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Speaker 3: So Franz withs Donald of RBC, how are you reading
Speaker 3: the tea leaves slowly?
Speaker 1: Because there's a lot of tea leaves here.
Speaker 4: But a couple things that jump out to me right
Speaker 4: away is the three month moving average now for non
Speaker 4: farm perils is about twenty two thousand. So if your
Speaker 4: break even raid is maybe thirty to forty thousand, then
Speaker 4: that means you're not creating enough jobs, and that's enough
Speaker 4: to lift that une unemployment rate higher. But let's just
Speaker 4: remember if you make a chart of the unemployment rate
Speaker 4: going back to the nineteen seventies or only two periods
Speaker 4: in history where the unemployment rate has been this low.
Speaker 4: This is still a very tight labor market. So in
Speaker 4: my mind, I'm wondering why we're not using words like
Speaker 4: normalizing as we see that unemployment rate move back towards
Speaker 4: levels that we're more accustomed to. But while everybody's talking
Speaker 4: about jobs, I'm looking at the retail sales number, which
Speaker 4: is very strong. And so the biggest question for an
Speaker 4: economist right now it's not what is the direction of
Speaker 4: the labor market, because that's sort of fuzzy. It's what
Speaker 4: are the implications of a weaker job market for the economy,
Speaker 4: And if the job market is weakening for young folks
Speaker 4: twenty to twenty four, which is what we've seen in
Speaker 4: the past, if it is less hiring and not so
Speaker 4: much firing or layoffs, and the implications for spending are less.
Speaker 4: And so my first rate on this is that, yes,
Speaker 4: we have what we expected, ongoing softness in the labor market,
Speaker 4: but it isn't creating a pullback in the broad economy.
Speaker 4: And that's going to be a really key narrative moving
Speaker 4: into twenty twenty six, which is the.
Speaker 3: Reason why people are bidding up esque equities and risk assets,
Speaker 3: even with potentially a worse than expected number of Michael
Speaker 3: Collins I PGM fixing cups still with us. Mike, just congratulations,
Speaker 3: you are positioned correctly ahead of this. I'm just wondering
Speaker 3: whether this was the read you were looking for. If
Speaker 3: this is just bad enough to keep the FED in play,
Speaker 3: but good enough to the point that Francis was making
Speaker 3: to keep risk us, it's potentially attractive.
Speaker 5: Yeah, we haven't heard the Goldilocks economy phrase lately, but
Speaker 5: you know, as Francis said, you know this is actually
Speaker 5: not not bad, right. An unemployment rate, you know, ticking
Speaker 5: up slowly, job.
Speaker 6: Growth close to zero.
Speaker 5: She throws out that, you know, thirty to forty thousand
Speaker 5: numbers kind of the new normal, right, So don't be
Speaker 5: shocked by these really low job gains. I think they're
Speaker 5: just kind of standard given the population growth is really
Speaker 5: trending down in terms of immigration and you know, births
Speaker 5: and deaths, I mean, fertility rates in this country have plummeted,
Speaker 5: and so this is a natural state, right, and it's
Speaker 5: not bad. It keeps the FED in play, keeps rates
Speaker 5: coming down a little bit. So this is what we
Speaker 5: call the muddle through environment, and we have like a
Speaker 5: fifty percent base case probability on this muddle through, which is,
Speaker 5: you know, growth slow, okay, inflation a little sticky, but
Speaker 5: not going up anymore, you know, maybe even coming down
Speaker 5: a little bit. The Fed cutting rates a couple more times, right,
Speaker 5: staying in a nice range here, and corporate earnings have
Speaker 5: been really the star here.
Speaker 6: Corporations, you know.
Speaker 5: The private sector has been the star, right, and they
Speaker 5: continue to figure out how to keep their margins up,
Speaker 5: which has really been surprisingly impressive to me, Jamien.
Speaker 3: We do see the move in the markets kind of
Speaker 3: temper itself as people look at the details, look at
Speaker 3: the fact that the response rate wasn't great, and look
Speaker 3: at the fact that there's a lot of strength despite
Speaker 3: some of the weakness that we see in the unemployment rate.
Speaker 7: And in August and September we saw revised down by
Speaker 7: another thirty three thousand as well. I mean, I'm just
Speaker 7: looking at the unemployment rate ticking up to four point
Speaker 7: six percent. You know, the labor force participation rate also
Speaker 7: ticked up, so that could be fueling a little bit
Speaker 7: of that as well, which is, you know, means it's
Speaker 7: not as bad as you would have otherwise thought. But yeah,
Speaker 7: I mean you had some backward divisions. Thirty three thousand
Speaker 7: jobs lost in August and September. That's just you know,
Speaker 7: feeding the bullish bentree here, Mike, how much.
Speaker 3: Do you look at this data, given the fact that
Speaker 3: we have gotten a response rates come down significantly, how
Speaker 3: much do you look at this data as truly better
Speaker 3: quality than some of the other data points that we've
Speaker 3: been getting versus just as noisy, just as easy to discount.
Speaker 5: Well, there's a lot more of it, right, We have
Speaker 5: months worth of data out trickling out, and I don't
Speaker 5: know if the quality of any of it is that great, Lisa, right,
Speaker 5: So I think you all have to take all of
Speaker 5: it with a grain of salt, which probably explains the
Speaker 5: market reaction.
Speaker 6: You know, you obvious see a.
Speaker 5: Big knee jerk move when the numbers first come out,
Speaker 5: and then they kind of settle in and many times
Speaker 5: actually reverse right. So you know, the FED doesn't meet
Speaker 5: for almost six weeks, so they have a lot more
Speaker 5: data to come, and presumably the data they get over
Speaker 5: the next six weeks will be higher quality and again
Speaker 5: continue to paint a bigger picture of the direction of
Speaker 5: the labor market, direction of consumption director direction of inflation.
Speaker 6: So there's a lot more to come before the FED meets.
Speaker 5: You know, right now, as you know, the markets are
Speaker 5: pricing and basically the next cut not really until June,
Speaker 5: and a second one by December, so really two next year,
Speaker 5: but really slowly through throughout the year.
Speaker 6: And that makes sense to us. And unless you get
Speaker 6: a big change in the direction of this data.
Speaker 7: Michael, we mentioned this prior to the release manufacturing payrolls.
Speaker 7: They're now at their lowest level since March of twenty
Speaker 7: twenty two. Certainly not what the Trump administration would like
Speaker 7: to see. Talk to us a little bit about you know,
Speaker 7: your read from there.
Speaker 5: Yeah, I mean the whole, this whole manufacturing you know,
Speaker 5: renaissance that the administration is trying to engineer is pushing
Speaker 5: on a string to some extent.
Speaker 6: Right, There's been lots of evidence and research.
Speaker 5: Done on the amount of manufacturing jobs and the desire
Speaker 5: for Americans to work in those manufacturing jobs, and the
Speaker 5: availability and education and skill level for Americans to work
Speaker 5: in those manufacturing jobs, right, does not bode well for
Speaker 5: this big jump in manufacturing employment. You know, we are
Speaker 5: a service economy where technology economy, We're a financial services economy.
Speaker 6: That's where you know the jobs are.
Speaker 5: Those are the sectors that are doing the best, not
Speaker 5: not surprisingly, So yeah, I think you really have to,
Speaker 5: you know, push back on that, the idea that we're
Speaker 5: going to have this giant manufacturing, you know, labor market
Speaker 5: renaissance in this country.
Speaker 7: So Francis, I mean, equities are hirer on this news
Speaker 7: yields you're down. What do you think the market's focused
Speaker 7: on right here?
Speaker 4: Well, I'm focused on the fact that you called it.
Speaker 4: The big job in the unemployment rate is coming from
Speaker 4: re entrance into the labor market, and this is the
Speaker 4: big thing. We all want this number to give us
Speaker 4: a signal up or down, but it's really the composition
Speaker 4: that matters. So what we do is we think about
Speaker 4: who is losing their job and who is actually being hired.
Speaker 4: And if people are falling into unemployment because they've started
Speaker 4: to look for a job and they haven't quite found one,
Speaker 4: they don't represent a permanent loss of income. They're actually
Speaker 4: starting the process again. So this is kind of bullish
Speaker 4: in the sense that it's enough for the FED if
Speaker 4: they want to keep cutting. This is a green light
Speaker 4: for them, But it isn't enough to signal that there's
Speaker 4: a hockey shaped weakness in the labor market. It is
Speaker 4: enough to signal that growth is going to materially slow down,
Speaker 4: or there's any sort of nefarious economic activity under the surface.
Speaker 4: And what have we learned from the Fed? They have
Speaker 4: a range of opinions if they want to cut. This
Speaker 4: is the data that allows them to do that. If
Speaker 4: you want to maintain a hawkish bias, there's enough under
Speaker 4: here to tell you, Hey, the economy is fine, Retail
Speaker 4: sales are up, the control group did really, really well,
Speaker 4: and there's still a lot of uncertainty around how much
Speaker 4: we should read into these numbers.
Speaker 3: Mike Collins, Ephgion fixed income just quickly here, how much
Speaker 3: do you think this really does greenlight the potential for
Speaker 3: a rate cut given the fact that the unemployment rate
Speaker 3: might give the ammunition that this Federal Reserve is looking for.
Speaker 5: Yeah, I really think the Fed should pause here, take
Speaker 5: a breather, get another handful of months of data before
Speaker 5: they move again. Like I said, they've moved almost two
Speaker 5: hundred basis points already, as Pala says, they're kind of
Speaker 5: getting toward the neutral or in the neutral range right now.
Speaker 5: The lack of consistency and consensus among the FOMC members
Speaker 5: is really remarkable. How you have a bunch of people
Speaker 5: who actually think they should hike rates from here, a
Speaker 5: bunch think they should keep rates the same, and if
Speaker 5: you think they should cut once twice, I mean it
Speaker 5: is a real scatterplot of views among the committee. So
Speaker 5: it feels like the general tendency is to just pause
Speaker 5: and wait. Like I said, the markets aren't pricing in
Speaker 5: a full cut until June, and that seems like the
Speaker 5: right path for the FED at this point, unless things
Speaker 5: change dramatically between now and then.
Speaker 3: Michael Collins of PGM Fixed and Comment, thank you so much.
Speaker 1: It seems like.
Speaker 3: Markets have retraced a lot of where they were from
Speaker 3: before this release. Do you agree with that, Francis that
Speaker 3: even though there's a lot of division, it seems like
Speaker 3: this is a.
Speaker 1: FED that may cut but probably shouldn't.
Speaker 4: Well, it's jobs Day, so it's the doves day. They
Speaker 4: get to focus on their side of the mandate. But
Speaker 4: in two days, forty eight hours you're going to be
Speaker 4: doing inflation Day. And if consensus is right and CPI
Speaker 4: jumps to three point one percent, well that'll be fifty
Speaker 4: six months that inflation is above the two percent target,
Speaker 4: going in the wrong direction, and everybody in the mother
Speaker 4: knows that there's goods inflation still coming in the system.
Speaker 4: So on Thursday, it's going to be really easy for
Speaker 4: the Hawks to argue their side of the mandate. And
Speaker 4: this is the problem when you have a dual mandate.
Speaker 4: You're in a stagflationary light type of environment. You have
Speaker 4: a FED that is revealing its bias towards the employment side.
Speaker 4: But it will be easy to make the case that
Speaker 4: inflation is still problematic at the end of this week,
Speaker 4: So balancing those two will be important. FED speak will
Speaker 4: be important going forward, but I'll continue to emphasize the
Speaker 4: details matter. Four point six percent that is driven by
Speaker 4: new entrants, that has a lot of healthcare jobs, sticky
Speaker 4: healthcare jobs in it, that's a better type of weaker
Speaker 4: job number, inflation that is broad based or has services
Speaker 4: component inflation in it. On Thursday will work on the
Speaker 4: other side. So let the doves have their day, but
Speaker 4: Thursdays I think will belong.
Speaker 6: To the Hawks.
Speaker 2: Stay with us. Multpleinberg Savannah's coming up off to this.
Speaker 3: Here's the latest lawmaker scrambling to reach a healthcare solution
Speaker 3: with enhanced subsidies set to expire on New Year's Eve.
Speaker 1: That was preparing to vote on a slimmed.
Speaker 3: Down health plan this week, joining us down. Terry Haynes
Speaker 3: at Pangaea Policy Terry, how much are people counting on
Speaker 3: the idea that subsidies are going to fall away and
Speaker 3: healthcare costs are going to increase when they talk about
Speaker 3: stimulus coming down the pike in twenty twenty.
Speaker 1: Six, Well, a couple of things lie.
Speaker 8: So one is that you know, work expands the time
Speaker 8: to fit a lot to fill, and you know they've
Speaker 8: they've got a few more days here at least or
Speaker 8: maybe in the next week. So legislatively speaking, that's a
Speaker 8: lot of time. The mishmash of everything that's that's in
Speaker 8: front of them suggests a solution of a small bump
Speaker 8: in the current subsidies, you know, bump forward into twenty
Speaker 8: twenty six, combined with a number of other things. But
Speaker 8: what markets ought on and is that this is one
Speaker 8: this is one step and a two step game. There's
Speaker 8: almost certainly going to be a big, beautiful bill two
Speaker 8: dot oh next year. I think as early as the
Speaker 8: first quarter. Senate Budget Chair Graham's already been talking about it,
Speaker 8: and already been talking about the need to do some
Speaker 8: more on Obamacare subsidies and on Medicaid next year. So
Speaker 8: what you're going to see here is a very interim
Speaker 8: band aid solution, I think a little bit more likely
Speaker 8: than not, combined with the UH the more likely two
Speaker 8: dot oh solution coming early next year. So there's going
Speaker 8: to be a lot of volatility in healthcare stocks as
Speaker 8: a result of that, but that can't be helped.
Speaker 7: Kerry and yesterday's Wall Street Journal Wall Street Journal interview,
Speaker 7: Trump stated that he's, you know, he's not sure if
Speaker 7: it's handling of the economy is going to, you know,
Speaker 7: cause the Republicans to win the midterms. He's all but
Speaker 7: conceded defeat there. And I'm curious to hear your thoughts
Speaker 7: about this big, beautiful bill two point zero. What type
Speaker 7: of reforms, what type of legislation can we to find
Speaker 7: in that?
Speaker 8: Well, A couple of things, Damien. First, you know, I
Speaker 8: would I'd suggest that the jobs report may play a
Speaker 8: role in deciding what happens in the Congress this week.
Speaker 8: If the economy looks weak going into the holidays, I
Speaker 8: think there's probably a greater desire to do something to
Speaker 8: push back against that on healthcare, precisely for affordability reasons. Secondly,
Speaker 8: what you have here, and there's been already been some
Speaker 8: discussion on your program this morning about this, is you're
Speaker 8: going to have a lot of stimulus happening early in
Speaker 8: twenty twenty six. On top of that comes to you
Speaker 8: from the twenty twenty five bill. On top of that
Speaker 8: comes twenty twenty six, which Graham describes as a little
Speaker 8: more of everything. A little more entitlement reform outside of
Speaker 8: Social Security other than Social Security, a little more on Medicaid,
Speaker 8: a little more on tax including expensing, a little more
Speaker 8: money for the military, probably something if Graham has his
Speaker 8: brothers on a him, I'm tariff, and I would suggest
Speaker 8: a lot more on enshuring manufacturing incentives, because that is
Speaker 8: key to speeding a more robust US defense industrial base.
Speaker 7: Sorry, Polymarket currently assigns with the twenty seven percent probability
Speaker 7: that the Supreme Court is going to vote in favor
Speaker 7: of Trump's tariffs. This is down from high fifty three
Speaker 7: percent just a few months back. What's the timeline here
Speaker 7: for scotus, you know, to give us any color, how
Speaker 7: do you believe the market's going to react if Trump's
Speaker 7: tariffs are voted down?
Speaker 8: Well, I think, Damien a couple of things. One is,
Speaker 8: I wouldn't rely on polymarket too much. That's if you're
Speaker 8: sitting around a roulette table, that's a bunch of people
Speaker 8: kibbets behind you, so fundamentally you know, so would you
Speaker 8: rely on them for your results or for your advice?
Speaker 8: I'm not sure? But beyond that, you know my Firstly,
Speaker 8: I always push back against the idea that the Court
Speaker 8: presumptively rules against Trump's tariffs. I think that's based on
Speaker 8: a flawed assumption at the Court doesn't take the economic
Speaker 8: emergency seriously. So I think what happens is at the
Speaker 8: very worst for the administration. They say they can't put
Speaker 8: the tariffs in place using that AIPA authority, but there's
Speaker 8: plenty of other teriff authorities. Secondly, I think they probably
Speaker 8: give the Congress some time to fix the statute, and
Speaker 8: that's something you can do also in that two dot
Speaker 8: zero reconciliation bill.
Speaker 2: Stay with US multlindex. Savana's coming up off to.
Speaker 3: This, turning to market, it's Bank of America releasing It's
Speaker 3: December Global Fund Manager Survey showing macro optivism at its
Speaker 3: highest going back to twenty twenty one. Joining us now
Speaker 3: is Elis Galu of Bank of America. Elie is great
Speaker 3: to see you. Thank you so much for being with us.
Speaker 3: Let's start on the cash holding. So the idea that
Speaker 3: cash allocations fell to three point three percent the low
Speaker 3: in Bank of America's Global Fund Manager Survey. How much
Speaker 3: of a contrarian indicator do you see this as.
Speaker 9: This is a very contrarian indicator, Liza, Look, I mean
Speaker 9: just a bit of context on the FMS cash levels
Speaker 9: which fell to a record low three point three percent today.
Speaker 9: This series is one of the most important of the
Speaker 9: Fund Manager survey. It has been around since ninety ninety nine,
Speaker 9: so we are able to track several cycles through this series,
Speaker 9: and even at the height of the Internet bubble, at
Speaker 9: the height of the subprime bubble, and during the bomb
Speaker 9: bubble of the post GFC era, the FMS cash level
Speaker 9: did not drop to the level it did today three
Speaker 9: point three percent, which is just strictly speaking and focusing
Speaker 9: on this metric, this is a very bearish contrarian signal.
Speaker 9: And we back tested this series since over the past
Speaker 9: twenty five years, whenever the cash level fell to three
Speaker 9: point six percent or below, the average four weekly for
Speaker 9: global equities has been minus two percent, and over eight
Speaker 9: weeks it's been global equities we're flat.
Speaker 3: Well, as I scored with this, with the idea that
Speaker 3: people are really optimistic about twenty twenty six returns, is
Speaker 3: it consistent given the fact that we might see sort
Speaker 3: of mandering stock returns heading into year end kind of
Speaker 3: what we're seeing this morning. But next year people will
Speaker 3: see that physical stimulas come in, that monetary stimulas come in,
Speaker 3: and it will really support this sort of broader story
Speaker 3: that people seem to be leaning into.
Speaker 9: I think if we had to define the December twenty
Speaker 9: twenty five fund manager survey, it would be the most
Speaker 9: bullish survey of this AI led bull market. And the
Speaker 9: culprit of this palpable bullishness is the expectation of run
Speaker 9: it hot policies. FMS Investors look at the FED. They
Speaker 9: know and I'm convinced that the FED under the next
Speaker 9: chairman will be much more accomodative than in the past
Speaker 9: few years. They know that there is a big election
Speaker 9: in the US on November the third next year, and
Speaker 9: they expect the administration to push up it further in
Speaker 9: terms of fiscal policy, and they also, you know, last
Speaker 9: week's announcement from the Fed in terms of the liquidity backstop,
Speaker 9: I think has clearly emboldened FMS investors to increase allocation
Speaker 9: to risk asset because another important metrics that was extreme
Speaker 9: in this survey was the fact that liquidity conditions were
Speaker 9: rated as the most positive since twenty twenty one, and
Speaker 9: in fact, over the past twenty years, the liquidity conditions
Speaker 9: have only been greater than today. At the peak of
Speaker 9: the COVID boom in mid twenty twenty one.
Speaker 7: Las long mag seven and long gold had been the
Speaker 7: most crowded trades for the past three months in a row.
Speaker 7: Yet at the margin, a small handful of investors are
Speaker 7: now they now believe that being short ggbs and long
Speaker 7: global bank stocks are the most crowded trades. So I'm curious,
Speaker 7: you know, it's notable giving the impending bog ratik at
Speaker 7: the end of this week, the near universal belief that
Speaker 7: yield curves are going to steepen across the globe. Can
Speaker 7: you provide just a bit more color on these newly
Speaker 7: referenced pain trades.
Speaker 1: Sure.
Speaker 9: I think if you look at in the details of
Speaker 9: the fund manager survey, the one challenge where it's actually
Speaker 9: tough to square institutional investor bullishness is on expectations for
Speaker 9: bond deals. There is this big conviction that bond deals
Speaker 9: will be higher in twelve months time. This huge conviction
Speaker 9: nets seventy five percent see an even steeper yield curve,
Speaker 9: and then investors are very bullish risk assets. So you know,
Speaker 9: at the end of the day, it's important to take
Speaker 9: a step back and look at the big picture. And
Speaker 9: the most important question here, Damien, is can risk assets
Speaker 9: global equities US equities that are very rich in terms
Speaker 9: of valuation with stan five percent plus bond deals and
Speaker 9: I think you know, at this level of positioning, at
Speaker 9: this level of valuation, risk assets will be struggling if
Speaker 9: the thirty year treasury exceed five percent, which has been
Speaker 9: a line in the scent for US policymakers. But for now,
Speaker 9: investors prefer to focus on AI, the productivity gains that
Speaker 9: AI adoption will deliver and in terms of EPs growth,
Speaker 9: and this is what they prefer to focus on and
Speaker 9: is also driving their the abolishness for in twenty twenty
Speaker 9: six Elis.
Speaker 7: Despite the pro cyclical rotation into equities and commodities, allocation
Speaker 7: to the energy sector is nearly Tuesday on the deviations
Speaker 7: below the twenty year average according to your FMS. Yet
Speaker 7: with brain crude now dipping below sixty dollars this morning
Speaker 7: and most analysts calling for it to stay, there is
Speaker 7: there any benefit in fading that call.
Speaker 9: It's one of the big contrariant trades of twenty twenty six. Really,
Speaker 9: you know one. The energy sector has been has seen
Speaker 9: a continuous underweight of FMS investors, and rightly so. Now
Speaker 9: I think it's quite interesting to see the dichotomy between
Speaker 9: an increase and increasing allocation to commodities. The net of
Speaker 9: a weight on commodities is the highest in September twenty
Speaker 9: twenty two, but at the same time a very big
Speaker 9: underweight on energy, and that dichotomy is explains is explained
Speaker 9: by the divergence between metals and energy. I think in
Speaker 9: twenty twenty six, if growth surprises to the upside as
Speaker 9: investors expect, I think clearly there is a lot of
Speaker 9: value in the energy sectors and probably the stronger growth
Speaker 9: will push the oil price higher.
Speaker 3: On the flip side, Elias how much do you see
Speaker 3: a potential contrarian trade in bonds, in particular long bonds,
Speaker 3: This idea that maybe people are over their skis with
Speaker 3: how much growth could increase, and something's got to give,
Speaker 3: either as stock valuations or is where bond yields are.
Speaker 1: And maybe it's the bond yields leading to risk off modes, some.
Speaker 3: Moves something that people are sort of not positioned for
Speaker 3: at all.
Speaker 9: Sure, I mean what you saw this month, Lisa is
Speaker 9: a very big rotation out of bonds and also a
Speaker 9: big end of way when it comes to to bonds,
Speaker 9: the biggest underweight since October twenty twenty two, when the
Speaker 9: move index was above one sixty IE rates volatility was
Speaker 9: a lot higher than it is today. Look what is
Speaker 9: happening at you know, in this in this morning in
Speaker 9: the US there is a big macro news, the November
Speaker 9: you know, job jobs report, and if that report surprises
Speaker 9: on the down side with a very weak payroll or
Speaker 9: even in a negative payroll, I think, you know, that's
Speaker 9: the pain trade of the day. It's going to see
Speaker 9: BoNT yield's sharpillarwer and what I think is the biggest
Speaker 9: pain trade of macro investors a flattening of the yield curve.
Speaker 2: Stay with us more Blindberg surveillance coming up after this.
Speaker 3: Lucy Baldwin City Global head of Research is bullish heading
Speaker 3: into the new year, writing further upside is expected in
Speaker 3: twenty twenty six. Is earnings growth broadens but elevated valuations
Speaker 3: increase downside at risk, Lucy joins us.
Speaker 1: Now, Lucy, this seems like kind of.
Speaker 3: Threading a needle, and thank you so much for being
Speaker 3: with us. And we keep hearing that, and it's sort
Speaker 3: of diversified.
Speaker 1: Be nimble.
Speaker 3: We're a little worried that everyone else is bullish, but
Speaker 3: we're bullish too. I mean, how do you sort of
Speaker 3: just frame your sentiment heading into next year being bullish
Speaker 3: when you know how consensus that is.
Speaker 10: Yeah, good morning, Thanks for having me absolutely look after
Speaker 10: a couple of amazing years, for the stock market to
Speaker 10: be expecting another good year for US equities in particular
Speaker 10: does feel like it's a high bar. But ultimately what
Speaker 10: we feel is that the earnings backdrop for the S
Speaker 10: and P five hundred looks incredibly strong.
Speaker 1: We, like many others, expect to.
Speaker 10: See the FED cutting a couple more times in the
Speaker 10: new year and we think that is really quite bullish
Speaker 10: really to be cutting into that recovery. We think you're
Speaker 10: going to see the economy do pretty well in the
Speaker 10: first half of next year, again fueled by that fiscal expansion,
Speaker 10: the one big beautiful bill coming through really helping to.
Speaker 1: See growth move forward.
Speaker 10: So it is a pretty good Goldielocks type scenario we
Speaker 10: think for the equities market. Our view is you probably
Speaker 10: got about ten to twelve percent of upside for the
Speaker 10: US S and P, which is pretty good. And I
Speaker 10: think interestingly, we feel the tech leadership will continue to dominate.
Speaker 10: But alongside that, we believe you can see that broadening
Speaker 10: both in terms of the US market itself, but also
Speaker 10: around the globe as well. We think you can have
Speaker 10: another good year for some of the other stock markets
Speaker 10: around the world.
Speaker 1: As well as for the US lucie.
Speaker 3: Just because the Fed is cutting, do the policy rates ease?
Speaker 1: Right? Do monetary conditions ease? And I ask this because
Speaker 1: even though.
Speaker 3: We have had one hundred and seventy five basis points
Speaker 3: of rate cuts by the Federal Reserve, you've seen ten
Speaker 3: year yields actually rise by more than fifty basis points
Speaker 3: in that period of time. You've seen thirty year yelds
Speaker 3: rise but almost a hundred basis points.
Speaker 1: So at a certain point.
Speaker 3: Are we seeing tighter financial conditions in the margin the
Speaker 3: more than some of these central bayings ease, kind of
Speaker 3: creating a little bit of.
Speaker 1: A fly in the ointment here.
Speaker 10: Well, at some stage, you're right, there is a risk that,
Speaker 10: for example, the fiscal situation, if you've got lots of
Speaker 10: questions around FED independence. Again, coming back on the radar
Speaker 10: nextually you could see that bear steepening start to be
Speaker 10: problematic for risk assets. But we think they're kind of
Speaker 10: like threading the needle at the moment really in the
Speaker 10: sense that you've got this sort of goldilocks back drop
Speaker 10: of good growth, inflation that's largely under control. Basically you've
Speaker 10: got you know, that right mix of drivers. I mean,
Speaker 10: clearly everybody's going to be watching certain things incredibly closely
Speaker 10: in terms of risks for next year. But I think
Speaker 10: if you can see that growth continue to be strong,
Speaker 10: corporate earnings continue to power on, it's really that ideal
Speaker 10: scenario where you're able to actually.
Speaker 1: Cut into a boom.
Speaker 10: Now it is obviously a bit of a jobless boom,
Speaker 10: which I guess is the big question mark, right, and
Speaker 10: it's the job side of the equation that is ultimately
Speaker 10: allowing the.
Speaker 1: FED to be easing into what we think.
Speaker 10: Is actually possibly going to be this reaccelerating growth picture
Speaker 10: in the first half of next year, which of course
Speaker 10: is really rather unusual. And of course let's not forget
Speaker 10: this year's been pretty unusual too. It's been the everything
Speaker 10: boom to have had things like the US equity market
Speaker 10: up strongly, credit go up strongly, but then also you've
Speaker 10: seen ultimately things like gold have a phenomenal year, up
Speaker 10: sixty percent. So it's been an unusual year this year,
Speaker 10: and we do think it's going to be a delicate path,
Speaker 10: but one way you can see that continued risk on momentum,
Speaker 10: certainly into the beginning part of twenty twenty six.
Speaker 7: You know, Lucy, I'd love to talk about gold with
Speaker 7: you and precious metals because I know you recently had
Speaker 7: Max Layton, City's global head of commodity research on your podcast,
Speaker 7: and you know he was talking about the firm's out
Speaker 7: of consensus view on gold in twenty twenty six. Ie,
Speaker 7: he's a bit more barrassed than the street. I was
Speaker 7: listening to you and you didn't seem quite so convinced.
Speaker 7: I'm curious the structural drivers that are underpinning the gold
Speaker 7: bull try, and I'm talking central bank buying, et cetera.
Speaker 7: Do you expect that to continue or do you see
Speaker 7: their room for downside and gold in the year head.
Speaker 10: Yeah, Look, I think you know Max and the team,
Speaker 10: I've got some great calls going into next year.
Speaker 1: Right on one of.
Speaker 10: Those calls, as you say, is this view that actually
Speaker 10: the debasement trade is largely played out at these levels.
Speaker 10: And yes, you've got the structural central bank buying story,
Speaker 10: but ultimately there's probably going to be more upside in
Speaker 10: some of the base metal things like copper that's the
Speaker 10: sort of perfect clean cyclical play if you like, or aluminium,
Speaker 10: which is ultimately competing alongside the data centers for power,
Speaker 10: so you're going to probably see some positive price momentum there.
Speaker 10: So we just think there's more upside in those base
Speaker 10: metals rather than precious metals, and gold is obviously in
Speaker 10: that equation. So for us, that debasement story has obviously
Speaker 10: seen a lot of momentum this year, but we think
Speaker 10: our core view is ultimately that the Central Bank remains
Speaker 10: independent and very data dependent. So even if you have
Speaker 10: a more dubbish backdrop for the FED next year, we
Speaker 10: don't think that debasement trade runs on materially more.
Speaker 1: I think you will see that sort.
Speaker 10: Of slow, steady rediversification continuing for central banks. But I
Speaker 10: don't think it's necessarily enough to give gold from here
Speaker 10: significant legs as we go into the first half of
Speaker 10: next year. So I would be with maxim the team
Speaker 10: in terms of looking for other metals to really drive.
Speaker 1: Some momentum in the first past of the new year.
Speaker 7: Lucy, you and the team at City have been a
Speaker 7: proponent of the carry trade, the FX carry trade for
Speaker 7: a while now. I think you're still an advocate of it.
Speaker 7: Talk to us a little bit about buying the high
Speaker 7: yielding currencies versus the litw yelders. I mean, I think
Speaker 7: nine out of eleven months this year the carry trade
Speaker 7: has worked out and worked out well. You know, can
Speaker 7: this continue? I mean, talk to us about redifferentials, Talk
Speaker 7: to us about you know, currency investing and what funding
Speaker 7: currencies stand out to you in the current environment.
Speaker 10: Yeah, Look, I think this is this is a big
Speaker 10: question after such a strong year, as you say, for
Speaker 10: sort OFFX and the carry trade. I think the conundrum
Speaker 10: we're all trying to grapple with is the dollar.
Speaker 5: Right.
Speaker 10: We've had lots of debates on It's Dan Tobin, who's
Speaker 10: our FX strategist at City Research. He's got a really
Speaker 10: out of consensus call for the dollar, right, So that's
Speaker 10: quite interesting. He's much more bullish the dollar than pretty
Speaker 10: much the rest of the street. And it's quite interesting
Speaker 10: when our US chief eclomist Andrew holmand.
Speaker 1: Horst has still got two cuts for the FED.
Speaker 10: So, you know, what I think is quite a useful
Speaker 10: way of framing this is looking at what our macro
Speaker 10: strategy team says. So Adam Pickett Willer, they talk about
Speaker 10: the dollar possibly going into next year almost having a
Speaker 10: year of three thirds, right, So some risk that you
Speaker 10: get some weakness in the early part of the year
Speaker 10: as you're going into those continued cuts that we think
Speaker 10: you're going to get out of the FED two more cuts,
Speaker 10: and then they think, you know, in that middle part
Speaker 10: of the year you're going to see the dollar strength
Speaker 10: come back. And then maybe to your earlier question, you
Speaker 10: get some risks later on in the year on the
Speaker 10: back of some of the steepening risk in terms of
Speaker 10: the back end of the US curve.
Speaker 1: So what does that then mean for EMFX.
Speaker 10: Well, I think, as we all know, right, it's very
Speaker 10: difficult for emerging market currencies to do well when the
Speaker 10: dollar is incredibly strong. So we're looking for those moments
Speaker 10: of opportunity really around that dollar backdrop. I think when
Speaker 10: you're considering all the different options for different emerging markets.
Speaker 3: We see just quickly here at what's your black swan
Speaker 3: event that you're sort of geeming out is an outlier
Speaker 3: case but could potentially be incredibly counter to consensus.
Speaker 10: Well, I think the big events that we're all watching
Speaker 10: for is around the AI boom.
Speaker 1: There's the debate is it a boom is it a bubble?
Speaker 10: Look, we're in the category that we think even if
Speaker 10: you categorize it as a bubble, because of the moves
Speaker 10: we've seen so far, you still want to own it.
Speaker 1: It's still got legs.
Speaker 10: If you look at the valuations of the leaders of
Speaker 10: this boom, we don't think they look stretched.
Speaker 5: Right.
Speaker 1: The earnings upgrades we've seen have been significant. You know.
Speaker 10: If anything, people have underestimated the earnings power of these companies,
Speaker 10: and I think even up until very very recently, it's
Speaker 10: all largely been funded out of operating cash flow from
Speaker 10: the big hyperscalers. I know we've sort of entered a
Speaker 10: new paradigm in terms of potential risk because we've shifted
Speaker 10: from the fiscal boom post COVID into more of a
Speaker 10: credit expansion, and everybody's watching to see where the leverage
Speaker 10: is building in the system. But we still feel this
Speaker 10: has got legs to run for sure, and a lot
Speaker 10: of growth. We obviously also think long term, structurally huge,
Speaker 10: huge productivity games that can be unleashed by AI as well.
Speaker 10: So we're bullish about it, but we're cautious and we
Speaker 10: know that obviously there is risk as other areas of
Speaker 10: that ecosystem take on leverage and take on risks, some
Speaker 10: of the smaller names that don't have the operating cashflows
Speaker 10: of the big hyperscalers. So that's obviously an area where
Speaker 10: we're watching for risks to emerge, very very carefully and
Speaker 10: very closely. But generally I think, you know, we're pretty
Speaker 10: constructive next year. The other big macro risks, of course,
Speaker 10: we're watching for, are around fiscal you know, we've just
Speaker 10: written a piece looking at the US debt position and
Speaker 10: updated piece on the sustainability of that, because again, you know,
Speaker 10: that's something that's going to be very important for markets
Speaker 10: as we go through twenty twenty six.
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Speaker 3: Mm hmm