WEBVTT - Surveillance: Fixed Income Opportunities 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.800 --> 0:00:23.799 To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.720 and of course on the Bloomberg terminal. Joining us right now. 0:00:30.800 --> 0:00:35.000 Marilyn Watson had a global fundamental fixed income strategy at 0:00:35.080 --> 0:00:37.519 black Rock long ago and far away she was had 0:00:37.520 --> 0:00:40.720 a global fundamental strategy for the Bank of England. Were 0:00:40.720 --> 0:00:43.760 thrilled that she could join his uh this morning, you 0:00:43.840 --> 0:00:46.479 have been in the halls of the Bank of England. 0:00:46.880 --> 0:00:51.200 How do you distill the chaos in England and also 0:00:51.240 --> 0:00:54.320 at their central bank. Well, I think it's a combination 0:00:54.640 --> 0:00:59.440 of obviously the high inflation, the Bank of England raising rates, 0:01:00.000 --> 0:01:04.440 and the new government and the very poor communication around 0:01:04.880 --> 0:01:07.399 the many budget that they announced, and I think that 0:01:07.480 --> 0:01:12.440 really completely took investors unawares. Um There was no sign 0:01:12.480 --> 0:01:15.160 of how you know, they were going to cut you know, 0:01:15.200 --> 0:01:19.320 cut expenditure along with the cutting taxation, and I think 0:01:19.360 --> 0:01:21.200 it just added, you know, on top of Brexit, on 0:01:21.240 --> 0:01:24.479 top of you know, the deep um you know issues 0:01:24.520 --> 0:01:28.480 were seeing in terms of economic activity in the UK. Um, 0:01:28.520 --> 0:01:31.320 I think it just created you know, a lot of 0:01:31.880 --> 0:01:35.160 um you know, can't is essentially in the guilt market 0:01:35.200 --> 0:01:37.000 for a time, big time. So when you learn to 0:01:37.080 --> 0:01:41.720 ride a bicycle in the US, they're called stabilizers training wheels. 0:01:41.720 --> 0:01:43.840 We call them stabilizers in the UK. Just so everyone 0:01:43.840 --> 0:01:46.720 knows what I'm about to say, is this bond market 0:01:46.720 --> 0:01:49.440 going to struggle without stabilizers like the Bank ofing a 0:01:49.480 --> 0:01:52.080 guilt market operation when it expires in the middle of October. 0:01:52.800 --> 0:01:54.919 So I think the Bank of England have already signaled, 0:01:54.920 --> 0:01:57.560 you know, with the temporary you know measures that they announced. 0:01:57.600 --> 0:02:00.240 I think the Bank of England is keenly a where 0:02:00.600 --> 0:02:03.320 that they want to keep the market stable. So they 0:02:03.400 --> 0:02:05.560 may in fact need to do a little bit more. 0:02:06.040 --> 0:02:07.880 I think at the moment they're sort of treading a 0:02:08.000 --> 0:02:10.360 very fine line. The Bank of England, you know, have 0:02:10.400 --> 0:02:14.600 a very very measured approach to Muntrey policy. Every step 0:02:14.639 --> 0:02:17.320 that they take, you know, it is very very finely nuanced. 0:02:17.840 --> 0:02:20.840 They assume essentially any tweaks that they make to the 0:02:20.880 --> 0:02:23.680 mount of policy won't be seen the full effects until 0:02:23.720 --> 0:02:26.440 at least eighteen months out, so they're trying to adjust 0:02:26.480 --> 0:02:29.800 policy for a longer term trajectory, and yet they're dealing 0:02:29.800 --> 0:02:32.560 with a very volatile market right now. So I think 0:02:32.560 --> 0:02:36.079 the Bank of England is obviously incredibly keenly watching what's happening, 0:02:36.080 --> 0:02:38.320 and I think they will be prepared to do more 0:02:38.720 --> 0:02:40.400 if they do feel they need to keep you know, 0:02:40.440 --> 0:02:43.720 the market stable. But I think it's also a global phenomenon. 0:02:43.720 --> 0:02:46.919 I mean, we've seen volatility across all asset markets, We're 0:02:46.919 --> 0:02:50.000 seeing across you know, all all sovereign bond markets are 0:02:50.040 --> 0:02:52.359 We're seeing you know, volatility here in the US, We're 0:02:52.360 --> 0:02:54.440 seeing it in Europe and elsewhere as well, So it's 0:02:54.440 --> 0:02:57.520 not just a UK phenomenon. But I do think in 0:02:57.600 --> 0:02:59.959 light of the fact that you know, we have issue 0:03:00.040 --> 0:03:03.360 US at a global in terms of activity issues specific 0:03:03.440 --> 0:03:06.239 to the UK, and then the fact that many central 0:03:06.240 --> 0:03:09.560 banks were obviously draining liquidity from the system at a 0:03:09.639 --> 0:03:12.760 time when inflation is high, I think I think it's 0:03:12.800 --> 0:03:15.359 just a confluence of many things, and it's being exacerbated 0:03:15.400 --> 0:03:18.679 in the UK, which raises this issue of stabilizers or 0:03:18.720 --> 0:03:22.800 training wheels for other central banks in terms of quantitative easing, 0:03:23.000 --> 0:03:26.280 not quantitative tightening. Are you expecting a lot of central 0:03:26.320 --> 0:03:29.480 banks to fail if their attempts of quantitative tightening and 0:03:29.600 --> 0:03:33.480 end up actually having to buy bond selectively on the 0:03:33.560 --> 0:03:36.000 longer end to try to control some of the moves 0:03:36.240 --> 0:03:40.320 that they're seeing. Yeah, so that's a I think it's 0:03:40.360 --> 0:03:43.160 a very good question, and I think it's we've never 0:03:43.200 --> 0:03:46.120 been in this environment before where we have had so 0:03:46.160 --> 0:03:49.640 many central banks that came away from positions of such 0:03:49.920 --> 0:03:53.560 loose moneture policy. They've had these massive bank balance sheets, 0:03:53.560 --> 0:03:57.200 they had these huge QUI programs. Rates have been incredibly loose, 0:03:57.840 --> 0:04:01.200 and we've never had a starting position. They're starting to tighten, 0:04:01.880 --> 0:04:04.800 you know, from these incredibly low levels, given how high 0:04:04.800 --> 0:04:06.880 inflation is as well. And so I think it does 0:04:06.920 --> 0:04:09.520 remain to be seen. I think here in the US, 0:04:09.600 --> 0:04:12.000 I think the path is pretty well laid out in 0:04:12.080 --> 0:04:15.640 terms of QT, it's already in progress. I think in 0:04:16.080 --> 0:04:19.240 the UK and also maybe in Europe as well, it 0:04:19.279 --> 0:04:21.880 remains to be seen. I think in you know, in Europe, 0:04:21.920 --> 0:04:24.840 we do expect in d CB to continue to raise 0:04:24.960 --> 0:04:28.640 rates the next two meetings, but in terms of reducing 0:04:28.839 --> 0:04:32.360 its overall you know, bank balance and in terms of QT. 0:04:33.360 --> 0:04:35.360 The still a little bit unknown when you have the 0:04:35.400 --> 0:04:37.359 asset purchase program on the one hand, you have the 0:04:37.680 --> 0:04:40.119 PEP program on the other hand, and it's a fine 0:04:40.160 --> 0:04:44.400 balance that they are trying to juggle. You know, well, 0:04:44.560 --> 0:04:46.400 right now there's a lot of discussion about our star star. 0:04:46.480 --> 0:04:47.880 I'm not going to get into the jarget. I don't 0:04:47.880 --> 0:04:49.440 want to do that. It's sort of I know, I 0:04:49.560 --> 0:04:51.640 feel everyone just rolling their eyes as I say that. 0:04:53.640 --> 0:04:57.480 But I am curious whether you have in your mind 0:04:57.760 --> 0:05:01.320 a level at which longer term yields could rise before 0:05:01.360 --> 0:05:06.080 the financial stability risks become more pressing than the inflation ones. 0:05:06.880 --> 0:05:10.119 I think it's not just the level to which they rise, 0:05:10.480 --> 0:05:14.640 it's also the speed with which they do that. And 0:05:14.680 --> 0:05:17.320 so we don't have a certain level that we're currently 0:05:17.320 --> 0:05:19.880 looking at where we think will be overly concerned, and 0:05:19.920 --> 0:05:22.560 we don't think they're going to get to extreme levels, 0:05:22.600 --> 0:05:25.320 but we do think if the volatility increases and you 0:05:25.360 --> 0:05:30.600 see a dramatic shift either because you know the the economy, 0:05:30.880 --> 0:05:33.360 um you know, is much worse than we expect, or 0:05:33.400 --> 0:05:35.560 you know, because of other factors we don't know. But 0:05:35.600 --> 0:05:38.600 I think half of it is actually the speed, and 0:05:38.680 --> 0:05:41.960 also how the curve reacts. It's not just the endpoint 0:05:42.480 --> 0:05:44.600 and just final question. Just take a step back from 0:05:44.640 --> 0:05:46.160 all of this. Can you tell us how much the 0:05:46.160 --> 0:05:48.120 world has changed for you, Rick, for Bob, for the 0:05:48.120 --> 0:05:50.559 whole of the team with rates where they are now, 0:05:50.720 --> 0:05:52.560 and are you looking at this world as maybe something 0:05:52.600 --> 0:05:54.919 that we have to live with for a while that 0:05:55.120 --> 0:05:58.200 fed funds, the risk free asset sticks around three fifty 0:05:58.400 --> 0:06:01.040 four percent and credit is hanging out at these levels. 0:06:01.360 --> 0:06:03.880 That's right. I mean, the world has changed completely from 0:06:04.080 --> 0:06:06.320 a year ago, three years ago, five years ago, ten 0:06:06.400 --> 0:06:09.960 years ago. Um. But actually it gives us a lot 0:06:10.000 --> 0:06:13.599 more optimism now in terms of fixed income actually giving 0:06:13.640 --> 0:06:16.560 you a decent yield. I mean, obviously we're relatively cautious 0:06:16.560 --> 0:06:20.440 in this environment, but fixed income now is really I think, 0:06:20.520 --> 0:06:23.719 you know, a very decent, good asset class. Once again, 0:06:24.000 --> 0:06:26.560 you can get the decent return with little risk at 0:06:26.560 --> 0:06:28.440 the moment if you're the front end with low duration. 0:06:28.880 --> 0:06:30.840 So I think for the long term and going into 0:06:30.920 --> 0:06:33.160 next year, then I think the very huge number of 0:06:33.200 --> 0:06:35.120 opportunities and fixed income that we haven't seen for such 0:06:35.120 --> 0:06:37.599 a long time. So I think in terms of you know, 0:06:37.800 --> 0:06:41.640 the team and fixing income investors in general. I think 0:06:41.720 --> 0:06:44.320 this is a far better environment going forward than we've 0:06:44.320 --> 0:06:46.080 seen for such a long time. Do you think we 0:06:46.120 --> 0:06:49.120 can break out into this environment, a new equilibrium, a 0:06:49.120 --> 0:06:51.440 new normal, on a sustainable basis to get the fitling 0:06:51.440 --> 0:06:52.880 we can? We get a ton of push back around 0:06:52.880 --> 0:06:54.599 the table that we just can't live with these levels 0:06:54.760 --> 0:06:57.080 of interest rates. Do you think we can? Well, we've 0:06:57.080 --> 0:06:59.000 we've seen it in the past. We've certainly seen interest 0:06:59.080 --> 0:07:01.200 rates much higher than this the past, and I certainly 0:07:01.240 --> 0:07:04.600 think we can live with interest rates being much higher. Um. 0:07:04.640 --> 0:07:06.360 And I think to a certain extent to get back 0:07:06.400 --> 0:07:10.200 to a healthy financial environment. You know, I think to 0:07:10.280 --> 0:07:12.160 have rates a little bit higher, I think you know, 0:07:12.200 --> 0:07:15.960 it's beneficial for a lot of different businesses. So, UM, 0:07:16.000 --> 0:07:18.840 I think it's certainly possible to get to a sustainable level. 0:07:19.040 --> 0:07:20.960 It is beneficial for the economy. The world has changed, 0:07:21.000 --> 0:07:23.600 that's for sure. Thank You also want to catch out 0:07:23.640 --> 0:07:30.800 mar name Watson a black crop Stephen Short. He's principal 0:07:30.920 --> 0:07:33.760 the Short Group. We protect the copyright of all our guests. 0:07:34.000 --> 0:07:38.480 Get his magnificent statement on the American distillate and oil 0:07:38.520 --> 0:07:42.000 economy from the Short Group. Stephen, thank you so much 0:07:42.040 --> 0:07:45.400 for joining us this morning. It's the simple question is 0:07:45.440 --> 0:07:48.800 what does OPEC plus mean to a gout of gas? 0:07:48.800 --> 0:07:52.200 But far more than that is the nuance. How does 0:07:52.320 --> 0:07:57.280 OPEC plus his decision impinge on the many distillates that 0:07:57.400 --> 0:08:02.040 we take from a barrel of oil. Absolutely, OPEC is 0:08:02.120 --> 0:08:04.600 only influence over the market tom is the price of 0:08:04.640 --> 0:08:07.800 crudal by by constricting the production or increase in the 0:08:07.840 --> 0:08:11.280 production thereof. So obviously, with the move they've made now 0:08:11.400 --> 0:08:14.200 or the announcement they made yesterday of taking two million 0:08:14.240 --> 0:08:18.160 barrels off the market, clearly we're looking at a fewer 0:08:18.160 --> 0:08:20.960 barrels on the market as we go into the fourth quarter. Now, 0:08:21.000 --> 0:08:24.200 I want to be clear here OPEC made the announcement 0:08:24.200 --> 0:08:27.080 of the two million barrel cut, but OPEC was already 0:08:27.200 --> 0:08:30.240 it's thirteen members, and I want to add, for which 0:08:30.240 --> 0:08:33.840 are in sub Sahara Africa are struggling to maintain their 0:08:33.840 --> 0:08:37.240 current quotas. So by announcing a two million barrel cut, 0:08:37.559 --> 0:08:40.280 given what OPEC is actually putting onto the market now, 0:08:40.400 --> 0:08:43.520 the cut will amount to only seven fifty eight hundred 0:08:43.520 --> 0:08:48.520 thousand barrels a day, which is still not an insignificant number, 0:08:48.600 --> 0:08:51.760 and therefore it has the potential for an impact on 0:08:51.840 --> 0:08:55.760 oil prices. Now, we don't consume oil, right, we consume 0:08:55.840 --> 0:08:59.760 the derivatives of oil, gasoline, jet fuel, diesel fuel, so forth. 0:09:00.360 --> 0:09:03.240 What we've seen here now, to answer your question Tom 0:09:03.320 --> 0:09:06.480 on the US East Coast is our refinery capacity has 0:09:06.520 --> 0:09:09.800 been slashed by more than half over the past ten years. 0:09:10.080 --> 0:09:13.120 We simply don't have the ability to turn what kudo 0:09:13.240 --> 0:09:16.000 there is out there into what we need, into everything 0:09:16.040 --> 0:09:20.680 we need. That Thomas sal Uh statement on economics is scarcity. 0:09:20.920 --> 0:09:24.840 We cannot produce everything that everybody wants. That is the 0:09:24.840 --> 0:09:27.679 current situation when it comes to oil derivatives. We are 0:09:27.679 --> 0:09:31.920 producing what most people want the most, that is gasoline, 0:09:31.960 --> 0:09:35.640 and therefore what refining capacity we do have left here 0:09:35.679 --> 0:09:39.520 in New York is geared towards maximis and gasoline production. 0:09:39.880 --> 0:09:43.200 The other derivatives i e. Heating oil, which is also 0:09:43.320 --> 0:09:47.360 diesel fuel jet fuel that suffers. So as we look 0:09:47.360 --> 0:09:51.240 ahead to this heating season, the homes in this country 0:09:51.320 --> 0:09:53.600 that heat their homes of oil are located in the 0:09:53.600 --> 0:09:57.360 mid Atlantic New England states. We are going into this 0:09:57.440 --> 0:10:01.160 winter with a thimble full of heat oil. We do 0:10:01.240 --> 0:10:04.000 not have it is a dire situation we're going through 0:10:04.000 --> 0:10:06.439 this winter. We don't have enough supply. It is going 0:10:06.480 --> 0:10:10.000 to be a very violatile and a very expensive. So 0:10:10.040 --> 0:10:13.400 we can get the using oil from Europe. Yeah, that's 0:10:13.440 --> 0:10:15.720 gonna be a tricky right, So we're gonna be trying 0:10:15.720 --> 0:10:18.360 to provide them with again natural gas as well. But 0:10:18.440 --> 0:10:23.040 Stephen to your point about refineries and capacities, given that 0:10:23.120 --> 0:10:25.439 there has been talk about releasing even more from the 0:10:25.480 --> 0:10:29.520 Strategic Petroleum Reserve to lower gasoline prices, how much are 0:10:29.520 --> 0:10:33.280 we bumping up against the limits of refineries where even 0:10:33.280 --> 0:10:36.520 a release won't really make a difference in lowering prices further. 0:10:36.800 --> 0:10:40.880 And really we're kind of out of bullets exactly, Well, 0:10:40.880 --> 0:10:44.240 we never had the bullets LEAs, So I mean, doubling 0:10:44.280 --> 0:10:49.200 down on a policy that has failed is stupidity on stilts. 0:10:49.640 --> 0:10:52.320 We've been trying to manipulate the price. We being the 0:10:52.320 --> 0:10:54.959 White House, have been trying to manipulate the price of oil. 0:10:55.000 --> 0:10:57.600 Now for the past year or the last fifty two weeks, 0:10:57.760 --> 0:11:00.839 we've dumped two million barrels up from my own crude 0:11:00.880 --> 0:11:03.720 oil onto the commercial market. And what do we have 0:11:03.800 --> 0:11:06.400 to show for that? One year later? In New York, 0:11:06.559 --> 0:11:09.040 heating oil prices are a dollar forty six a gallon 0:11:09.520 --> 0:11:13.800 higher higher than they were a year ago. So we 0:11:13.840 --> 0:11:16.559 could drain and we're just about there with the SPR. 0:11:16.840 --> 0:11:19.360 Over the last fifty two weeks, we've drained a third 0:11:19.440 --> 0:11:22.680 of our emergency supply of oil. So what does that mean? 0:11:23.040 --> 0:11:25.760 A year ago we had forty two days worth of 0:11:25.840 --> 0:11:29.040 supply of crude oil sitting in the SPR. Today we 0:11:29.120 --> 0:11:32.240 have twenty six days left of capacity. That is the 0:11:32.280 --> 0:11:36.000 lowest level since nineteen three. Now, keep in mind the 0:11:36.000 --> 0:11:40.320 cut patrolling reserve is for emergencies. Imagine last week of 0:11:40.400 --> 0:11:43.520 Hurricane Ian did not go into Tampa, but instead went 0:11:43.600 --> 0:11:46.160 into Houston or New Orleans, the i e. The oil 0:11:46.520 --> 0:11:50.640 epic center of North America. We simply are the least 0:11:50.679 --> 0:11:53.560 prepared ever for an emergency, and the only thing we 0:11:53.600 --> 0:11:56.719 have to show for that least one year uh ON 0:11:57.280 --> 0:12:01.199 is a thirty percent increase in this It costs so 0:12:01.520 --> 0:12:05.280 threatening OPEC with Oh, we're just gonna put more, or 0:12:05.360 --> 0:12:08.040 we're just gonna do what hasn't worked in two weeks. 0:12:08.080 --> 0:12:10.400 I'm gonna do more of that. That is not a threat. 0:12:10.520 --> 0:12:13.679 OPEC is laughing this off right now. Statement is a 0:12:13.760 --> 0:12:19.880 strategic midsam reserved. Okay, remember that Stephen show, the show. 0:12:20.520 --> 0:12:34.400 Thank you, sir, Nila Richardson. Let's go there right now. 0:12:34.480 --> 0:12:37.360 Michael mckith, thank you so much, greatly appreciate that. This morning, 0:12:37.400 --> 0:12:41.960 Nila Richardson with this chief economist at ADP, Nila, I 0:12:42.000 --> 0:12:45.079 want to cut to the chase and just simply say, 0:12:45.120 --> 0:12:48.640 in the new emphasis and tomorrow's jobs report, what are 0:12:48.640 --> 0:12:53.080 you in a DP focused on? Well, good morning. I 0:12:53.160 --> 0:12:55.720 can't think of a better way to start that conversation. 0:12:55.840 --> 0:12:59.600 With wages. It's all about wages. It's about how wages 0:12:59.600 --> 0:13:02.760 are driving or not driving, and inflation, and that's what 0:13:02.800 --> 0:13:06.560 we're focused on. It takes to be a micro economist 0:13:06.600 --> 0:13:09.960 in a macro world because when you are, you look 0:13:10.000 --> 0:13:13.120 at things as a collective decision makings from small to 0:13:13.200 --> 0:13:16.840 large firms. And what we're seeing is that timing has 0:13:16.880 --> 0:13:20.160 been a very important factor in the entire dynamics of 0:13:20.160 --> 0:13:23.600 the labor market. We are now starting to see more people, 0:13:23.880 --> 0:13:27.000 at least as according to the August report, enter the 0:13:27.080 --> 0:13:31.840 jobs market, and we saw a deceleration in wage gains 0:13:31.920 --> 0:13:36.920 growth for job changers. And I think that deceleration is notable. 0:13:37.400 --> 0:13:40.079 We saw it across all firm sizes because it means 0:13:40.120 --> 0:13:43.920 that switching jobs is not paying off quite as much 0:13:44.160 --> 0:13:47.120 as in this summer, and that might reduce some of 0:13:47.120 --> 0:13:50.280 the pressure in terms of inflation. What's the ADPs wonderful 0:13:50.280 --> 0:13:54.679 of this. What's the character of the job market differential 0:13:54.760 --> 0:13:58.640 out there right now? Is it airline pilots? Is it bartenders? 0:13:58.679 --> 0:14:01.360 Who is the job set? Acture? It matters to Kneela 0:14:01.480 --> 0:14:05.880 Richardson right now? At all matters Tom? But um, I 0:14:05.920 --> 0:14:09.760 think what where we are different points of rebounding? Right? 0:14:09.800 --> 0:14:12.720 So the service sector was hardest hit, and so when 0:14:12.800 --> 0:14:15.920 you look at leisure in hospitality, that's important when you 0:14:15.960 --> 0:14:20.520 talk about inflation. Though, what's driving inflation is low pay, 0:14:20.560 --> 0:14:23.840 low wage, low skill jobs. And are we still going 0:14:23.880 --> 0:14:27.760 to see that bartender or that waitress. Bartenders actually can 0:14:27.800 --> 0:14:32.680 make pretty good money. Let's go lower, Um, are we 0:14:32.800 --> 0:14:36.400 going to see low skilled, low pay workers still see 0:14:36.600 --> 0:14:41.480 gains and acceleration and pay that didn't happen during the 0:14:41.480 --> 0:14:44.920 ten years of expansion leading up to the pandemic. Well, 0:14:44.920 --> 0:14:48.280 we see it after we get over this hump of 0:14:48.440 --> 0:14:51.040 getting really back to normal when it comes to jobs 0:14:51.040 --> 0:14:54.920 and getting inflation down. That's the concern that low pay 0:14:54.960 --> 0:14:57.880 workers won't see the pay gains in the future that 0:14:57.960 --> 0:15:00.720 they saw over the last year and a half. So, Nila, 0:15:00.760 --> 0:15:02.680 given that backdrop, i'd love you to comment and what 0:15:02.760 --> 0:15:05.840 Michael McKee is talking about that there's this expectation that 0:15:05.920 --> 0:15:09.480 the unemployment rate will rise but just marginally right. It 0:15:09.560 --> 0:15:11.960 might peek out at four and a half percent, still 0:15:12.000 --> 0:15:14.160 well below some of the peaks that we've seen in 0:15:14.240 --> 0:15:18.080 recent downturns. How quickly could that move away from the 0:15:18.080 --> 0:15:22.920 FED based on what you're seeing in the micro data, Well, 0:15:23.280 --> 0:15:25.720 let's start with the jolts, because I think that's important. 0:15:25.760 --> 0:15:27.560 That was in a big number this week, to see 0:15:27.600 --> 0:15:31.160 a million fewer job postings. We had a DP actually 0:15:31.200 --> 0:15:34.760 think that postings peaked this spring, so we weren't surprised 0:15:35.040 --> 0:15:39.000 to see that decline. So that's the first indicator. The second, 0:15:39.320 --> 0:15:42.720 this timing issue is really prevalent. If more people are 0:15:42.800 --> 0:15:45.120 coming back to the labor market because they want and 0:15:45.240 --> 0:15:49.080 need to work, and yet firms are slowing hiring, that's 0:15:49.120 --> 0:15:52.520 what's going to happen, going to cause the unemployment rate 0:15:52.600 --> 0:15:56.240 to increase. That denominator is really important. It's not the 0:15:56.320 --> 0:15:59.400 number of jobs created every month so much. It's the 0:15:59.480 --> 0:16:02.360 number of people entering the labor market right at a 0:16:02.520 --> 0:16:05.760 time when firms may be slowing hiring. So I'm really 0:16:05.800 --> 0:16:09.720 focused on the denominator of the unemployment rate. We're looking 0:16:09.760 --> 0:16:12.000 at this hoping that we still managed to get some 0:16:12.040 --> 0:16:14.520 sort of softish landing, but even FED officials are really 0:16:14.520 --> 0:16:16.680 pulling back from that kind of language and elf from 0:16:16.720 --> 0:16:19.880 what you're looking at. What kind of downturn are we 0:16:19.920 --> 0:16:22.520 looking at based on some of the rate increases that 0:16:22.560 --> 0:16:26.080 are expected, and based on the pace of weakening, the 0:16:26.120 --> 0:16:30.360 pace of loosening of this labor market. I think you're 0:16:30.360 --> 0:16:34.640 going to see at different angles. Um, maybe you could 0:16:34.640 --> 0:16:37.440 call it a downturn by a variety of cuts as 0:16:37.440 --> 0:16:40.000 opposed to one big stab. Sorry to be graphic in 0:16:40.000 --> 0:16:43.600 the morning, but you're seeing interest rate sensitive sectors starting 0:16:43.640 --> 0:16:47.960 to feel some weakness, and construction and manufacturing UH. If 0:16:48.800 --> 0:16:53.760 we see UH inflation really hit pocket books and consumer spending, 0:16:54.040 --> 0:16:57.000 you might see consumer services take a bit of a 0:16:57.040 --> 0:16:59.600 hit as well, and so all those gains and leisure 0:16:59.600 --> 0:17:03.440 in hospital tality that we've been tallentying might slow. Professional 0:17:03.480 --> 0:17:07.320 business services are vulnerable for structural reasons. As fewer people 0:17:07.359 --> 0:17:10.480 go back into the office, um, that might change the 0:17:10.520 --> 0:17:14.920 complexion of like office support jobs. So the economy structurally 0:17:15.040 --> 0:17:17.640 is also changing at the same time that we might 0:17:17.720 --> 0:17:21.840 see some downturn dynamics driven by monetary policy, and tracing 0:17:21.880 --> 0:17:24.080 that all out is very difficult to do. And they 0:17:24.280 --> 0:17:26.200 always love listening to you. Thanks for coming on the 0:17:26.240 --> 0:17:28.600 show with us, Nata Riches and me at ib Pig. 0:17:31.640 --> 0:17:35.040 This is a joy. C IBC World Markets Capital Markets, 0:17:35.080 --> 0:17:38.760 I should say out of Toronto is a wonderful, wonderful shop. 0:17:38.880 --> 0:17:41.280 I think of Benjamin Tall in his great work bib 0:17:41.320 --> 0:17:42.879 and right joins us right now. I had a foreign 0:17:42.920 --> 0:17:46.840 exchange strategy there on Canada, but so much more on 0:17:46.880 --> 0:17:50.040 the time we live in, which is strong dollar. But 0:17:50.359 --> 0:17:53.560 I want to talk about the X axis of the 0:17:53.640 --> 0:17:59.919 belief that the dollar is going to weaken. Everyone's been wrong, wrong, wrong. 0:18:00.760 --> 0:18:03.879 Is your dollar study short term or to go to 0:18:03.920 --> 0:18:07.320 the British medium term or long term? Where on the 0:18:07.520 --> 0:18:13.760 X axis are you studying when the dollar breaks? We're 0:18:13.800 --> 0:18:15.800 probably looking at the medium to long term. And if 0:18:15.800 --> 0:18:18.560 you watch a specific gauge for how long to or 0:18:18.560 --> 0:18:20.520 at least a way to calibrate that I would say 0:18:20.560 --> 0:18:23.160 that potentially in the early to mid part of next 0:18:23.200 --> 0:18:26.080 year's potentially when we'll started looking towards the next US 0:18:26.160 --> 0:18:29.120 growth story, potentially leading to a softening of the dollar 0:18:29.160 --> 0:18:31.879 and a sustained basis. Well, it's solving in a down 0:18:32.000 --> 0:18:34.399 the same sustained basis. But the question is what does 0:18:34.480 --> 0:18:38.000 EM do along the way? Are you partitioning now developed 0:18:38.000 --> 0:18:42.320 economies from EM or they holistically the same against strong dollar, 0:18:43.920 --> 0:18:45.520 so you have to partition them. I mean, if you 0:18:45.560 --> 0:18:47.120 look at the way e m is trade this year, 0:18:47.119 --> 0:18:49.359 it's been relatively robust compared to the dollar and at 0:18:49.400 --> 0:18:51.280 least compared to other d ms. I mean, most of 0:18:51.320 --> 0:18:54.639 the stronger dollar story has really been concentrated amongst the 0:18:54.680 --> 0:18:58.080 DM currencies, predominantly the traditional funders like the Euro in 0:18:58.160 --> 0:19:01.760 the end and also now late against the sterling. I mean, 0:19:01.880 --> 0:19:04.360 we think that will migrate more towards a stronger dollar 0:19:04.440 --> 0:19:07.760 versus commodity currencies that backdrop as we move forward, and 0:19:07.760 --> 0:19:10.000 that's probably due to the imbalances that have been built 0:19:10.080 --> 0:19:12.640 up in some of these commodity currency economies, including here 0:19:12.680 --> 0:19:15.160 in Canada and of course Australia, New Zealand as well. 0:19:15.320 --> 0:19:17.200 So over the past couple of months, and I really 0:19:17.200 --> 0:19:19.840 mean a couple a month and a half, perhaps we've 0:19:19.840 --> 0:19:22.280 seen a little bit more stability enter the market. We 0:19:22.320 --> 0:19:24.840 haven't seen the same kind of runaway dollar strengthening, and 0:19:24.880 --> 0:19:26.960 we've seen a little bit more stasis at much lower 0:19:27.040 --> 0:19:30.560 levels versus a dollar for the euro pound is its 0:19:30.560 --> 0:19:33.000 own story. How long do you expect to get this 0:19:33.119 --> 0:19:36.280 kind of stability? Is people game out what we already know, 0:19:36.440 --> 0:19:40.399 which is rate hikes on both sides of the Atlantic. Yeah, 0:19:40.520 --> 0:19:42.320 so if we're talking about stability of the dollar, we 0:19:42.359 --> 0:19:45.560 really need to delineate against what we expect the stability 0:19:45.560 --> 0:19:48.200 to come from. If we're talking about the broad dollar gage, 0:19:48.200 --> 0:19:49.960 say the d X Y, which of course is more 0:19:50.000 --> 0:19:53.040 tilted towards a greater way waiting on the Euro. Yeah, 0:19:53.080 --> 0:19:55.199 maybe the stability lasts a little bit longer because I 0:19:55.240 --> 0:19:58.720 do think that a lot of the sources of concern earlier, 0:19:58.920 --> 0:20:01.919 particularly with the day and interest security, you know what, 0:20:01.960 --> 0:20:03.760 they've been pushed a little bit further out. I don't 0:20:03.800 --> 0:20:05.920 want to say the completely resolved, of course, because a 0:20:06.000 --> 0:20:08.440 lot of it now depends on how serious the demand 0:20:08.560 --> 0:20:10.800 situation will be. And for that, you know, we need 0:20:10.880 --> 0:20:13.240 to really look at the weather reports or at least 0:20:13.240 --> 0:20:14.879 see what the weather looks like and how cold it 0:20:14.920 --> 0:20:17.000 is in the AAR zone for this winter. So for 0:20:17.080 --> 0:20:19.760 migrating away from this sort of you know, concern that 0:20:20.040 --> 0:20:22.520 the dollars is going to continue to appreciate into the 0:20:22.560 --> 0:20:25.400 year and eventually the end of course an intervention story there. 0:20:25.720 --> 0:20:28.080 You know, that doesn't mean that the dollars still can't 0:20:28.119 --> 0:20:30.840 appreciate against some of the other currencies. And you know, 0:20:31.280 --> 0:20:33.119 I very much agree with, you know, some of the 0:20:33.119 --> 0:20:36.440 other rhetoric that's been espoused by some of the other 0:20:36.440 --> 0:20:38.240 guests that we're going to look at a higher for 0:20:38.359 --> 0:20:41.440 longer story and not necessarily a scenario where central banks 0:20:41.560 --> 0:20:43.760 entertaining cuts next year. If that's the case, then we 0:20:43.840 --> 0:20:46.720 got to look at where the situations are fragile, where 0:20:46.960 --> 0:20:49.320 you know, the higher for longer story could potentially break things. 0:20:49.320 --> 0:20:52.680 And that to me is somewhat concerning, especially for Canada 0:20:52.800 --> 0:20:54.719 in Australia. John, When do we just start to get 0:20:54.720 --> 0:20:57.680 a meteorologist done that didn't not yeah, exactly, we should. 0:20:57.840 --> 0:20:59.600 I mean, at what point is this going to determine 0:20:59.600 --> 0:21:01.600 the tragic for the euro I mean, let's say it's 0:21:01.600 --> 0:21:03.159 a called winter bribin. What are we looking at in 0:21:03.240 --> 0:21:06.520 terms of what the euro dollars should be. Yeah, if 0:21:06.520 --> 0:21:08.439 it's a cold and unexpected winter and we see as 0:21:08.720 --> 0:21:11.040 much more serious draw and natural gas supplies, we're looking 0:21:11.080 --> 0:21:13.800 at potentially ninety euro dollar I think, and maybe even 0:21:14.400 --> 0:21:17.840 sustained momentum below there. That's when you start worrying about 0:21:18.040 --> 0:21:20.600 whether or not as security risks or at least natural 0:21:20.600 --> 0:21:23.240 gas security is is enough given what we have now. 0:21:23.440 --> 0:21:25.120 I mean, one of the key things that have really 0:21:25.520 --> 0:21:27.560 driven that has really driven the euro lower this year 0:21:27.640 --> 0:21:29.920 is the fact that the largest economy in your Europe 0:21:30.359 --> 0:21:32.760 and of course Italy as well, both have had the 0:21:32.760 --> 0:21:35.760 re oriented or their energy story away from Russia. And 0:21:35.760 --> 0:21:38.960 again that's that's a structural change. If that's not something 0:21:38.960 --> 0:21:41.399