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Speaker 1: Let's get to Marvin Low, senior global macro strategist at

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Speaker 1: State Street. Marvin, the bond market has been discounting deep

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Speaker 1: trouble ahead for the U. S economy. Why else would

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Speaker 1: yield and the tenure ago from three fifty to two fifty.

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Speaker 1: But we got some data today and it's only one

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Speaker 1: report that more or less suggests that it's the stock

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Speaker 1: market that's correct that there will be a soft landing.

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Speaker 1: So you have the I S M services come in

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Speaker 1: at fifty six point seven, yet the prices paid was down,

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Speaker 1: So that suggests that the Fed sort of gets it right.

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Speaker 1: The economy stays firm, inflation falls, and we can go

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Speaker 1: long stocks some I'm interested in your thoughts on this subject.

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Speaker 1: That sounds wonderful, doesn't it. I mean, it really is

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Speaker 1: a wonderfully packaged story. You know. I ultimately think that

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Speaker 1: we have to um um, you know, always remember what

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Speaker 1: got us in the situation, and it was a situation

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Speaker 1: where ultimately demand was too hot, the labor markets are

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Speaker 1: too hot. Um and really kind of segging from from

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Speaker 1: an environment where are um, good news is bad to

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Speaker 1: one where good news is good as well as bad

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Speaker 1: news is good. Um. You know, you have to think

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Speaker 1: through that and really really consider your conviction in kind

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Speaker 1: of going down that route. Ultimately, when you have services

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Speaker 1: that um continues to outperform in an economy as reliant

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Speaker 1: on services as the US, do you actually get on

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Speaker 1: top of inflation? And I think that's the message that

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Speaker 1: we were hearing, or at least the concerns that we

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Speaker 1: were hearing from all of the f o MC members

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Speaker 1: recently that um, you know, we got a long way

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Speaker 1: to go, and some of the main things that they're

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Speaker 1: looking at with regard to inflation, with regards to the

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Speaker 1: jobs market still hasn't shown any signs of moving in

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Speaker 1: the direction that they wanted to move at M. So

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Speaker 1: what's your conviction then, of what we see in September,

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Speaker 1: whether it's fifty or seventy five basis points when try

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Speaker 1: to seemed to be backing away from speculation that the

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Speaker 1: FIT is going to ease up here, Yeah, I mean,

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Speaker 1: I still think I still think fifty makes sense. Um.

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Speaker 1: You know, the market certainly got behind the view that

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Speaker 1: the FED was nearer to end of this hype of

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Speaker 1: this hiking cycle than than than where was even you know,

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Speaker 1: just three or four months ago, and that's ultimately true. UM,

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Speaker 1: I think it is time to to um downshift a

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Speaker 1: little bit and take um uh take take it take

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Speaker 1: some time to look at what these UM hikes are

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Speaker 1: doing to the economy. But at the same time, the

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Speaker 1: fact that we go fifty doesn't miss missarily mean that

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Speaker 1: it's going to result in rate cuts anytime soon. Yeah,

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Speaker 1: because we've had two bases points of of of hikes

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Speaker 1: and it takes a while for that to be, you know,

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Speaker 1: having an impact. How much of that do you think

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Speaker 1: we've already discounted? It depends I guess whether you think

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Speaker 1: it's three months or nine months in the lag. Yeah.

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Speaker 1: I mean it really is a function of what the

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Speaker 1: asset classes are saying, right, UM, I think equities have

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Speaker 1: discounted a lot of that, and they're you know, they've

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Speaker 1: gotten comfortable that um, we're able to to get to

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Speaker 1: a point where inflation is going to start to respond,

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Speaker 1: and we really haven't um pushed the economy um over

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Speaker 1: the hill into into a fairly rapid descent. I don't

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Speaker 1: necessarily think we're there yet. I still think that we

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Speaker 1: have time. UM. We still need time to see just

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Speaker 1: how how aggressively things are tightening we're looking at crude

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Speaker 1: oil holding around ninety one dollars a barrel, that OPEQ

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Speaker 1: plus meeting ending with just a modest increase in supply.

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Speaker 1: We're asking today whether you think crude oil has peaked

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Speaker 1: for this cycle. UM, you know what, I think, as

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Speaker 1: long as the war UM is continuing, there's always a

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Speaker 1: risk that that's certainly we could we could see UM

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Speaker 1: a surgeon already. You know, Ultimately, we've seen how volatile

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Speaker 1: it is, and you know, I think the war is

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Speaker 1: the underlying driver for a lot of this, and certainly

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Speaker 1: some of the demands destruction recently has helped, but UM,

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Speaker 1: that underlying UM current is one that keeps us a

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Speaker 1: somewhat defensive on it. So we have oil down and

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Speaker 1: the dollar down and yields down. So obviously that's telling

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Speaker 1: something of a story. Just having to look at at

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Speaker 1: high yield credit and it's really rebounded very dramatically here,

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Speaker 1: uh since June. UM, what's that story? Yeah, you know,

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Speaker 1: I mean, it's it's it's it's very much in the

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Speaker 1: same risk on vain UM. You know. It's Ultimately, the

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Speaker 1: strong rally and stocks UM has resulted in a lot

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Speaker 1: of compression in some of the assets that we're a

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Speaker 1: little bit where um the weakest over the over the

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Speaker 1: course of the first half of this year. I think

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Speaker 1: the challenges that when we ask ourselves, you know, what's

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Speaker 1: the chance of a recession and are we pricing that

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Speaker 1: in hy yield doesn't necessarily pricing in a recession In

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Speaker 1: my mind. Um, it certainly is higher from a spread

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Speaker 1: perspective than where it was in the beginning of the year,

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Speaker 1: but relative to how it potentially trades around a growth slowdowns,

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Speaker 1: there's there's still a lot of potential upside to spreads

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Speaker 1: from that. From that view, I want to ask your

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Speaker 1: thoughts on tech because we've seen the Philadelphia Semiconductor index

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Speaker 1: again around since the end of June, but Asian ship

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Speaker 1: giants falling quite behind that rally. We know there's a

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Speaker 1: lot of concerns here and Nancy Pelosi's trip to Taiwan

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Speaker 1: this week was also in focus for those chip makers.

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Speaker 1: Do we continue to see this kind of divergence and

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Speaker 1: what does the US China attentions tell us about I

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Speaker 1: guess some of the problems that we could see for

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Speaker 1: some of these Asian shipmakers. Yeah, you know, I I

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Speaker 1: look at technology from the perspective of UM kind of

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Speaker 1: the more stable growth technology companies versus those that are

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Speaker 1: maybe more chip focused. And certainly we're seeing that divergence

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Speaker 1: given where some of the larger UM balance sheet rich

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Speaker 1: companies have been able to perform well, whereas the other

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Speaker 1: one's remain challenge. And I think ultimately, as we kind

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Speaker 1: of get into the slower demand profile, you do wind up,

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Speaker 1: you do wind up with kind of pressure on chip

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Speaker 1: manufacturers and those types of firms relative to the other ones,

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Speaker 1: which seem to have held up fairly well even through

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Speaker 1: the earning season. Yeah. I guess if we put all

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Speaker 1: of these points together, Um, one of the things that

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Speaker 1: I'd be curious about, Marvin is is the terminal rate,

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Speaker 1: because we can kind of suggest that the bond market

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Speaker 1: is expecting the FED to go further than what the

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Speaker 1: stock market thinks. Um. Bloomberg Economics thinks the terminal rate

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Speaker 1: is five percent. That seems kind of high. We're only

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Speaker 1: at two in a quarter. Now, where do you see

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Speaker 1: the FED finally, you know, sort of hanging up, you know,

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Speaker 1: hanging up as six shooter. Yeah, I mean, I think

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Speaker 1: I think Bullard has has it within the ballpark, you know,

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Speaker 1: somewhere in that three and a half to four percent range.

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Speaker 1: We've seen the economy slowdown already. To get to five,

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Speaker 1: I think we would create a much more significant slowdown

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Speaker 1: that that we might not be able to handle. But

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Speaker 1: until we actually get signs that inflation and jobs are

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Speaker 1: starting to behave, I think I think they continue in

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Speaker 1: March forward. And you know, we do have rate hikes

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Speaker 1: going into the middle of next year, whereas the market

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Speaker 1: for the most part views a lot of these rate

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Speaker 1: hikes ending by the end of this year and therefore

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Speaker 1: just very quickly. We still continue to see dollar strength. Yeah, yeah,

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Speaker 1: absolutely so. So you know, we we we've had a

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Speaker 1: little bit of a dollar down down draft recently, but

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Speaker 1: when you kind of look at the move and rates um,

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Speaker 1: the dollar really hasn't moved that much. So I do

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Speaker 1: think that you do have kind of support for the

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Speaker 1: dollar on particularly if volatilities comes back as we get

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Speaker 1: into the fall. All right, Marvin, grad to have you

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Speaker 1: with us as always. Marvin Lowe is senior global macro

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Speaker 1: strategist at State Street. On the line from Boston for

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Speaker 1: us here on Bloomberg Daybreak. Asia