WEBVTT - Surveillance: Fed Tightening Risk With Fernandez 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.360 international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg 0:00:23.360 --> 0:00:30.240 dot Com, and of course, on the Bloomberg terminal. Johnny 0:00:30.360 --> 0:00:32.360 is now in place the Saince Victoria Ferinande's chief market 0:00:32.400 --> 0:00:36.160 strategistic cross Mark Global Investments. Victoria, is this a case 0:00:36.159 --> 0:00:38.760 of Tommy, why should hike in March? Or if we's changed, 0:00:38.880 --> 0:00:41.400 is it a case of Timmy, why shouldn't hike in March? 0:00:42.600 --> 0:00:44.800 I still think it's tell me why we should, and 0:00:44.840 --> 0:00:46.839 I think that's what the FETE is betting on at 0:00:46.840 --> 0:00:49.080 this point in time. I know everyone is saying March 0:00:49.200 --> 0:00:51.760 is a live meeting. They're anticipating they're going to see 0:00:51.760 --> 0:00:54.680 that first rate hike in March. I'm not so sure. 0:00:55.160 --> 0:00:57.680 When we sit around our investment table across Mark, we're 0:00:57.680 --> 0:00:59.360 thinking it's going to be maybe a little bit later. 0:00:59.360 --> 0:01:02.160 We're still looking at June for that first rate hike, 0:01:02.200 --> 0:01:04.759 and I think the FED is hoping that we're gonna 0:01:04.840 --> 0:01:08.320 see inflation hit the peak levels in the first quarter 0:01:08.360 --> 0:01:10.800 of the year, and then because of base effects and 0:01:11.120 --> 0:01:13.720 the difference that we see from a year ago numbers, 0:01:13.880 --> 0:01:16.679 hopefully we'll have supply chain issues being a little bit better, 0:01:16.880 --> 0:01:20.360 so goods inflation comes back down. If the job openings 0:01:20.400 --> 0:01:23.479 continue to be um steady and people keep coming back 0:01:23.480 --> 0:01:26.120 to the labor market, perhaps wages come back a little bit, 0:01:26.319 --> 0:01:29.280 and so inflation will start to decrease a little bit 0:01:29.280 --> 0:01:31.200 on that year over year number and give them some 0:01:31.319 --> 0:01:34.400 room to wait until June. So I think my betting 0:01:34.480 --> 0:01:38.000 is still on June, but futures are showing March is 0:01:38.040 --> 0:01:40.880 a live meeting, Victoria. How do your assumptions there that 0:01:40.880 --> 0:01:44.440 you're making about federal reserve policy then translates into the 0:01:44.440 --> 0:01:48.080 assumptions you are making about this bond market. Yeah, so, 0:01:48.360 --> 0:01:50.040 you know, you look at where the bond market has 0:01:50.080 --> 0:01:52.040 been pricing things, and you guys have been talking about 0:01:52.080 --> 0:01:53.880 it this morning, and I really think the long end 0:01:53.880 --> 0:01:57.160 of the curve has been under priced for quite some time. 0:01:57.200 --> 0:01:59.600 You were talking about people's projections. We were looking to 0:01:59.640 --> 0:02:02.600 be around that March hive around one seventy five on 0:02:02.600 --> 0:02:05.400 the US tenure by the end of this year, and 0:02:05.480 --> 0:02:07.120 I don't think with the week to go we're gonna 0:02:07.200 --> 0:02:09.560 hit that. Possibly we hit the one fifty level and 0:02:09.600 --> 0:02:11.920 maybe go a little bit above there. But I think 0:02:12.080 --> 0:02:13.960 growth is going to be a little bit better than 0:02:14.000 --> 0:02:16.600 people anticipate in the first quarter because we're gonna have 0:02:16.720 --> 0:02:20.680 strong earnings. Yes, evaluations may come down some, but I 0:02:20.680 --> 0:02:23.360 think we'll have strong earnings. I think we'll have good growth. 0:02:23.639 --> 0:02:26.160 I think we'll start to see inflation pressures ease a 0:02:26.200 --> 0:02:28.839 little bit and that's going to allow the longer into 0:02:28.880 --> 0:02:30.760 the curve to go and maybe steep in the curve 0:02:30.800 --> 0:02:33.200 a little bit. This is such a flat curve for 0:02:33.280 --> 0:02:35.800 the Fed to start hiking. I think they want to 0:02:35.840 --> 0:02:38.880 see that steepness a little bit, and perhaps we get 0:02:39.240 --> 0:02:41.640 a small amount of that in the first quarter. What 0:02:41.720 --> 0:02:44.000 what is holding the tenier yield down? Victori? I mean, 0:02:44.000 --> 0:02:47.360 who's buying this paper? Um As we talk about the 0:02:47.400 --> 0:02:50.760 possibility of two or even three rate hikes next year. 0:02:51.720 --> 0:02:53.919 You know, Matt, I have this exact conversation with the 0:02:54.000 --> 0:02:56.679 client on Thursday, and you know, why is the bond 0:02:56.720 --> 0:02:59.320 market staying where it is? And we can talk about 0:02:59.360 --> 0:03:02.320 there's unserve t there's flight to quality. I think a 0:03:02.360 --> 0:03:05.080 lot of it, though, is you look at sovereign debt 0:03:05.160 --> 0:03:08.320 around the world. We have such low levels still, and 0:03:08.360 --> 0:03:11.280 I think that that's pulling down some of what we're 0:03:11.280 --> 0:03:13.680 seeing in the US. I don't think it's all just 0:03:14.000 --> 0:03:17.280 US centric as to why rates are so low Comparatively 0:03:17.440 --> 0:03:20.320 around the world. We have people still coming in because 0:03:20.360 --> 0:03:23.160 relatively the yields are higher, but I think we have 0:03:23.440 --> 0:03:26.760 lower yields globally holding us down. You have some uncertainty 0:03:26.840 --> 0:03:29.760 still with the Omicron variant out there, even though we 0:03:29.840 --> 0:03:33.200 think the effects are less than what we've seen in 0:03:33.280 --> 0:03:36.280 previous variants. But I still think you have that uncertainty 0:03:36.560 --> 0:03:38.880 and questioning what the FED is going to do that 0:03:39.040 --> 0:03:41.760 is holding yields back a little bit. At this point, Victoria, 0:03:41.760 --> 0:03:44.200 there is this belief that if you have higher interest 0:03:44.280 --> 0:03:47.120 rates the start of a right hiking cycle, the financial 0:03:47.120 --> 0:03:49.680 conditions have to tighten, the equity markets have to fall. 0:03:50.200 --> 0:03:53.800 I can think of several experiences in recent financial market 0:03:53.840 --> 0:03:56.240 history where quite the opposite has happened. I can think 0:03:56.240 --> 0:03:59.040 of the tightening experience going into oh seven, where equity 0:03:59.080 --> 0:04:02.320 markets continued alleying really aggressively even as rate hikes started 0:04:02.360 --> 0:04:05.160 to come through quite quickly. Can you envision a similar 0:04:05.160 --> 0:04:07.600 scenario taking place this time around? I just see deeply 0:04:07.680 --> 0:04:10.160 negative real interest rates and think how much work does 0:04:10.200 --> 0:04:14.720 the FED need to do to actually tighten financial conditions. Yeah. 0:04:14.800 --> 0:04:17.000 You know, historically, when we look at what goes on 0:04:17.040 --> 0:04:20.000 in a rate hiking cycle, throughout the tapering and even 0:04:20.080 --> 0:04:22.599 through the first rate hike, you continue to see equity 0:04:22.640 --> 0:04:25.760 markets rally, and we don't really see the equity markets 0:04:25.800 --> 0:04:28.520 take a hit until maybe that second of that third 0:04:28.640 --> 0:04:31.680 rate hike. Again, if we're looking at June as a 0:04:31.720 --> 0:04:34.320 first rate hike, even if we say it's March, you're 0:04:34.320 --> 0:04:36.960 looking at the second half of this year before it 0:04:37.040 --> 0:04:39.920 starts to affect equity markets. And yes, we have these 0:04:39.960 --> 0:04:42.800 really low real interest rates and it's gonna take us 0:04:42.839 --> 0:04:46.040 a while to get those up. So you have low 0:04:46.120 --> 0:04:49.200 rates for the equity market that will help valuations for 0:04:49.240 --> 0:04:50.880 a while, even though I think they start to come 0:04:50.880 --> 0:04:53.440 down a little bit from current um levels of where 0:04:53.480 --> 0:04:56.000 they are on the valuation side, but I still still 0:04:56.000 --> 0:04:58.520 think you have strong support for the equity market at 0:04:58.600 --> 0:05:01.520 least in the first quarter, possibly the first half of 0:05:01.640 --> 0:05:03.480 next year. Then I think we start to have a 0:05:03.480 --> 0:05:06.080 little bit more concern and see sideways growth for the 0:05:06.080 --> 0:05:09.520 equity market instead of continually trending higher. And when we 0:05:09.520 --> 0:05:12.080 get a little bit more specific within equities, Victoria, where 0:05:12.080 --> 0:05:13.880 do you want to be putting your money? And why 0:05:13.920 --> 0:05:17.279 do you like the banks here? With the curve this flat? Yeah? 0:05:17.320 --> 0:05:20.160 So Kaylee. When we look at the equity market, I mean, 0:05:20.360 --> 0:05:22.800 let's look at the SMP five hundred. At the end 0:05:22.839 --> 0:05:25.839 of last year, you had over of the SMP above 0:05:25.880 --> 0:05:28.520 it's two D day moving average. That's come down. Now 0:05:28.560 --> 0:05:32.839 we're rarely around sixty six of the SMP above that level, 0:05:32.880 --> 0:05:34.960 So I think you have to start really picking your 0:05:35.080 --> 0:05:38.839 names carefully when we look at them. The outlook for 0:05:38.920 --> 0:05:42.280 next year. Financials have been hit quite hard, but yet 0:05:42.320 --> 0:05:45.040 there's still in an uptrend. There's still some momentum there, 0:05:45.080 --> 0:05:47.440 so we think it's a great time to go in UM. 0:05:47.440 --> 0:05:49.960 I think they have stronger balance sheets than they've had before, 0:05:50.240 --> 0:05:53.599 there's upside potential for dividends next year, their cheap to 0:05:53.640 --> 0:05:56.240 the market, and as we mentioned, we do think rates 0:05:56.240 --> 0:05:58.000 are gonna go a little bit higher on the longer 0:05:58.080 --> 0:06:00.440 end of the curve. So it looks like a place 0:06:00.520 --> 0:06:03.320 and we want quality going into next year. So you 0:06:03.360 --> 0:06:06.240 look at Bank America, JP Morgan. These are the two 0:06:06.320 --> 0:06:08.799 names that we really focus on in that sector. Victoria, 0:06:08.880 --> 0:06:11.400 thank the family for letting us borrow you for ten minutes. 0:06:11.440 --> 0:06:14.320 We appreciate it. Victoria Fernandez that of cross Mark, thank 0:06:14.360 --> 0:06:22.440 you very much, just jointing us now in place to say, 0:06:22.520 --> 0:06:25.760 Mohammed Juanist the editor in chief of Gallup. Mohammed, great 0:06:25.760 --> 0:06:27.640 time and to catch up with you, sir, looking ahead 0:06:27.640 --> 0:06:31.599 to next year. The approval writing of leadership in this administration, Mohammed, 0:06:31.760 --> 0:06:33.960 is it a simplest saying it's gone in one direction, 0:06:34.120 --> 0:06:38.240 it's heading lower. It's kind of stuck right now. Um 0:06:38.279 --> 0:06:40.279 and we don't know where it's going. But this team 0:06:40.360 --> 0:06:44.280 started off with a really promising approval rating, especially on 0:06:44.320 --> 0:06:47.680 the pandemic. They were at six and ten Americans approving 0:06:47.720 --> 0:06:51.520 of how they were handling it in late January early February. 0:06:52.240 --> 0:06:55.520 But on every metric now the Biden team has really 0:06:55.839 --> 0:07:00.320 crunched down to the low forties on foreign Paul see, 0:07:00.400 --> 0:07:04.159 on the pandemic, on the economy. Um. Our latest number 0:07:04.200 --> 0:07:07.880 is just overall approval of President Biden uh and and 0:07:07.920 --> 0:07:11.480 how he does his job. And he's at right now, 0:07:11.600 --> 0:07:14.000 since the fall of kabbal, which is seems like a 0:07:14.000 --> 0:07:16.960 lifetime ago but was in September, we haven't really seen 0:07:17.040 --> 0:07:20.600 that number move at all. Uh. Congress is doing even 0:07:20.640 --> 0:07:24.960 worse than the president right now approval of the job 0:07:25.040 --> 0:07:29.120 that Congress is doing so um. You know, this administration 0:07:29.200 --> 0:07:32.840 started with the America is Back the theme. When you 0:07:32.880 --> 0:07:36.200 look at the partisanship challenges, it really does feel like 0:07:36.240 --> 0:07:38.880 the same old America. UM. And this team is really 0:07:38.960 --> 0:07:43.239 up against some very serious resistance in terms of trying 0:07:43.280 --> 0:07:45.840 to find common ground because we don't see that in 0:07:45.880 --> 0:07:49.360 the data. Well in Mohammed. That paints a pretty bleak 0:07:49.400 --> 0:07:52.120 picture for the Democratic Party heading into the mid terms. 0:07:52.160 --> 0:07:54.320 And when we talk about build back Better and that, 0:07:54.600 --> 0:07:57.000 you know, being something crucial for them, is that actually 0:07:57.000 --> 0:07:59.640 going to be enough to move the needle? Is it popular? 0:08:00.080 --> 0:08:03.640 It's the popular support there for it, and you know, 0:08:03.680 --> 0:08:05.760 it really depends on the spin around it. Um. It 0:08:05.880 --> 0:08:08.400 was really ironic when you were talking about what's going 0:08:08.440 --> 0:08:10.400 to be left of build back if it gets past 0:08:10.480 --> 0:08:14.600 I started to think of Obamacare and these massive legislative 0:08:14.600 --> 0:08:17.640 acts that really are very different when they get past 0:08:17.760 --> 0:08:21.840 that what was initially promised and envisioned um to the public. 0:08:22.040 --> 0:08:25.080 But it's not just the Democrats. We see the Republicans 0:08:25.160 --> 0:08:30.640 also really struggling to get approval from anyone beyond their 0:08:30.880 --> 0:08:35.640 very basic ideological base. So Mitch McConnell, for example, the 0:08:35.640 --> 0:08:40.120 Senate Republican leader, he's at thirty percent approval, sixty disapproval. 0:08:40.600 --> 0:08:45.440 Nancy Pelosi approval fifty percent disapproval. So it really goes 0:08:45.480 --> 0:08:49.200 on both sides. Um, if you're not a Democrat, you 0:08:49.240 --> 0:08:52.560 don't have a great feeling about democratic leadership. If you're 0:08:52.600 --> 0:08:58.000 not a Republican, it's about the same. How big are 0:08:58.080 --> 0:09:02.000 those ideological bases, moham it, and how much has that changed? 0:09:02.000 --> 0:09:04.880 Are we looking at basically thirty on either side that 0:09:04.880 --> 0:09:07.120 aren't going to change their opinion no matter what happens. 0:09:08.200 --> 0:09:11.720 It's such a great question that, Matt, because that's what's 0:09:11.720 --> 0:09:14.560 really changed in America. It's not thirty forty, it's really 0:09:14.600 --> 0:09:18.959 about twenty on each side. America now has the highest 0:09:19.040 --> 0:09:23.000 rate of people who identify as independence. So the general public, 0:09:23.040 --> 0:09:26.960 if you will, us non politically minded people have really 0:09:27.000 --> 0:09:30.319 plugged out and tuned out of the in fighting between 0:09:30.360 --> 0:09:33.960 the two parties. Um. You mentioned the midterm election. It 0:09:34.080 --> 0:09:36.760 is so critical that this is gonna be the first 0:09:36.840 --> 0:09:41.200 mid term election since President Biden has taken office. Um. 0:09:41.240 --> 0:09:45.199 The world is watching Ukraine and unfortunately American leadership is 0:09:45.240 --> 0:09:48.040 gonna be watching the pit term election. UM. So a 0:09:48.040 --> 0:09:50.640 lot of the dynamics while the rhetoric has really changed 0:09:51.080 --> 0:09:54.960 since the Trump administration, a lot of those partisan divides 0:09:55.280 --> 0:09:59.360 really have gone nowhere. Unelected officials did much better in 0:09:59.400 --> 0:10:02.719 our poll in December then elected officials, So there are 0:10:02.800 --> 0:10:05.920 some bright points, um, but when it comes to Congress 0:10:05.920 --> 0:10:09.800 and the presidency, it's really a pretty ugly picture. By 0:10:09.840 --> 0:10:12.200 the way, you mentioned on alleged officials. I wonder about 0:10:12.280 --> 0:10:17.320 America's take on Anthony Fauci. Um. He seems to be 0:10:17.520 --> 0:10:22.439 a very partisan figure. Do I have that wrong? No? UM. 0:10:22.480 --> 0:10:25.560 It's interesting because Dr Fauci actually is one of the 0:10:25.640 --> 0:10:29.000 leaders that did the best. UM. He got fifty approval 0:10:29.320 --> 0:10:34.520 for seven disapproval, but when you look at it by party, UM, 0:10:34.840 --> 0:10:38.240 only nine of Republicans approval of the job he's doing. 0:10:38.720 --> 0:10:42.319 The surprise to me, and as recovering attorney here was 0:10:42.400 --> 0:10:46.319 Justice Roberts. Justice Roberts actually got the highest approval of 0:10:46.360 --> 0:10:48.200 all the leaders we asked about he got a sixty 0:10:48.559 --> 0:10:51.880 approval rating, and it's actually an improvement in the past 0:10:52.000 --> 0:10:55.439 several poles that we've done of his own approval rating. 0:10:55.720 --> 0:10:58.440 So it'll be really interesting to watch where that goes 0:10:58.559 --> 0:11:01.840 as these really critical decisions, especially on abortion, come up 0:11:01.840 --> 0:11:04.760 to the Court. But it is remarkable that in a 0:11:04.840 --> 0:11:07.560 year where the Court is really trying to argue that 0:11:07.600 --> 0:11:10.520 it's a political um, the leader of the Court actually 0:11:10.559 --> 0:11:13.000 did better than most selected officials. Mohammed, what do you 0:11:13.000 --> 0:11:15.520 think driving that for paper doo time followed Supreme Court 0:11:15.559 --> 0:11:17.559 decisions or the process than closely? What do you think 0:11:17.640 --> 0:11:23.160 driving that unexpected decisions? I would say, Um, Justice Roberts 0:11:23.200 --> 0:11:26.679 has taken positions that if you were simply guessing on 0:11:27.480 --> 0:11:30.480 the party that appointed the justice, Um, he hasn't take 0:11:30.520 --> 0:11:33.760 He hasn't taken the partisan line on every decision. Um. 0:11:33.800 --> 0:11:37.440 But again, the Supreme Court is something that Americans don't 0:11:37.440 --> 0:11:40.079 pay a lot of attention to until there's a huge story, 0:11:40.240 --> 0:11:43.720 and there's gonna be a massive story in two with 0:11:43.760 --> 0:11:46.400 whether or not Roe v. Wade is upheld. So these 0:11:46.440 --> 0:11:49.360 numbers are likely to change dramatically both for Justice Roberts 0:11:49.400 --> 0:11:51.800 at perceptions of court Mohammed, looking forward to catching up 0:11:51.800 --> 0:11:53.679 with you through next year to have God is through 0:11:53.720 --> 0:11:56.520 some of those issues. Mahmat units that joining us from Gallophon. 0:12:02.360 --> 0:12:04.720 Another person working today even though technically it's actually his 0:12:04.760 --> 0:12:06.760 week off, so this is his only job to do 0:12:06.800 --> 0:12:09.480 this morning is Jose Rasco, America's Chief investment Officer for 0:12:09.640 --> 0:12:12.640 HSBC Private Banking and Wealth Management. Jose, thank you so 0:12:12.720 --> 0:12:15.120 much for making time for us on a holiday week. 0:12:15.440 --> 0:12:17.680 As we look through the last rating week of this 0:12:17.760 --> 0:12:21.920 year on to primary question is where in the cycle 0:12:22.120 --> 0:12:25.480 are we? Well, you know, Kayla, good morning to all 0:12:25.480 --> 0:12:28.120 of you, first of all, and UH, happy holidays to everybody. 0:12:28.280 --> 0:12:31.000 And clearly we think, you know, the the early part 0:12:31.000 --> 0:12:33.240 of the cycle where we see the rapid growth is 0:12:33.280 --> 0:12:35.920 behind us. We saw that peak in growth, UH and 0:12:36.040 --> 0:12:39.240 economic growth and corporate profits growth in the second quarter 0:12:39.280 --> 0:12:41.960 of last year, so we're more in a mid cycle phase. 0:12:42.240 --> 0:12:44.920 Will keep in mind, you know, especially in the US, 0:12:45.000 --> 0:12:47.839 as growth slows from let's call it, you know, round 0:12:47.880 --> 0:12:50.080 up to six percent. If it's slows so like four 0:12:50.160 --> 0:12:53.560 percent this year, that's still double the rate we historically 0:12:53.559 --> 0:12:56.000 have seen for the U S economy, more than double 0:12:56.000 --> 0:12:58.480 the rate in fact, so I think it's two is 0:12:58.520 --> 0:13:01.480 a year of normalization from our perspective in terms of 0:13:01.520 --> 0:13:06.880 fiscal policy, monetary policy, growth, and inflation. Well, and as 0:13:06.880 --> 0:13:10.000 we think about those fiscal and monetary forces easing, that 0:13:10.120 --> 0:13:12.440 is of course what drove the accelerated early part of 0:13:12.440 --> 0:13:14.360 the cycle. Does that also mean that the cycle is 0:13:14.400 --> 0:13:17.320 going to come to an end much more quickly? No, 0:13:17.480 --> 0:13:19.360 we don't think so. I think if you look at 0:13:19.240 --> 0:13:22.480 the monetary policy, you and you just both debated that 0:13:22.800 --> 0:13:26.400 monetary policy is tightening to a degree. Uh. You know, 0:13:26.720 --> 0:13:29.560 if you think of you know, tapering, QUEI is really 0:13:29.559 --> 0:13:31.520 not putting your foot on the brakes, it's really lifting 0:13:31.559 --> 0:13:34.160 your foot off the accelerator. Uh. And we think the 0:13:34.160 --> 0:13:38.040 FED has decided to let the the car move forward 0:13:38.080 --> 0:13:40.640 at its own pace a little more. But but long 0:13:40.679 --> 0:13:44.400 story short, that tightening that is just beginning. Uh. Even 0:13:44.480 --> 0:13:46.960 if the FED were to tighten three times next year 0:13:47.240 --> 0:13:50.800 and two or three times in three, the real FED 0:13:50.840 --> 0:13:53.840 funds are it's still remains quite you know, quite low 0:13:54.280 --> 0:13:56.240 uh and and in fact negative. Right, even if you 0:13:56.240 --> 0:13:58.640 get inflation slowing back toward a more normal rate of 0:13:58.679 --> 0:14:02.320 you know, two to two and a half, how responsive 0:14:02.360 --> 0:14:04.320 is this Fed going to be the market move Jose, 0:14:04.440 --> 0:14:07.200 I mean, um, is there going to be a FED 0:14:07.240 --> 0:14:11.080 put still? Well, you raise an interesting point in the 0:14:11.120 --> 0:14:13.160 sense that there are quite a few vacancies as you know, 0:14:13.920 --> 0:14:16.480 so that is going to be somewhat you know, the 0:14:16.520 --> 0:14:20.000 concern of the market is how doubbish will this FED become. 0:14:20.680 --> 0:14:23.600 We're not anticipating that they'll be too dubbish. We think 0:14:23.600 --> 0:14:25.560 they will try to move with the market, but we 0:14:25.600 --> 0:14:27.360 don't think this is going to be a FED that 0:14:27.440 --> 0:14:29.880 is going to move in advance or try to tighten 0:14:30.280 --> 0:14:33.000 to keep the market happy. Uh. And but if we 0:14:33.040 --> 0:14:35.440 think they'll be there to be supportive, So yeah, that 0:14:35.560 --> 0:14:38.480 FED but you want to go at a FED put Yeah, 0:14:38.520 --> 0:14:41.160 it remains somewhat in play, and we think they will 0:14:41.200 --> 0:14:44.840 be supportive next year of markets. Yeah, absolutely, Uh as 0:14:44.880 --> 0:14:48.440 they looking at the bigger picture, um, stepping out to 0:14:48.600 --> 0:14:52.000 the thirty five thousand foot view if you will, and 0:14:52.160 --> 0:14:55.560 your job title as chief investment officer for private banking 0:14:55.560 --> 0:14:58.880 and Wealth Management. I was talking with Kaylee this morning 0:14:58.880 --> 0:15:01.840 about Nikolai Tang again, the head of the Norwegian UM 0:15:01.880 --> 0:15:05.720 Sovereign Wealth Fund. He's concerned that returns are just going 0:15:05.760 --> 0:15:08.600 to be lower in the next decade because of inflation, 0:15:08.680 --> 0:15:12.760 because of central bank positioning. Um, he's got a one 0:15:12.800 --> 0:15:15.320 point four trillion dollars invested in this market. I think 0:15:15.360 --> 0:15:18.480 the biggest equity holder. Are you worried about lower returns 0:15:18.480 --> 0:15:22.560 going forward as well? Well, it depends on your perspective, right. 0:15:22.600 --> 0:15:24.760 If you're saying, will equity markets be lower than they 0:15:24.760 --> 0:15:28.360 were in probably yeah. I mean it's hard, you're gonna 0:15:28.360 --> 0:15:32.440 it's gonna be a tough year to beat, right, So 0:15:32.600 --> 0:15:35.520 no question or equity returns will be down from there. 0:15:35.600 --> 0:15:39.600 But one, we're sort of abnormal years in terms of 0:15:39.640 --> 0:15:44.400 economic policy and and and financial market returns. Now, going forward, 0:15:44.600 --> 0:15:46.640 if you look at next year, for example, you know 0:15:46.720 --> 0:15:51.480 the market is calling for eighteen percent growth in corporate profits. Um, 0:15:51.560 --> 0:15:53.880 that looks pretty healthy from our perspective. And keep in 0:15:53.920 --> 0:15:55.200 mind the one thing that I think a lot of 0:15:55.240 --> 0:15:58.040 people are forgetting. While we are mid cycle, in a 0:15:58.160 --> 0:16:01.080 more of a mid cycle or mature stage of the economy, 0:16:01.320 --> 0:16:04.600 there are four other factors secular forces that are going 0:16:04.640 --> 0:16:08.000 to be driving economic growth upward from our perspective. Number 0:16:08.000 --> 0:16:11.480 one is inventory rebuild, which you've talked about the depletion 0:16:11.520 --> 0:16:14.280 of inventories this morning already and how that needs to 0:16:14.280 --> 0:16:17.200 be rebuilt on a global basis. Number two is the 0:16:17.240 --> 0:16:19.760 infrastructure story, where we're seeing a lot of spending on 0:16:19.800 --> 0:16:23.800 infrastructure globally. Number three is the tech revolution. Everybody seems 0:16:23.840 --> 0:16:26.080 to have forgotten that five G is just the beginning 0:16:26.080 --> 0:16:28.960 of this technology revolution, which is gonna be a multi 0:16:29.000 --> 0:16:32.120 year rollout. And number four is the creation of you know, 0:16:32.200 --> 0:16:35.520 economy two point oh, the sustainable world that we're all 0:16:35.560 --> 0:16:39.920 talking about is finally happening, not just environment environmental issues, 0:16:40.200 --> 0:16:44.600 but socialist issues as well. Those four major super trends 0:16:44.840 --> 0:16:48.080 promised to add to growth and productivity as we go forward. 0:16:48.160 --> 0:16:51.360 So um, it's easy to be negative, right, but I 0:16:51.400 --> 0:16:54.040 think if you look at those four secular trends, those 0:16:54.080 --> 0:16:57.680 forbal factor in as well to the cyclical story. Alright, 0:16:57.680 --> 0:17:00.000 So looking at the world through that lens, Jose, where 0:17:00.080 --> 0:17:03.120 or do you want to put your money? Specifically? Well, 0:17:03.160 --> 0:17:05.640 our focus if you look at fixed income, our focus 0:17:05.720 --> 0:17:09.600 is looking at areas that provides some some better returns, 0:17:09.640 --> 0:17:12.040 and we're looking at high yield and in certain parts 0:17:12.040 --> 0:17:14.399 of the world as well as emerging markets. If you 0:17:14.440 --> 0:17:17.280 look at the equity markets were more focused on the US, 0:17:18.040 --> 0:17:20.720 where we see you know, stability of growth and earnings 0:17:21.000 --> 0:17:22.600 and even though it's going to be a choppy year 0:17:22.640 --> 0:17:25.000 because of the political cycle, but we think the US 0:17:25.040 --> 0:17:28.240 will do very well this year with expectations of eighteen 0:17:28.240 --> 0:17:30.159 percent growth and earnings. That gives us a lot of 0:17:30.240 --> 0:17:33.199 upside potential for the equity markets UM. And then we 0:17:33.240 --> 0:17:35.119 look at Asia. I mean, you know, I know a 0:17:35.160 --> 0:17:38.320 lot of people have have focused on the story in China, 0:17:38.400 --> 0:17:41.680 where you know, short term there are issues. Longer term, 0:17:41.800 --> 0:17:44.000 you will not see faster growth, you will not see 0:17:44.000 --> 0:17:48.760 faster UH consumer spending power explosion that we will see 0:17:48.760 --> 0:17:51.760 in in Asia over the next three to five years. 0:17:51.800 --> 0:17:54.320 And so therefore we are very focused on the Asian 0:17:54.359 --> 0:17:56.359 markets where we see a lot of growth and a 0:17:56.400 --> 0:17:59.520 lot of intraregional trade that is going to take place, 0:18:00.520 --> 0:18:03.000 where where that growth is going to continue to build 0:18:03.000 --> 0:18:05.600 on itself within the region. So those are the two 0:18:05.640 --> 0:18:10.640 areas with your voting member of the Global Investment Committee 0:18:10.640 --> 0:18:14.520 to HSBC and on the subcommittee for f X and 0:18:14.760 --> 0:18:17.560 UH and currencies, what do you think about the dollar? 0:18:17.760 --> 0:18:22.560 We've seen some strength recently. Does that hold into two Yeah, 0:18:22.560 --> 0:18:24.680 we think it does because if you look at relative 0:18:24.680 --> 0:18:27.679 growth rates, and most importantly, Matt is is the relative 0:18:27.720 --> 0:18:30.200 interest rate story. Right, it's one of the reasons where 0:18:30.359 --> 0:18:33.960 we think that the story on the tenure has been uh, 0:18:34.080 --> 0:18:36.800 you know, sort of a bit exaggerated in the markets. 0:18:37.280 --> 0:18:39.359 We don't see the ten year backing up any great 0:18:39.400 --> 0:18:41.840 degree because there's there's a couple of major factors. Are 0:18:41.960 --> 0:18:45.359 number one, inflation should slow next year. Number two is 0:18:45.400 --> 0:18:47.439 we're gonna have a lower deficit than we did the 0:18:47.520 --> 0:18:50.479 year before, which means you have less issuance. And with 0:18:50.560 --> 0:18:53.119 good demand and less issuance, you should have the U 0:18:53.200 --> 0:18:56.080 S treasury markets should remain very well bid. And as 0:18:56.080 --> 0:18:58.520 a result, we see that upper constraint on long term 0:18:58.600 --> 0:19:02.000 rates uh And and therefore we see some strength in 0:19:02.040 --> 0:19:05.520 the dollar, you know, absolutely not tremendous strym, but but 0:19:05.680 --> 0:19:08.600 range bound. Where we see some concerns in the in 0:19:08.640 --> 0:19:11.760 the fixing in the FX markets rather is in some 0:19:11.920 --> 0:19:14.800 in some markets in the emerging market space, where you've 0:19:14.840 --> 0:19:18.160 got some inflationary stories that are far more um long 0:19:18.280 --> 0:19:21.480 term than than they will be in the developed world. Um. 0:19:21.560 --> 0:19:23.760 And that is a concern. And the and the FX 0:19:23.840 --> 0:19:27.320 markets will continue to serve as a corps as it were. 0:19:27.440 --> 0:19:30.040 I was I wonderful to catch up with USA as always, 0:19:30.119 --> 0:19:31.800 and I hope you and the family to enjoy the 0:19:31.880 --> 0:19:40.600 Christmas holidays. Rasco there of HSBC, one of the most 0:19:40.600 --> 0:19:43.240 important policy decisions at the moment is to try and 0:19:43.280 --> 0:19:46.840 decide how short the isolation period should be. After starting 0:19:46.840 --> 0:19:49.520 with this pandemic in and around fourteen days, shortening to 0:19:49.640 --> 0:19:52.320 ten doesn't need to come down to five. Lauren Sanwa 0:19:52.400 --> 0:19:54.800 joined US now a social professor at the University of 0:19:54.800 --> 0:19:57.360 Nebraska Medical Center. Lauren, let's start there if we can 0:19:57.640 --> 0:19:59.639 just how much data you still need to make a 0:19:59.640 --> 0:20:01.960 decision like that on whether we should come down from 0:20:02.000 --> 0:20:05.359 ten days to something like five. Yeah. I think that 0:20:05.440 --> 0:20:07.480 one of the big pieces of data that we're continuing 0:20:07.520 --> 0:20:11.040 to wait for UM and that people are actively collecting, 0:20:11.640 --> 0:20:15.560 is that that initial space between exposure and when you 0:20:15.600 --> 0:20:18.399 start to be symptomatic and so UM. One of the 0:20:18.480 --> 0:20:22.600 challenges is that in the US are sequencing was delayed. 0:20:22.720 --> 0:20:26.160 So while we've made lots of gains in that space 0:20:26.240 --> 0:20:30.160 since this pandemic begun, we had sort of gotten complacent 0:20:30.280 --> 0:20:34.920 and we had stopped sequencing everything to understand when these 0:20:34.920 --> 0:20:37.480 new variants came out, So we're catching up on the data, 0:20:38.040 --> 0:20:42.400 UM and comparing that those data to delta to other strains. 0:20:42.920 --> 0:20:46.120 And I mean, I think that this is a big focus, 0:20:46.240 --> 0:20:49.520 especially considering our frontline workers need support, They need a 0:20:49.520 --> 0:20:53.320 deeper bent right now. So looking at how long it 0:20:53.320 --> 0:20:56.320 takes for people to become infectious and how long they 0:20:56.359 --> 0:20:59.600 stay infectious for is absolutely a number one priority of 0:20:59.600 --> 0:21:02.120 our science to us right now. Well, and Lauren, obviously 0:21:02.119 --> 0:21:04.600 that answer may be different depending on the subject in 0:21:04.680 --> 0:21:08.560 question is vaccinated or unvaccinated. And I'm wondering too as 0:21:08.560 --> 0:21:10.919