. And in science you need to be able 0:04:04.520 --> 0:04:07.760 to reject that what I hear at the moment are anecdotes. 0:04:08.640 --> 0:04:12.080 There's there's going to be this, so this this will happen. Well, really, 0:04:12.120 --> 0:04:14.880 where where's the I mean that there's there's a lack 0:04:14.920 --> 0:04:16.840 of rigor around the whole the whole thing. 0:04:17.040 --> 0:04:19.040 Although you could say this is a very quickly moving 0:04:19.080 --> 0:04:21.440 story and that before the past four decades was a 0:04:21.440 --> 0:04:25.599 different inflationary regime, and so people would argue that the 0:04:25.640 --> 0:04:28.120 fact that we've seen such resilience as evidence today by 0:04:28.200 --> 0:04:32.200 that early new York factory data shows that perhaps there 0:04:32.240 --> 0:04:35.640 is more steam behind this recovery, more steam behind this 0:04:36.000 --> 0:04:38.920 inflation growth that people previously have gave credit for. 0:04:39.320 --> 0:04:43.640 Yeah, fair enough, Look, inflation is high and sticky, and 0:04:43.760 --> 0:04:46.080 it's not going to get back to target anytime soon. 0:04:46.440 --> 0:04:49.000 But we've got so many other things to consider, and 0:04:49.040 --> 0:04:52.480 to me, the common denominator behind a lot of the themes 0:04:52.360 --> 0:04:54.840 that keep running through the market is the debt. Now, 0:04:55.000 --> 0:04:56.640 you spent a lot of time on this program talking 0:04:56.680 --> 0:05:02.200 about the bank stress, that that's one sect of this economy, 0:05:02.520 --> 0:05:06.000 not just the global economy of this economy, and the 0:05:06.000 --> 0:05:09.000 common denominator that runs through all of these inflection points 0:05:09.040 --> 0:05:11.800 seems to be debt. It happened to crypto, it happened 0:05:11.839 --> 0:05:14.480 to SPACs, it happened to the UK pension industry, and 0:05:14.680 --> 0:05:15.880 it's just going to keep happening. 0:05:16.600 --> 0:05:18.440 And it's also going to pressure to your point of 0:05:18.520 --> 0:05:20.240 fiscal spending. So there's not going to be the same 0:05:20.320 --> 0:05:22.320 kind of ability to spend on some of these things 0:05:22.320 --> 0:05:24.920 that people are talking about because of that overhead, that 0:05:24.960 --> 0:05:27.480 weight of the debt. So where we are right now 0:05:27.720 --> 0:05:30.680 is this idea where people don't necessarily say that they 0:05:30.720 --> 0:05:32.919 agree with you, and they fight back against the IMF, 0:05:33.240 --> 0:05:35.400 but their trading as though they do the trading is 0:05:35.400 --> 0:05:37.839 though they're going to see rates get cut significantly by 0:05:37.880 --> 0:05:39.200 the end of this year. Do you agree with that? 0:05:39.520 --> 0:05:42.120 Do you know this right or wrong? Or agreeing or 0:05:42.120 --> 0:05:44.120 that doesn't really matter? And in fact that the most 0:05:44.200 --> 0:05:46.400 the most frustrating thing for me is meeting people who 0:05:46.440 --> 0:05:49.279 totally agree with me because they want the confirmation, and 0:05:49.320 --> 0:05:51.599 then you meet the others who completely disagree, and it 0:05:51.600 --> 0:05:54.200 doesn't seem to be much in the middle. And so 0:05:54.839 --> 0:05:57.360 it's not about right or wrong right, it's the process 0:05:57.480 --> 0:05:59.200 and it's the thinking behind it. 0:05:59.320 --> 0:06:02.200 That the wall of money that's out there. 0:06:02.520 --> 0:06:05.840 Sir John Templeton told me once in my ute that 0:06:05.880 --> 0:06:08.239 there would be a shortage of bonds. 0:06:08.360 --> 0:06:09.640 That's exactly what he said. 0:06:09.880 --> 0:06:12.800 There's a wall of money out there and a shortage 0:06:12.800 --> 0:06:15.760 of bonds. To the Steve major belief of abroad of 0:06:15.800 --> 0:06:19.440 you and Blanchard, I think totally agrees with you on 0:06:19.520 --> 0:06:21.839 the trend is in place of a lower our stard 0:06:22.400 --> 0:06:26.719 is price up yield down? How much price up yield down? 0:06:27.360 --> 0:06:30.279 How much of this off the ten year benchmark? Can 0:06:30.279 --> 0:06:34.120 you model a sub three percent ten. You're yield from here. 0:06:34.040 --> 0:06:36.560 Out X number of quarters quite easily. I mean our 0:06:36.600 --> 0:06:39.040 forecast is two and a half. For what it's worth 0:06:39.640 --> 0:06:42.680 that the lack of safe asset to me is a 0:06:43.080 --> 0:06:47.080 paradox because after all these years of QE trillions and trillions, 0:06:47.120 --> 0:06:50.080 surely there's plenty of safe asset out there. Will Actually 0:06:50.440 --> 0:06:53.200 there's too much of the wrong kind of safe asset. 0:06:53.240 --> 0:06:55.960 You see the excess reserves created by central banks to 0:06:56.000 --> 0:06:59.160 buy the bonds in the QE. That's not something that 0:06:59.520 --> 0:07:03.000 the WEE can that you and I can access. So 0:07:03.040 --> 0:07:05.880 you can't get excess reserves, right, you know, that's for 0:07:05.920 --> 0:07:09.320 banks only. What you want a T bows, You want 0:07:09.320 --> 0:07:11.920 T bills, and there's a lack of those. There is 0:07:11.960 --> 0:07:15.520 not enough T balls around, right, So globally there is 0:07:15.560 --> 0:07:19.080 a lack of liquid safe asset. That is still the case. 0:07:19.440 --> 0:07:22.119 So why are people surprised that the two year yield 0:07:22.160 --> 0:07:24.200 can set one hundred basis of points through the money rate? 0:07:24.760 --> 0:07:26.920 Why would you be surprised about it? Because the price, 0:07:28.520 --> 0:07:31.440 because it's factoring in the average policy rate for the 0:07:31.440 --> 0:07:33.600 next two years. It's saying it could be five for 0:07:33.640 --> 0:07:35.400 eight months, it could be four for eight months, but 0:07:35.440 --> 0:07:37.600 it could be three for the next for the next eight. 0:07:37.640 --> 0:07:39.840 The average of those three numbers, I believe is four, 0:07:40.400 --> 0:07:42.360 so it's quite possible. 0:07:42.440 --> 0:07:46.240 Right, this has been fine. I've got like forty five 0:07:46.320 --> 0:07:49.960 seconds or so. I purposely watched west Ham highlights with 0:07:50.160 --> 0:07:51.520 Arsenal yesterday. 0:07:51.720 --> 0:07:51.960 Wow. 0:07:52.040 --> 0:07:53.000 That was exciting. 0:07:53.320 --> 0:07:56.600 How does west Ham rebuild from the threat of relegation? 0:07:57.120 --> 0:07:59.760 Well, they look like they say it quietly, they look 0:07:59.840 --> 0:08:03.200 like it. They're almost safe at the moment. It's a 0:08:03.200 --> 0:08:05.239 shame you don't watch the whole game because the highlights 0:08:05.240 --> 0:08:06.080 don't do it justice. 0:08:07.600 --> 0:08:12.760 After ten American, after. 0:08:12.560 --> 0:08:15.200 Ten minutes, it could have gone to seven or eight zero. 0:08:16.200 --> 0:08:18.360 I was gonna say nil, but this is an American audience. 0:08:18.520 --> 0:08:19.000 I have to. 0:08:22.360 --> 0:08:26.840 No chance will understand nil. But it's really exciting. I mean, 0:08:26.880 --> 0:08:29.160 Pharaoh's got me into all this. It's your fall as well. 0:08:29.400 --> 0:08:32.559 Yeah, it's partly my fault. But try and watch the 0:08:32.600 --> 0:08:33.439 whole match sometimes. 0:08:33.760 --> 0:08:35.840 Thank you. I'll do that. I think I got my marching. 0:08:37.440 --> 0:08:38.479 This is phenomenal. 0:08:38.600 --> 0:08:42.959 Thank you so much for an entire bitch. Stephen Major, 0:08:43.040 --> 0:08:43.880 thank you so much with that. 0:08:44.080 --> 0:08:44.560 Just get it. 0:08:44.640 --> 0:08:45.960 Please are your thoughts on that? To me? 0:08:46.040 --> 0:08:48.840 This is such a rich conversation, and it's not one 0:08:48.920 --> 0:08:49.760 or two ways it could go. 0:08:49.840 --> 0:08:51.280 It's like four or five ways it could go. 0:08:51.440 --> 0:08:55.200 The science underpinning our assumptions. To me, that's my takeaway. 0:08:55.200 --> 0:08:58.160 People make a lot of proclamations based on logic, but 0:08:58.440 --> 0:09:00.760 how do we look to some sort of science at 0:09:00.760 --> 0:09:03.319 a time of such great uncertainty? And this is the 0:09:03.360 --> 0:09:05.800 difficulty right now. People are coming up with different parameters 0:09:05.840 --> 0:09:08.480 and making different arguments and looking at different data points. 0:09:08.960 --> 0:09:10.520 If you look at history and you think of the 0:09:10.559 --> 0:09:13.960 debt overhang, it does complicate issues. Although you could push 0:09:14.000 --> 0:09:16.040 back and say, well, if everybody piles into bonds, that's 0:09:16.040 --> 0:09:18.520 going to lower the interest rate and that'll increase the 0:09:18.559 --> 0:09:21.160 ability to spend fiscally, and then we get right back 0:09:21.200 --> 0:09:23.040 to it. So it's kind of a lot to wrap 0:09:23.040 --> 0:09:23.640 your head around. 0:09:23.800 --> 0:09:25.960 Are you going to watch a whole soccer game with me? 0:09:26.080 --> 0:09:28.080 I used to play soccer. I would love to watch 0:09:28.080 --> 0:09:29.160 a whole soccer game with you. 0:09:30.440 --> 0:09:32.280 We'll have to schedule one. 0:09:32.640 --> 0:09:35.160 Yeah, in twenty twenty seven. 0:09:35.040 --> 0:09:37.120 We'll do that as well. 0:09:37.160 --> 0:09:39.679 Running green on the screen and this is important coming 0:09:39.720 --> 0:09:41.720 up here. John Ferrell's going to have some really good 0:09:41.760 --> 0:09:47.000 coverage with Edward Ludlow of this rocket ship that's going up. 0:09:47.080 --> 0:09:50.880 It's another day, it's in April day, and this is 0:09:50.960 --> 0:09:55.319 a piece of hardware that America has never seen. I 0:09:55.400 --> 0:10:00.640 can't emphasize enough how original this rocket launch, yeah, will be, 0:10:00.760 --> 0:10:03.360 and we'll see that in the next half hour. Rocket 0:10:03.440 --> 0:10:06.080 launch for US is a VIX of seventeen point seven 0:10:06.120 --> 0:10:09.840 to two. Maybe it was a bear market in ending 0:10:09.960 --> 0:10:10.800 in October. 0:10:10.960 --> 0:10:13.520 Stay with us through the morning. This is Bloomberg. 0:10:24.160 --> 0:10:26.320 Let's frame the debate in the equity market right now 0:10:26.800 --> 0:10:28.640 with a bull and a bear. Here's the bear ist 0:10:28.640 --> 0:10:31.080 for you, Mike Wilson. Morgan Stanley kicking off the week 0:10:31.480 --> 0:10:34.520 with the fastest FED policy shift in forty years. We 0:10:34.559 --> 0:10:36.959 think more negative surprises lie I had for investors. He 0:10:37.040 --> 0:10:39.160 goes on to say, one that we think is in 0:10:39.240 --> 0:10:43.240 plain sight is Earning's forecast that remain too optimistic. That 0:10:43.320 --> 0:10:47.160 has been the message from Morgan Stanley for months now. 0:10:47.280 --> 0:10:50.280 Bink Chaa takes the other side. The chief global strategist 0:10:50.280 --> 0:10:52.600 and head of VASA Allocation at Deutsche Bank joins us 0:10:52.679 --> 0:10:54.920 right now, Binkie, so let's start with this one. A 0:10:54.960 --> 0:10:56.640 good morning to you, sir, Thanks for being with US 0:10:57.000 --> 0:11:00.000 still long, still optimistic. What underpins that view for you? 0:11:00.440 --> 0:11:02.920 So in the very near term, it's earnings, and I 0:11:02.920 --> 0:11:05.199 think you know, the things to keep in mind are 0:11:05.440 --> 0:11:10.080 Number one, the acquity market almost always rallies during earning season. 0:11:10.360 --> 0:11:12.280 It's not a huge rally, it's about to two and 0:11:12.280 --> 0:11:15.400 a half percent, but you know that would put us 0:11:15.800 --> 0:11:18.000 change the handle in the S and P to the 0:11:18.000 --> 0:11:21.360 mid forty two hundreds closer to forty three hundred. I 0:11:21.400 --> 0:11:25.600 think on earnings, the big picture issue is very simple, 0:11:25.720 --> 0:11:28.120 which is that if you look at the top down 0:11:28.240 --> 0:11:32.040 macro drivers, what we had is upgrades to growth in 0:11:32.120 --> 0:11:36.120 the US, in Europe, in China, in Japan, we had 0:11:36.360 --> 0:11:40.000 the dollar come down. All of that argues basically for 0:11:40.360 --> 0:11:45.120 you know upside a rebound or a turn basically in 0:11:45.320 --> 0:11:48.559 earnings up. And if you look at the same time 0:11:48.800 --> 0:11:51.640 as what we are measuring earnings against, which is the 0:11:51.640 --> 0:11:55.880 bottom up consensus, it's been falling since June of last year. 0:11:56.440 --> 0:12:00.920 It's down about sixteen seventeen percent now. And so when 0:12:00.960 --> 0:12:05.520 you take the top down drivers and you you know, 0:12:05.640 --> 0:12:09.440 plug them into our earnings models or frameworks, it's telling 0:12:09.440 --> 0:12:12.520 you should get a pretty significant rebound in earnings, we 0:12:12.559 --> 0:12:16.400 should get a pretty average beat of about five percent. 0:12:16.880 --> 0:12:19.080 So there's this narrative out there that the bottom up 0:12:19.120 --> 0:12:23.280 consensus is forecasting you know, the worst season ever and 0:12:23.400 --> 0:12:25.319 down seven percent. I mean, I think they should be 0:12:25.360 --> 0:12:27.840 a little bit careful with that hypothetical because the earnings 0:12:27.880 --> 0:12:30.880 beat almost always by five percent. So you're already down 0:12:30.920 --> 0:12:32.839 to sort of about one and a half percent. And 0:12:32.880 --> 0:12:34.560 so if you get a little bit bigger beat. You 0:12:34.600 --> 0:12:37.840 saw the results on Friday, you know you're back at zero. 0:12:38.160 --> 0:12:41.680 Well, your twenty stocks doing well, and the S and 0:12:41.720 --> 0:12:43.920 P is so basically made it halfway back out of 0:12:43.920 --> 0:12:48.480 a grim bear market. Institutional portfolios, maybe you've made halfway back. 0:12:48.760 --> 0:12:51.000 Is a basic statement you talk and this is great 0:12:51.040 --> 0:12:54.240 biggie chata, and that you take a longer timeline, a 0:12:54.280 --> 0:12:57.640 more relaxed view, and within that you talk about a 0:12:57.720 --> 0:13:01.600 passing of the baton from earnings to the next thing 0:13:02.320 --> 0:13:04.000 to keep your optimism going. 0:13:04.160 --> 0:13:07.079 What's after our earnings analysis. 0:13:06.640 --> 0:13:10.319 Well, you know it will then depend basically on you know, 0:13:10.400 --> 0:13:13.040 the big cloud and whether it's going to erupt into 0:13:13.120 --> 0:13:16.760 a severe rainfall of the US recession. And there what 0:13:16.960 --> 0:13:20.439 I would say is that basically, you know, instead of 0:13:20.480 --> 0:13:22.840 just looking at the aggregate all the time, we should 0:13:22.840 --> 0:13:25.120 do what we used to do when the pandemic began, 0:13:25.200 --> 0:13:28.439 which is differentiate goods and services. And what you will 0:13:28.480 --> 0:13:32.439 see here is a very very clear picture. And what 0:13:32.559 --> 0:13:35.520 I would argue is that you know now really comes 0:13:35.600 --> 0:13:37.880 to test if you think about a trend line. We've 0:13:37.920 --> 0:13:41.000 got services that fell far below and have been rebounding 0:13:41.440 --> 0:13:43.800 and sort of you know, asimp toting or the growth 0:13:43.840 --> 0:13:46.520 rate is slowing basically towards trend. And the important thing 0:13:46.559 --> 0:13:49.480 to keep in mind about services is they don't generally 0:13:49.559 --> 0:13:52.600 slow very much. You don't get really recessions and services 0:13:53.360 --> 0:13:55.439 and all of the action has really been for the 0:13:55.520 --> 0:13:57.800 last two or three years on the good side, where 0:13:57.800 --> 0:14:01.320 we got massively elevated re to trend. Depending on what 0:14:01.440 --> 0:14:04.240 metric we're talking about, anywhere have between fifteen and twenty 0:14:04.240 --> 0:14:07.280 five percent above trend levels. And it is something that 0:14:07.280 --> 0:14:09.320 we wrote about in the summer of twenty twenty one 0:14:09.480 --> 0:14:13.200 called the COVID speed cycle. And since then, what has happened, 0:14:13.679 --> 0:14:16.959 I would argue, is an incredibly resilient outcome, which is 0:14:17.360 --> 0:14:20.560 we've been going sideways in real terms for two years. 0:14:20.720 --> 0:14:23.320 And the key question is as we come back down 0:14:23.360 --> 0:14:26.240 to trend levels, which we are very near now, are 0:14:26.240 --> 0:14:28.160 we going to start growing or are we going to 0:14:28.280 --> 0:14:29.080 suddenly crash? 0:14:29.200 --> 0:14:32.160 But so as we talk about earning season and the 0:14:32.200 --> 0:14:34.520 expectations are all over the place, you have a more 0:14:34.560 --> 0:14:38.960 bullish expectation Mike Wilson, a more bearish one the overlay 0:14:39.200 --> 0:14:42.160 of a banking crisis that wasn't what are stocks currently 0:14:42.160 --> 0:14:45.160 pricing in taking out some of the regional bank stocks. 0:14:45.320 --> 0:14:48.080 What are they pricing in with respect to contraction of credit? 0:14:48.960 --> 0:14:52.320 I don't think that the equity market is pricing in 0:14:52.360 --> 0:14:55.400 that much in terms of a credit downturn. But you know, 0:14:55.560 --> 0:14:58.440 if you look sort of at you know, what is 0:14:58.440 --> 0:15:01.320 the equity market pricing, It's pricing in ism of forty six, 0:15:01.320 --> 0:15:05.080 which is what we got. So's it's kind of right 0:15:05.120 --> 0:15:07.280 where it should be in terms of the very short 0:15:07.360 --> 0:15:10.800 term near term driver. So nothing really more than that. 0:15:11.880 --> 0:15:14.200 And in terms of the banking stress, you know, to 0:15:14.240 --> 0:15:17.080 the extent that it's already captured basically in the pmis 0:15:17.120 --> 0:15:20.080 and the isms, then you know the market's priced it in. 0:15:20.200 --> 0:15:21.400 So something bigger now. 0:15:21.680 --> 0:15:23.760 But do you think it makes sense that we have 0:15:23.880 --> 0:15:26.120 basically an SP five hundred to anticipate we'll get to 0:15:26.120 --> 0:15:28.280 forty three hundred and a rates market that is pricing 0:15:28.400 --> 0:15:31.920 inst some serious rate cuts. Do you think that can persist? 0:15:32.160 --> 0:15:35.320 So, you know, on the rate cuts issue, what I 0:15:35.360 --> 0:15:37.720 would say, you know, if we're talking about the ten 0:15:37.800 --> 0:15:41.120 year yield, you know the difference of view between the 0:15:41.280 --> 0:15:43.640 Fed when you open it's dot plot, the first thing 0:15:43.680 --> 0:15:46.280 that just shields the rates are coming down massively. So 0:15:46.320 --> 0:15:49.120 the question is really about six months over a ten 0:15:49.200 --> 0:15:51.720 year period, six months, eight months, maybe nine months, but 0:15:52.160 --> 0:15:54.680 it's not a huge move. I think the bigger issue 0:15:54.680 --> 0:15:57.640 for rates really is, you know, all of the forward 0:15:57.720 --> 0:16:01.960 guidance that convinced the market to gotively short kind of 0:16:02.240 --> 0:16:05.680 blew up, and so is the risk appetite to be 0:16:05.920 --> 0:16:07.640 just as short going to come back? 0:16:07.680 --> 0:16:10.360 So just ask the question from active, Thank you. I'm 0:16:10.360 --> 0:16:12.840 just wondering, does the S and P five hundred and 0:16:12.880 --> 0:16:16.920 forty three hundred and CPI five percent does that encourage 0:16:16.920 --> 0:16:19.040 the Federal Reserve to cut interest rights? I mean, I'm 0:16:19.080 --> 0:16:19.720 struggling with them. 0:16:19.800 --> 0:16:22.080 What she doesn't now, I mean it's not our house view, 0:16:22.160 --> 0:16:24.360 but our house view is that we will cut interest 0:16:24.400 --> 0:16:27.960 rates next year. So it's again they're going to get 0:16:28.000 --> 0:16:31.680 overhung up on what is a very fluid calendar and 0:16:31.720 --> 0:16:34.280 precise calendar times, and then they're all. 0:16:34.080 --> 0:16:37.320 Out there in the future. So I'd be a bit 0:16:37.400 --> 0:16:38.080 careful on that. 0:16:38.320 --> 0:16:41.040 Thank you, thank you, sir, thank you chatter at Deutsche. 0:16:40.720 --> 0:16:47.800 Bank joining US now Jordan Rochester G ten Ef, strategist 0:16:48.360 --> 0:16:51.520 at the MURA for a morning brief for Global Wall Street. Jordan. 0:16:51.600 --> 0:16:53.840 What I find interesting is if I triangulate and go 0:16:53.840 --> 0:16:57.000 to euro yen, I've got euro yen butter stuff against 0:16:57.000 --> 0:17:00.840 resistance hit a one forty seven. It's unimaginable strong euro 0:17:01.320 --> 0:17:05.200 week yen on the US dollar pair? Is it about 0:17:05.280 --> 0:17:08.440 strong euro? Or is in the zeitgeist this weekend? Is 0:17:08.480 --> 0:17:09.600 it about week dollar? 0:17:10.520 --> 0:17:11.800 It's been a bit of both, Tom. 0:17:11.920 --> 0:17:13.479 I mean, I think in the past few weeks it's 0:17:13.520 --> 0:17:15.960 been the dollar aside that has really moved the needle 0:17:15.960 --> 0:17:19.440 of four euro dollar. With the banking situation sub's collapsed, 0:17:19.440 --> 0:17:21.760 It's allowed markets to price in the idea of FED cuts, 0:17:21.960 --> 0:17:23.920 and a lot of people would argue too many FED 0:17:24.000 --> 0:17:27.359 cuts priced in. The irony is there are these cuts 0:17:27.359 --> 0:17:30.880 priced in, and I don't see anyone arguing for them 0:17:30.920 --> 0:17:32.520 to be priced in. That way, so there is a 0:17:32.520 --> 0:17:35.600 bit of a dislocation between narratives and actual market pricing. 0:17:35.920 --> 0:17:38.080 But Tom, I think the good news for euro isn't over. 0:17:38.280 --> 0:17:40.040 I think the growth pickup that we've seen in the 0:17:40.080 --> 0:17:43.399 first quarter this year should carry on into the second quarter. 0:17:44.080 --> 0:17:46.639 That should keep the ECB in a more hawkish footing. 0:17:47.040 --> 0:17:50.720 The market is pricing very much a too low terminal 0:17:50.800 --> 0:17:53.119 rate for in our view, for the ECB, so we 0:17:53.160 --> 0:17:55.440 look for four to twenty five four point two five 0:17:55.440 --> 0:17:56.640 percent by July. 0:17:56.760 --> 0:17:58.680 The market's somewhere around three point six. 0:17:59.040 --> 0:18:01.480 Now for the Fed, they could do a rate hike 0:18:01.560 --> 0:18:03.000 of twenty five based points in May. 0:18:03.080 --> 0:18:04.680 Our economics team thinks they won't. 0:18:04.760 --> 0:18:06.879 They think they are done with this rate hiker cycle 0:18:07.280 --> 0:18:10.280 after the banking situation. But the market's pricing twenty one 0:18:10.320 --> 0:18:12.560 basis points or so for that meeting. So if the 0:18:12.640 --> 0:18:14.760 Fed do go ahead and do a twenty five I 0:18:14.800 --> 0:18:18.080 don't see much upside for a dollar from that rate hike, 0:18:18.280 --> 0:18:20.840 where with the ECB, the market's not pricing the fifty 0:18:20.880 --> 0:18:23.480 basis points that we expect to see from the next meeting. 0:18:23.520 --> 0:18:26.360 So from a monetary policy point of view and from 0:18:26.359 --> 0:18:28.959 a growth point of view, there's more upside one fourteen 0:18:29.040 --> 0:18:30.720 in euro in the next three months. 0:18:30.920 --> 0:18:34.240 Jordan, you sound like Christine Legard of Domestic over the 0:18:34.280 --> 0:18:37.800 weekend speaking to CBS now, Jordan, I just wonder if 0:18:37.800 --> 0:18:40.800 there's anything to be optimistic about, is this four twenty 0:18:40.800 --> 0:18:43.840 five on race of the ECB because growth can handle it, 0:18:43.960 --> 0:18:46.840 or growth is really outperforming well. 0:18:46.960 --> 0:18:48.919 Last year was pretty doom and gloom. One of the 0:18:48.920 --> 0:18:50.960 best trades we had was just being short yured dollar 0:18:51.080 --> 0:18:55.080 short cable from pretty much January February time onwards, especially 0:18:55.080 --> 0:18:56.800 when Ukrame is invaded by Russia. 0:18:56.840 --> 0:18:58.479 This year it has been super different. 0:18:58.520 --> 0:19:01.359 It's been all of those negatives last year turned around 0:19:01.680 --> 0:19:04.679 from headwinds into tailwinds. So last year was about very 0:19:04.760 --> 0:19:07.119 high energy prices weighing on the consumer, weighing on the 0:19:07.119 --> 0:19:11.359 government spending situation as well as corporates. Now energy prices 0:19:11.400 --> 0:19:13.640 have pretty much collapsed in terms of natural gas. They've 0:19:13.640 --> 0:19:16.960 gone below where they were before Ukraine was invaded too. 0:19:17.240 --> 0:19:20.320 This is a huge sort of disposable income boost for 0:19:20.359 --> 0:19:24.760 consumers and for firms as well, reducing their costs. So 0:19:25.240 --> 0:19:27.080 from that side of things, the terms of trade for 0:19:27.160 --> 0:19:29.760 euro would put euro dollar between one fifteen and one 0:19:29.880 --> 0:19:32.919 twenty massive good news. But for the Euro Area and 0:19:32.920 --> 0:19:35.800 the monetary policy side, we've got all the inflation from 0:19:35.880 --> 0:19:39.920 last year feeding through to second round of effects, very 0:19:39.920 --> 0:19:42.520 tight labor market, we're seeing wage hikes coming through. 0:19:42.560 --> 0:19:44.280 We're seeing strike action in France. 0:19:44.320 --> 0:19:47.600 As well, these sort of stories in the labor market, 0:19:47.880 --> 0:19:50.399