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Speaker 1: Our guest is Todd Elmer, head of f X and

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Speaker 1: macro Analysis for Asia and with us here live on

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Speaker 1: the program. And uh, Todd, thanks very much for being

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Speaker 1: with us. So the market and the companies can actually

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Speaker 1: say this, But I would say that the way they're

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Speaker 1: acting that they're actually screaming at the FED. You're going

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Speaker 1: too far, too fast, You're missing the story. Just like

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Speaker 1: last year you went too far on the hold. So

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Speaker 1: I put it to you, is it unfair to say

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Speaker 1: that investors are telling to FED policymakers you're incompetent? Uh?

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Speaker 1: You know, I I think the investors have certainly begun

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Speaker 1: to question some of the decisions that we've seen from

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Speaker 1: the FED over the course of the pandemic. But you know,

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Speaker 1: I don't know that it's a widespread view as of

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Speaker 1: yet that we are on trajectory for what could be

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Speaker 1: characterized as another policy mistake. And I think that's because

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Speaker 1: inflation remains high um and there is kind of the

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Speaker 1: acknowledgement that so long as that is the case, that

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Speaker 1: that is probably going to have to continue with its

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Speaker 1: very harsh rhetoric because it doesn't want to encourage the

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Speaker 1: market to begin pricing in that pivot that at one

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Speaker 1: point was priced in for the end of next year.

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Speaker 1: I don't think there's a lot of expectation they're going

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Speaker 1: to change course soon, even as we've started to see

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Speaker 1: some rhetorics sneak in that they are acknowledging that they

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Speaker 1: have done a lot of tiening to date. Yes, so

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Speaker 1: have no change of course soon. No where our rights

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Speaker 1: going to top out because the last adult blog we

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Speaker 1: got a lot of adults hovering just below five percent

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Speaker 1: for three Now where are we going? He uh, you know,

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Speaker 1: that's a good question, so whether or not we actually

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Speaker 1: reach that level approaching five per cent, because I think

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Speaker 1: that as we move into the winter into the beginning

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Speaker 1: of next year, uh, that we are going to see

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Speaker 1: a very difficult period for the U. S economy and

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Speaker 1: probably an even more difficult period for many global economies. Um.

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Speaker 1: And I think that will encourage the market to consider

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Speaker 1: the possibility that we won't quite match the most hawkish

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Speaker 1: in terms of feed expectations. So I think that's really

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Speaker 1: going to be determined over the next several months. I

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Speaker 1: will have to see what the depth of the economic

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Speaker 1: slowdown is and whether or not the FED uh, you know,

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Speaker 1: can be successful in terms of avoiding a hard lending.

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Speaker 1: The doll which is made up of some really old

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Speaker 1: and fine companies, uh and kind of cyclical companies. It

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Speaker 1: fell more last month than it did in two thousand

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Speaker 1: and eight when you had a once in a century

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Speaker 1: crisis banking and housing crisis. So it shows you that

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Speaker 1: investors think that the FED is is off balance here.

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Speaker 1: And we were used to thinking of the FED as

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Speaker 1: smoothing things out, you know, cooling when the economy is

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Speaker 1: too hot, warming when it's a little too cool. But

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Speaker 1: now critics are saying that the FED is actually the

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Speaker 1: tool or the rod stoking volatility. You know, I I

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Speaker 1: think that the FED has fed into some of the

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Speaker 1: volatility that we're seeing in market. It's which, which of

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Speaker 1: course is is kind of a story level, but if

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Speaker 1: you step back, what's really happening is that we're going

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Speaker 1: through a generational shift right now, where we've come from

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Speaker 1: an extended multidecade period of low interest rates and we're

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Speaker 1: shifting back towards what might be considered you know, more

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Speaker 1: normal levels on a historic basis, and the fact that

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Speaker 1: that has surfaced as some degree of kind of market volatility,

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Speaker 1: and the fact that that is something that traders have

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Speaker 1: had to, you know, start to learn to adapt to

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Speaker 1: with some unexpected consequences. I mean, I don't think that

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Speaker 1: should be altogether surprising, And again I don't think that

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Speaker 1: really should be be seen as as the FEDS solely

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Speaker 1: bearing responsibility for those developments. I think to some extent

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Speaker 1: this was inevitable as we shifted towards a higher interest

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Speaker 1: rate regime. We've got the form of Treasury Secretary Larry

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Speaker 1: Summers wanting of the risk of a global restation increasing.

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Speaker 1: Is that why we're hitting here, you know, Stepping aside

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Speaker 1: from the technical terms, I think it's pretty clear that

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Speaker 1: we are heading towards a slowdown. Um, it's probably going

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Speaker 1: to be particularly pronounced in Europe. We are going to

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Speaker 1: see global economies suffering under the strain of a stronger dollar.

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Speaker 1: I think it'll probably be a bit more shallow in

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Speaker 1: the US, where we are still seeing a lot of

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Speaker 1: indications of of kind of lingering economic strengths. But I

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Speaker 1: think that we will see a slow down there as well.

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Speaker 1: And uh so I just mentioned there a moment ago,

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Speaker 1: um the strength was seeing for the Canadian Assie and

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Speaker 1: Kiwi against the yen at the moment one of the

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Speaker 1: few risk on trades going right now, what's happening in

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Speaker 1: your view? You know, I think that mainly comes down

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Speaker 1: to the weakness that we're seeing in the in the

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Speaker 1: Japanese yend, more so than than strengths in terms of

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Speaker 1: the commodity currencies, which themselves have been vulnerable, just perhaps

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Speaker 1: less so against against all their appreciation um and I

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Speaker 1: think that a lot of the forces that are contributing

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Speaker 1: to get weakness and macro forces are likely to remain

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Speaker 1: in place. Notably, we aren't seeing any indications that we're

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Speaker 1: going to get a shift in policy from the Bank

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Speaker 1: of Japan anytime soon, and I think that's going to

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Speaker 1: keep the pressure on the end as global interest rates

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Speaker 1: continue to rise, and it's going to make the Japanese

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Speaker 1: government's life difficult in terms of trying to counter any

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Speaker 1: further weakness to offset the negative impacts on the domestic economy.

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Speaker 1: With the yield on the two year at four point

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Speaker 1: to one percent and that's actually down six basis points,

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Speaker 1: where does the bond market really offer good value to

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Speaker 1: especially long term investors are not necessarily long term, but

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Speaker 1: even looking to lock in say two to five years

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Speaker 1: at a high interest rate. Where is the sort of

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Speaker 1: crossover period where that looks like good value? Todd uh.

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Speaker 1: You know, I think when we think about what what

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Speaker 1: yields have done, that there is kind of a lot

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Speaker 1: of momentum in place, and it's not clear to me

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Speaker 1: that we're going to see any any kind of shift

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Speaker 1: in terms of that overall trend anytime soon. Some expectation

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Speaker 1: to be more or less across the curve that we

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Speaker 1: are going to see further upward pressure on yields as

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Speaker 1: these macro forces that have been driving them up remain

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Speaker 1: in place. And what do you see this strong dollar

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Speaker 1: story stunting to top out. Yeah, it's certainly come away.

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Speaker 1: So I don't want to say that the dollar strength

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Speaker 1: is not more mature at this point. But if we

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Speaker 1: look at that kind of the global backdrop, one of

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Speaker 1: which the FED is continuing to tighten and continuing to

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Speaker 1: offer this hawk as message to discourage the market from

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Speaker 1: bringing back down those expectations on the terminal rate. We

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Speaker 1: combine that with the weakness that we're seeing a lot

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Speaker 1: of other global economies, the fact that risk aversion remains

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Speaker 1: elevated amid uh, you know, concern over potential escalation in

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Speaker 1: the Ukraine war. Um, I don't think that any of

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Speaker 1: these forces that have been pushing us up are going

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Speaker 1: to change for the time being, and I think that

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Speaker 1: we're seeing the positioning is not yet stretched, so so

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Speaker 1: there probably is further room for that to run. So

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Speaker 1: you just answered my question and about whether or not

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Speaker 1: if we get a seasonal rally here, whether it would fail.

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Speaker 1: It seems like you would think that it would just

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Speaker 1: be a bear market rally. Yeah, I think that's the case,

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Speaker 1: and I think that's probably true when when we think

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Speaker 1: about kind of a lot of the asset market trends

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Speaker 1: in general. I I don't know that I would be

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Speaker 1: very optimistic on equities now at this point either because

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Speaker 1: I think that you know, the market was was a

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Speaker 1: little more calm at the end of last week because

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Speaker 1: of the bankoving was intervention, because we didn't get perhaps

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Speaker 1: the fireworks that we might have anticipated around the month

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Speaker 1: and quarter end. But I don't think the underlying developments

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Speaker 1: have changed, and I think that probably spells kind of

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Speaker 1: more volatility moving forward. Maybe not the historic week that

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Speaker 1: we had last week, but it's probably going to be

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Speaker 1: a very difficult trading environment for the time being very

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Speaker 1: quickly to the British pounds taking a severe beating at

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Speaker 1: the moment, When do you see that narrative starting to change.

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Speaker 1: I think it will start to change if, if, if

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Speaker 1: the government backs down from its plans for the tax

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Speaker 1: cuts and fiscal using, and I don't think that that

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Speaker 1: is going to be politically feasible for the Trust government

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Speaker 1: for the time being. So yeah, I think that there's

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Speaker 1: likelihood to b C that pressure reassert itself on account. Yeah,

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Speaker 1: let's trust the Prime Minister expressing some dismay about the

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Speaker 1: way she communicated that decision to get rid of the

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Speaker 1: top tax rate. But Todd Elmer Hit of f f

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Speaker 1: X and macro Analysts for in Touch Capital Markets, thanks

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Speaker 1: so much for joining us on Bloomberg Daybreak Asia