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Speaker 1: Alright eight and a half minutes past the hour. Guest

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Speaker 1: is Mark Franklin, Managing Director and Senior portfolio Manager, multi

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Speaker 1: Asset Solutions at Manualife Investment Management. Mark, it was a

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Speaker 1: consummate performance, it seemed by the FED share this morning,

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Speaker 1: but there was one thing that was that kind of

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Speaker 1: rankles with me a little bit. Many commentators are saying that, well,

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Speaker 1: the Fed has to be careful with the language. Doesn't

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Speaker 1: want to ignite a rally in risk assets because it

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Speaker 1: doesn't want financial conditions to ease. And what that means

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Speaker 1: is it means the Fed thinks it's smarter than the markets. Uh,

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Speaker 1: is the market not itself taking into account inflation and

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Speaker 1: the future impact on on the economy. A good morning, Brian.

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Speaker 1: I think with the market, as with all of us,

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Speaker 1: don't really know what the ultimate trajecture and inflation and

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Speaker 1: gross will be, and therefore it is incumbent upon the

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Speaker 1: Fed to effectively continue to reistorate the message they help

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Speaker 1: of some time, which is that they need to allow

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Speaker 1: the demands of the economy to cool right down because

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Speaker 1: they don't have as much control over the supply side,

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Speaker 1: which means keeping financial conditions tight. Now you do that

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Speaker 1: by making sure that wealth effects on the song stock

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Speaker 1: market don't run away from you. You do that by

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Speaker 1: loosening the demand for labor from corporates. You do that

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Speaker 1: by loosening the demand for energy by households and businesses,

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Speaker 1: and so all of these things playing to the same thing,

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Speaker 1: which is to say that we are a ways away

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Speaker 1: from getting inflation back to our target level or range,

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Speaker 1: and therefore we have to keep up this very very

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Speaker 1: aggressive sight in terms of keeping things tight. From the

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Speaker 1: polity points of view, you can argue as well, which

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Speaker 1: are one of our reporters pointed to that the December

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Speaker 1: is arguably more important than what we saw in November

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Speaker 1: because we did have that based in of that seventy

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Speaker 1: five basis point hike. So I guess what happens next

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Speaker 1: Given what we heard from j. Powe in his testimony

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Speaker 1: or in his speech, I should say, and how does

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Speaker 1: that kind of alleviate these concerns too, when you've got

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Speaker 1: the murky outlook of that tight labor market and then

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Speaker 1: a downturn in the economy, Well, I think what we

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Speaker 1: need to focus less on the individual rates decisions meeting

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Speaker 1: for meeting and try to focus more on the terminal rate.

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Speaker 1: So the ultimate rates are said, gets to by raising

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Speaker 1: interest rates and for how long it keeps rates at

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Speaker 1: those elevated levels, because that ultimately will allow for a

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Speaker 1: persistent effect on tightening financial positions in calling the demands

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Speaker 1: on the economy. And you're right to say, Juliet that

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Speaker 1: the meetings, it's just passed down the sev dasis point rayhud.

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Speaker 1: That was world telegraphed and world priced in. But in

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Speaker 1: terms of the next meeting in December, do expect set

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Speaker 1: officials as they are allowed to start speaking again, to

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Speaker 1: try to guide the market progressively between now and then

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Speaker 1: towards a rate hike. That said, he'd like you to

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Speaker 1: settle on and that will be data points to data point,

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Speaker 1: because I go back to the earlier point both are said,

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Speaker 1: and also market particitants don't have a strong convicted hands

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Speaker 1: on on how inflation you developed from here. We had

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Speaker 1: a lot of macro views and we've talked about some

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Speaker 1: of yours, but I'm curious as to some of your

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Speaker 1: kind of interesting points that perhaps our listeners would be

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Speaker 1: interested in you And you're looking at some of the

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Speaker 1: front end of fixed income markets and particularly Mexican local

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Speaker 1: currency government bands tell us about that thanks Tolett, so

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Speaker 1: we we were previously invested in the front into view

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Speaker 1: as Treasury care a few weeks back, but we sent

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Speaker 1: the inflation persistence and stickiness was still a problem, and

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Speaker 1: surfle felt that there was the risk for the upside

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Speaker 1: of terminal rates in the US, so we switched out

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Speaker 1: to that and we were looking for opportunities to carry

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Speaker 1: but with relatively stable bolatility. And we found that that

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Speaker 1: Mexico as an economy and its central bank is running

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Speaker 1: with a fair degree of credibility money because banks scho

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Speaker 1: has been raising interest rates and following the same part

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Speaker 1: of the US Federal Reserve, which has allowed the Mexican

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Speaker 1: pesso to remain very stable. And we're now at a

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Speaker 1: point in time where Mexican two year local currency governments

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Speaker 1: of giving you an implied deal of about eleven percent,

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Speaker 1: and so there is required to be you know, a

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Speaker 1: signifum amount of capital or unpriced interest rate heights not

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Speaker 1: currently in markets offset that carry and in the implied

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Speaker 1: interest rate path in Mexico is relatively well anchored and discounted.

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Speaker 1: So like that carry were comfortable for the time being

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Speaker 1: with the fem currency stability, But as with any investment,

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Speaker 1: we have to watch things like a hawk because of

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Speaker 1: the tysoning you have thought a liquidity situation that we

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Speaker 1: find our foves in globally. Some investors are hoping that

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Speaker 1: we'll go back to quote unquote normal conditions at some

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Speaker 1: point where you've got low rates and low growth. But

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Speaker 1: the point I was going to ask you about before

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Speaker 1: the break run at a time was do we wind

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Speaker 1: up in a better place here with even if we

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Speaker 1: have interest rates ultimately settle at three to five percent,

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Speaker 1: that it's no longer just Tina trades, but savers and

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Speaker 1: other investors can get pretty good returns in the bond

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Speaker 1: market in and as well as equities. The first imperative

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Speaker 1: is to get inflation under control and for the market

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Speaker 1: to to see that it's under control, because then you

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Speaker 1: avoid the risk of a wage price spiral, You avoid

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Speaker 1: the risk of household businesses really struggling to make investment

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Speaker 1: and purchase decision. So that's that's imperative in terms of

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Speaker 1: where rates need to settle out at well. I think

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Speaker 1: that in the long run and financial stability is benefited

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Speaker 1: from having the cost of money much more rational which

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Speaker 1: means that you are able to deflate bubbles of speculative

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Speaker 1: excess misallocation of capital, and that is a better situation

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Speaker 1: where we found ourselves in the previous few years. The

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Speaker 1: problem is that given the FED and other central banks

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Speaker 1: started tightening monstre promicty so late in the day, that

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Speaker 1: they're having to react very aggressively and move rates extremely

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Speaker 1: quickly now and that creates shorts and instability. But in

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Speaker 1: terms of where they want to end up, there has

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Speaker 1: to be a better place longer term than the place

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Speaker 1: that we came from. And as we know, the FED

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Speaker 1: not the only game in term We've got the b

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Speaker 1: o E today, we've got ECB Christine Laguard speaking as well.

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Speaker 1: You're talking about evaluations being discounted in euros in equities.

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Speaker 1: What's your outlook there. We started to take an optimistic

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Speaker 1: stance on the albooks vires economy and both the cyclical

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Speaker 1: and structural reasons. On the cyclical side, there are clearly

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Speaker 1: recessionary and stagflationary dynamics sort of workfare, and also you've

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Speaker 1: got a major issue with with energy stability and energy

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Speaker 1: supply security. And then on a structural basis, you know

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Speaker 1: this this global secular theme of disentangling of supply chains, decoupling,

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Speaker 1: uphending of trading relationships, because the Eurozone industrial comtext is

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Speaker 1: very sensitive to that because of its export day. So

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Speaker 1: we think that the Eurozone economically is challenged both in

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Speaker 1: the short term and the longer term. But as you

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Speaker 1: rightly point out, Juliet, a lot of market participants have

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Speaker 1: already adopted a pretty cautious stanser. So we are sitting

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Speaker 1: on valuations which are very discounted, and positioning which is

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Speaker 1: very underweight. But there isn't really a positive captatist to

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Speaker 1: realize any value that there may be there. Okay, here's

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Speaker 1: an out of left field question for your Mark. You

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Speaker 1: know you love to get these from US. We two

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Speaker 1: be the year that China is sort of known au

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Speaker 1: being cut off from the rest of the world by

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Speaker 1: the US, And in other words, does the US kind

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Speaker 1: of remove China from the equation as of this year. Ultimately,

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Speaker 1: China's linkages to the global economy are multi statas and

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Speaker 1: very very be not a simple pace of cutting China.

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Speaker 1: But I'm not entirely clear that that is the US's

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Speaker 1: intention either. But but ultimately I think that the healthcare polity.

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Speaker 1: COVID policy is an intrinity part of China's openness for

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Speaker 1: the rest of the global economy, and that's something that

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Speaker 1: we have to watch most closely. Tough question, in ten seconds,

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Speaker 1: you did at Mark, Thanks so much. Mark Franklin, Managing Director,

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Speaker 1: Senior portfolio Manager, Multi Asset Solutions, Manual Life Investment Management,