WEBVTT - Surveillance: CNY Weakness with Ruskin 0:00:09.840 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Lee. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:29.200 Bloomberg dot Com, and of course on the Bloomberg Let's 0:00:29.200 --> 0:00:30.760 bring in March on the show, we've plind a gun 0:00:30.800 --> 0:00:33.360 global for ex change markets strateg just a managing conta 0:00:33.400 --> 0:00:37.159 good morning to your mark, your fools, your thoughts on 0:00:37.240 --> 0:00:40.320 what we've seen over night from Chinese authorities. Just frame 0:00:40.360 --> 0:00:43.000 it thora for our audience place so I would phrase it. 0:00:43.040 --> 0:00:45.040 I had to see a sort of a combination about 0:00:45.080 --> 0:00:46.879 what you and Lisa are saying. I so see, the 0:00:46.920 --> 0:00:49.480 dollar had actually weakened in the last part of last 0:00:49.520 --> 0:00:52.720 week after the tariffs were announced. So it was after 0:00:52.720 --> 0:00:55.560 the after the little rally the dollar had on the 0:00:55.600 --> 0:00:57.800 back of the f MC, we get the dollars sell 0:00:57.840 --> 0:01:00.600 off last Thursday and Friday, and so I was one 0:01:00.640 --> 0:01:02.360 of the people that thought that the pullback of the 0:01:02.440 --> 0:01:05.640 dollar would have protected that seven point o level on 0:01:05.760 --> 0:01:08.679 dollar R and B come early this week. But instead 0:01:08.720 --> 0:01:11.360 I think that the Chinese, I think that they stay 0:01:11.440 --> 0:01:14.560 stepped away. They did two things really at things. First day, 0:01:14.680 --> 0:01:17.360 the fixing for the dollar was six point nine, which 0:01:17.480 --> 0:01:20.240 was a bit stronger for the dollar than many people 0:01:20.280 --> 0:01:24.080 have expected given the recent pattern. And then we saw 0:01:24.160 --> 0:01:26.520 the forward and then finally the c n H went 0:01:26.560 --> 0:01:30.240 above seven point oh and no sign from the PBOC 0:01:30.440 --> 0:01:34.319 protesting that. And then spots c n H D on shore, 0:01:34.400 --> 0:01:36.600 R and B went above seven point oh. And I think, 0:01:36.600 --> 0:01:39.120 to Lisa's point, once we have this, Pandora's box is 0:01:39.120 --> 0:01:41.080 open because we don't know what what's the next Where 0:01:41.160 --> 0:01:43.160 is it going to go? Now people are talking seven 0:01:43.280 --> 0:01:46.839 thirties the next The next fix from the Chinese going 0:01:46.880 --> 0:01:49.920 into tomorrow, I think is critical. So can you anticipate 0:01:49.960 --> 0:01:53.440 what Chinese authorities will do after a day of pretty 0:01:53.440 --> 0:01:56.120 big waiting us for the Chinese currency. It's hard to 0:01:56.120 --> 0:01:57.920 predict what the Chinese. I can't even pretend that I 0:01:57.960 --> 0:02:00.120 can predict what the Chinese's gonna do. But they did 0:02:00.240 --> 0:02:02.880 have a statement that I thought was very important, and 0:02:02.880 --> 0:02:04.560 he said something to the effect I might not get 0:02:04.600 --> 0:02:06.720 it exactly right, but something in the effect that the 0:02:06.800 --> 0:02:10.640 seven point oh is not like an age that once passed, 0:02:10.680 --> 0:02:13.560 you can't return too. So I think that they in 0:02:13.560 --> 0:02:16.720 effected was more of a warning shot that if the 0:02:16.800 --> 0:02:19.799 US wants to go down this route ending the tear 0:02:19.840 --> 0:02:22.520 off truths without even notifying the Chinese having to read 0:02:22.560 --> 0:02:24.919 that in a tweet, if the US insists on going 0:02:24.919 --> 0:02:28.240 down this route, China is prepared to just step away. 0:02:28.600 --> 0:02:30.720 They're prepared to take whatever the US wants to hit with, 0:02:30.880 --> 0:02:34.520 hit it with. If that means tariffs, that's what it means, 0:02:34.600 --> 0:02:38.480 because at some point, once you put make Chinese goods uncompetitive, 0:02:38.720 --> 0:02:41.040 it doesn't really matter where the tariff's at. It's uncompetitive. 0:02:41.280 --> 0:02:43.799 We have to find other substitutes for that. So I'm 0:02:43.840 --> 0:02:46.600 concerned that that this is that the US are going 0:02:46.639 --> 0:02:49.320 to retaliate and the situation is going to escalate. I 0:02:49.320 --> 0:02:51.200 can't see how things can get better before they get 0:02:51.280 --> 0:02:52.919 before they're gonna get worse, I think, and that that 0:02:53.160 --> 0:02:55.240 seems to be was being priced into the market. If 0:02:55.280 --> 0:02:58.959 copper dr copper down to the lowest and US on 0:02:59.080 --> 0:03:03.240 your yields the longest losing streak since two thousand and twelve, 0:03:03.560 --> 0:03:08.040 I'm just wondering whether this UH tolerance of the devaluation 0:03:08.080 --> 0:03:11.680 of the UN will hurt or help China, because at 0:03:11.680 --> 0:03:13.880 this point we don't even know about capital outflows. We 0:03:13.919 --> 0:03:17.080 don't know about their purchasing power, their ability to stimulate 0:03:17.080 --> 0:03:19.480 their economy. What's your take? So I think that you know, 0:03:19.560 --> 0:03:22.079 for a while, many of us thought that the seventh 0:03:22.280 --> 0:03:26.239 the reason that the Chinese were preventing further depreciation, despite 0:03:26.280 --> 0:03:29.560 what's happening to the economy, despite the interest rate differentials. 0:03:29.560 --> 0:03:31.760 They were holding up the R and B because I 0:03:31.760 --> 0:03:34.080 think many of us assumed that they were thinking that 0:03:34.120 --> 0:03:36.800 they wanted to help Chinese companies move up to value 0:03:36.800 --> 0:03:39.560 added chain. Find if trade is going to be less conducive, 0:03:39.800 --> 0:03:42.280 then they have to do more value added to make 0:03:42.320 --> 0:03:45.920 their exports more competitive. And I think that the Chinese 0:03:45.920 --> 0:03:50.119 are reluctant to risk this downward spiral that we saw, 0:03:50.240 --> 0:03:53.440 like in lower R and B lower stocks. And this 0:03:53.480 --> 0:03:56.280 is a very important time period. You know, we're about 0:03:56.320 --> 0:03:58.840 to celebrate a China is about to celebrate the seventieth 0:03:58.880 --> 0:04:01.840 anniversary of the Revolute shan In. Americans take these kind 0:04:01.840 --> 0:04:03.800 of things with a big greeness soft but I think 0:04:03.800 --> 0:04:05.680 there are in other parts of the world, like in China, 0:04:05.960 --> 0:04:10.880 these kind of national holidays, national commemorations are very important, 0:04:11.040 --> 0:04:13.000 and I think that They're gonna want to avoid this 0:04:13.120 --> 0:04:15.960 downward spoil these kind of headlines to undermine what would 0:04:15.960 --> 0:04:18.440 seem to be otherwise relatively good news. But Mark, that's 0:04:18.440 --> 0:04:20.680 something I actually do worry about this morning. On a 0:04:20.720 --> 0:04:22.840 morning like this morning, I'm not worried about the Chinese 0:04:23.000 --> 0:04:26.120 engineering currency weakness. I think that comes with massive risks 0:04:26.320 --> 0:04:27.800 for the Chinese, and I'm not sure they want to 0:04:27.800 --> 0:04:29.480 play with fire. But that's not to say they can't 0:04:29.480 --> 0:04:32.600 make a mistake. There is this immense belief, this immense 0:04:32.640 --> 0:04:36.000 faith in the Chinese policymaker's ability to keep control. And 0:04:36.040 --> 0:04:38.359 it always strikes me as odd because back in fifteen 0:04:38.440 --> 0:04:41.880 sixteen they lost control and it took months and months 0:04:41.880 --> 0:04:44.560 and months to find stability in the Chinese economy and 0:04:44.640 --> 0:04:49.640 Chinese markets. Once again, can this lead to a policy 0:04:49.680 --> 0:04:53.600 mistake if you move away from constraining the currency to 0:04:53.600 --> 0:04:57.359 tolerating weakness, can it precipitate the kind of things that 0:04:57.400 --> 0:05:00.000 the Chinese are trying to avoid. I think that's the problem, 0:05:00.080 --> 0:05:03.040 these unintended consequences. I mean, that's why I point out 0:05:03.040 --> 0:05:06.520 that today, despite the despite all the focus on China, 0:05:06.560 --> 0:05:09.800 it's actually Korea wand it actually sold off more, and 0:05:09.880 --> 0:05:15.080 so the the the unintended consequences UH, the chances for 0:05:15.120 --> 0:05:17.320 a policy mistake, not just in China but in the 0:05:17.400 --> 0:05:19.359 United States, and the way other countries respond to this. 0:05:19.440 --> 0:05:21.640 I think it's very important. We saw this with the UH. 0:05:21.680 --> 0:05:24.880 The European released this morning the composite p m I, 0:05:25.800 --> 0:05:28.440 and we see that you're and the large exporters in 0:05:28.440 --> 0:05:30.919 Europe have also been squeezed by this trade tensions. This 0:05:31.000 --> 0:05:32.680 is like bad news for the world, I think. So 0:05:32.960 --> 0:05:35.080 before we let you go, it's gonna be a busy session, 0:05:35.080 --> 0:05:37.040 perhaps a very very busy Wait. What are you looking 0:05:37.080 --> 0:05:40.560 for as the separation progresses this morning in New York? Well, 0:05:40.560 --> 0:05:42.440 I think for me, the most important thing is going 0:05:42.520 --> 0:05:44.960 to be how the US responds to what China is doing. 0:05:45.680 --> 0:05:48.160 Is I just don't see how Trump can back off, now, 0:05:48.400 --> 0:05:50.760 how the U s can back off, And so, whether 0:05:50.839 --> 0:05:53.800 it's the press conference later today or some comment from 0:05:53.880 --> 0:05:56.640 another official, I think people are gonna be very eager 0:05:56.680 --> 0:05:58.560 to see the sort of we're waiting for the other 0:05:58.600 --> 0:06:01.320 shooter drop and left to the US great to catch 0:06:01.360 --> 0:06:02.840 up with you. What a busy weight we've got ahead 0:06:02.839 --> 0:06:05.560 of us now. Bannockburn Global for X Chief Markets Strategists 0:06:06.000 --> 0:06:23.240 managing partner. I'm really glad to bring in henrietto Trees 0:06:23.440 --> 0:06:28.040 to discuss this because honestly, she has decades of experience 0:06:28.120 --> 0:06:31.400 framing all sorts of policy issues and and to me, 0:06:31.560 --> 0:06:34.279 this is the main question. So, Henrietta, thank you so 0:06:34.360 --> 0:06:38.080 much for coming in here and joining US VETA partners. 0:06:38.360 --> 0:06:41.200 What do you think an escalation looks like? Thanks for 0:06:41.240 --> 0:06:44.200 having me this morning. UM, I think you're definitely looking 0:06:44.320 --> 0:06:47.440 at a political dynamic here more than an economics one. 0:06:47.480 --> 0:06:50.640 Now that the US has exhausted essentially it's entire basket 0:06:50.640 --> 0:06:53.560 of five billion someone worth of tariff, and China has 0:06:53.640 --> 0:06:55.640 essentially done the same, Now they're going to be escalating 0:06:55.680 --> 0:06:58.680 in much more obvious political ways. UM. One of the 0:06:58.680 --> 0:07:00.720 anecdotes we heard from the administer asition early on in 0:07:00.760 --> 0:07:03.919 this trade wars that they laughed when other nations including 0:07:03.960 --> 0:07:08.760 the EU, UM and China and Mexico and Canada they laughed, 0:07:08.760 --> 0:07:12.320 and they when they put on tariffs on our agriculture exports. 0:07:12.360 --> 0:07:15.400 Because the President believes that the farmers are firmly united 0:07:15.400 --> 0:07:19.600 behind him, and UM, we're tracking polling data there very closely. 0:07:19.640 --> 0:07:22.040 But still it's about an eight percent approval rating for 0:07:22.160 --> 0:07:25.000 the Republicans and pretty high through most of the Midwest 0:07:25.320 --> 0:07:28.400 and the farms sort of heartland area in support for 0:07:28.440 --> 0:07:30.880 this trade war. So I think as we escalate, it's 0:07:30.920 --> 0:07:32.640 going to get more into the realm of the politics, 0:07:32.680 --> 0:07:36.240 and we should expect the farmers to continue to get hit. UM. Interestingly, 0:07:36.320 --> 0:07:38.640 speaking with Agriculture Committee staff, they were saying, you know, 0:07:38.920 --> 0:07:41.120 I don't care about the fourth list of tariffs going 0:07:41.120 --> 0:07:44.400 into effect. This is the US is three billion dollar basket, 0:07:44.640 --> 0:07:46.960 because there's nothing else that China can do to us. 0:07:46.960 --> 0:07:49.800 They've already carraffed US tariff d US to Kingdom come 0:07:50.040 --> 0:07:52.280 and so now China is essentially going a step further 0:07:52.400 --> 0:07:55.120 still hammering that state that same old saw which is 0:07:55.400 --> 0:07:57.840 hit the farmers all day every day, and I expect 0:07:57.880 --> 0:08:00.600 that's what they'll continue to do. Moving into main facturing 0:08:00.640 --> 0:08:02.280 that might be in the rest belt will probably be 0:08:02.280 --> 0:08:05.000 a good next step to watching um, you know, GM 0:08:05.040 --> 0:08:08.040 and Ford and seeing how they're being treated over in China. 0:08:08.320 --> 0:08:11.920 UM Seeing how any of the activities that China can 0:08:11.920 --> 0:08:15.560 take to impact those guys would be the next step. So, Henrietta, 0:08:15.760 --> 0:08:18.000 this is this raises a really important point if the 0:08:18.240 --> 0:08:22.840 escalation is more political than economic, our traders pricing in 0:08:22.880 --> 0:08:25.800 too much pessimism right now because there isn't that much more, 0:08:26.280 --> 0:08:30.480 uh that China retaliation can do to the U. S economy. See. 0:08:30.520 --> 0:08:32.480 I think that that's a bit discounted because I don't 0:08:32.480 --> 0:08:35.320 think the market has fully appreciated the severity of the tariff. 0:08:35.400 --> 0:08:38.240 Thus far, we have strong underlying economic data. And while 0:08:38.240 --> 0:08:41.040 earnings calls have started to come around and CEOs and 0:08:41.200 --> 0:08:44.760 CFOs are starting to talk about the trade war more sustinctly, Um, 0:08:44.920 --> 0:08:48.000 you're still seeing holdovers from the massive pull forward and 0:08:48.080 --> 0:08:50.720 inventories that businesses pulled off in the first and second 0:08:50.760 --> 0:08:52.959 quarter of this year, not to mention fourth quarter or 0:08:53.040 --> 0:08:55.560 last year. So I think there's still this lag that 0:08:55.600 --> 0:08:58.320 will continue to escalate, and traders need to price into 0:08:58.320 --> 0:09:01.400 the market going into suptime or and even October. There's 0:09:01.400 --> 0:09:03.600 still these reports that, you know, maybe the White House 0:09:03.679 --> 0:09:05.880 is not serious about putting these tariffs on in September. 0:09:06.120 --> 0:09:08.439 That gives folks false hope. I mean, the market being 0:09:08.440 --> 0:09:13.200 down three twenty points is um, you know, getting there, 0:09:13.280 --> 0:09:16.680 in my opinion, starting to appreciate the severity of the situation. 0:09:16.760 --> 0:09:18.959 But there's er room in my opinion, And Riett said, 0:09:19.000 --> 0:09:20.959 just finally, I'd like you to talk about where the 0:09:21.000 --> 0:09:24.480 focuses on either side in the negotiations right now. The 0:09:24.559 --> 0:09:27.000 Chinese may well be focused on the pictures coming out 0:09:27.000 --> 0:09:30.200 of Hong Kong. The president may well be focused on 0:09:30.240 --> 0:09:32.880 the tragic news over the weekend of two mass shootings 0:09:32.920 --> 0:09:36.720 in twenty four hours. Is the focus elsewhere and away 0:09:36.760 --> 0:09:40.920 from the trade talks as we begin a new training week, Well, 0:09:41.160 --> 0:09:42.840 I think we have to be mindful that U S 0:09:42.880 --> 0:09:45.360 t R is working on every single front. I mean, 0:09:45.360 --> 0:09:48.120 they're firing on all cylinders. We've got three separate cases 0:09:48.160 --> 0:09:51.840 with just the EU, they're trying to negotiate with Japan UM. 0:09:51.840 --> 0:09:54.840 When I speak with UM senior officials and with folks 0:09:54.840 --> 0:09:57.239 in the Senate of public caucus circles, with the administration, 0:09:57.600 --> 0:10:00.840 they believe firmly that it is on the brink of 0:10:00.880 --> 0:10:04.760 economic collapse. And so while the trade wars take a while, 0:10:05.280 --> 0:10:08.439 I think usc R Lifefiser is extraordinarily patient and he 0:10:08.559 --> 0:10:11.439 understands that these tires are the best tool that they 0:10:11.480 --> 0:10:14.000 have and it will not be immediate. And so I 0:10:14.040 --> 0:10:18.359 think that they believe that China issue is important, obviously, 0:10:18.760 --> 0:10:21.480 but there's plenty else perculating as you point out the 0:10:21.559 --> 0:10:25.200 domestic unrest. I think immigration and trade go hand in hand. 0:10:25.600 --> 0:10:29.160 So as we escalate with um the trade war on China, 0:10:29.280 --> 0:10:33.480 expect immigration rhetoric to be exacerbated. And the El Passo shootings, 0:10:33.840 --> 0:10:36.000 UH and the Ohio shootings obviously give us a clear 0:10:36.080 --> 0:10:38.679 example of that. So I think that it serves the 0:10:38.720 --> 0:10:41.959 President's best interest to keep both immigration and the trade 0:10:41.960 --> 0:10:44.880 wars front and center. They worked in Kandom and it's 0:10:44.880 --> 0:10:46.640 a great to cant show with you, Henrietta Trade their 0:10:46.679 --> 0:10:49.320 of Vada partners, joining us on the latest moves from 0:10:49.440 --> 0:11:06.559 China at the epicenter of the price action today the 0:11:06.640 --> 0:11:10.959 Chinese currency, that yuan dollar China through seven wang in 0:11:11.000 --> 0:11:12.679 on all of this, I pleased to say, Joining us 0:11:12.679 --> 0:11:15.560 on the phone, Alan Ruskin, Deutsche Bank Securities Managing Director 0:11:15.600 --> 0:11:19.120 and chief International Strategist. Alan just walked me through quite 0:11:19.160 --> 0:11:22.440 simply how you're framing what happened in the last twenty 0:11:22.440 --> 0:11:26.720 four hours for clients this morning. UM, Yes, sir John, 0:11:26.760 --> 0:11:30.040 It's has been an interesting twenty four hours and not 0:11:30.120 --> 0:11:34.040 a complete surprise. After you know, the last announcement from 0:11:34.240 --> 0:11:38.120 President Trump that tariffs would be raised on the you know, 0:11:38.240 --> 0:11:42.960 remaining three hundred billion imports that the US has from China. 0:11:43.440 --> 0:11:47.880 Um that being said, uh, it's you know, China's actions 0:11:48.000 --> 0:11:52.679 didn't have to occur immediately. They didn't have to actually 0:11:52.760 --> 0:11:56.079 let the currency go immediately. So I think there's this 0:11:56.240 --> 0:11:59.719 perception out there in the marketplace that they've effectively weaponized 0:11:59.760 --> 0:12:02.920 the currency and that you know, what you have is 0:12:02.920 --> 0:12:05.240 a trade war which is now turning into you know, 0:12:05.280 --> 0:12:08.319 a genuine currency war. Obviously, we've just had some cleaner 0:12:08.400 --> 0:12:11.080 comments from the PBOC just trying to dampen that down 0:12:11.080 --> 0:12:13.120 and saying they won't use the currency as a tool. 0:12:13.280 --> 0:12:14.840 But I think the proof of the pudding is in 0:12:14.880 --> 0:12:18.280 the eating, unfortunately, and you know, it looks very much 0:12:18.400 --> 0:12:21.000 to a lot of observers and probably to the U. 0:12:21.040 --> 0:12:23.840 S administration as well, that they have actually used the 0:12:23.840 --> 0:12:26.080 currency as at all. So Alan, let's talk about whether 0:12:26.120 --> 0:12:28.560 you think that is the case. I'm never a big 0:12:28.600 --> 0:12:31.320 fan of the word weaponization. I think it's very loaded. 0:12:31.679 --> 0:12:33.960 Looking at the story this morning, they've certainly moved away 0:12:34.000 --> 0:12:38.920 from constraining the currency weakness. If they're now tolerating currency weakness, 0:12:39.640 --> 0:12:44.360 will that be perceived. Is that initially the objective of 0:12:44.400 --> 0:12:47.640 the Chinese authorities for that to be perceived as some 0:12:47.720 --> 0:12:51.439 kind of weaponization of the currency. Well, it certainly looked 0:12:51.480 --> 0:12:53.920 like that up until you know, the latest comments that 0:12:53.960 --> 0:12:57.880 we've had from the PBO cum insomuch as you know, 0:12:57.920 --> 0:13:01.480 I do feel like they could have held the line 0:13:01.559 --> 0:13:05.200 in terms of you know, the seven level for a 0:13:05.240 --> 0:13:09.360 few weeks perhaps and separated the actions on the currency 0:13:09.440 --> 0:13:12.480 side from uh, you know, the actions that we're seeing 0:13:12.520 --> 0:13:17.280 on the tariffs. Um. That being said, the underlying pressures 0:13:17.320 --> 0:13:21.160 are clearly four dollar China to go substantially higher. So 0:13:21.240 --> 0:13:22.960 I think if they were going to hold the line, 0:13:22.960 --> 0:13:25.480 it was only going to be probably for a few weeks, 0:13:25.559 --> 0:13:27.600 and after that, I think they will start to run 0:13:27.960 --> 0:13:32.200 rundown reserves at a pace that was undesirable from the 0:13:32.280 --> 0:13:34.880 Chinese standpoint. And I think, you know, it was inevitable 0:13:34.920 --> 0:13:37.520 that seven was going to go at least over the 0:13:37.559 --> 0:13:40.880 next few months. So Alan, I guess let's just assume, 0:13:41.040 --> 0:13:43.080 as the market seems to be doing right now, that 0:13:43.200 --> 0:13:46.480 this is an intentional escalation and that we don't have 0:13:46.640 --> 0:13:50.760 a path back from here. That's an easy resolution. What 0:13:50.920 --> 0:13:53.360 does this look like what is the playbook for both 0:13:53.440 --> 0:13:58.160 China going forward as well as the US. Yeah, so 0:13:58.520 --> 0:14:01.680 you know, they're still open questions as to how China 0:14:01.760 --> 0:14:04.600 responds to the US and other matters. I think there's 0:14:04.720 --> 0:14:07.920 you know, question marks about you know, have they genuinely 0:14:08.080 --> 0:14:13.400 stopped agricultural imports from in the national entities? Uh? You know, 0:14:13.480 --> 0:14:16.360 those news reports are not entirely clear as well. So 0:14:16.400 --> 0:14:18.720 we need to see, you know, what other actions China 0:14:18.800 --> 0:14:21.240 comes up with, because I think that will then provoke 0:14:21.280 --> 0:14:24.400 a response from the U S side. On the U 0:14:24.480 --> 0:14:27.680 S side, you know, I think they will almost certainly 0:14:27.720 --> 0:14:30.400 point to the latest adjustment we've seen on dollar China 0:14:30.520 --> 0:14:33.800 as as currency manipulation UM as I said, and I 0:14:33.840 --> 0:14:37.720 think market forces are pushing in that direction regardless how 0:14:37.760 --> 0:14:41.600 the US responds thereafter is not obvious. They could, for example, 0:14:41.640 --> 0:14:45.360 intervene UM so they could buy uh, you know, the 0:14:45.440 --> 0:14:48.480 Chinese currency and sell dollars. But I think if that's 0:14:48.600 --> 0:14:52.320 unilateral action and it's done against the you know, the 0:14:52.360 --> 0:14:54.640 desires of the Chinese, and it's not going to be 0:14:54.720 --> 0:14:58.840 terribly effective. A worst case scenario would be the US 0:14:58.920 --> 0:15:01.960 perhaps even sort of threatening to raise tariffs more the 0:15:02.040 --> 0:15:05.000 more the Chinese allow their currency to weaken, So that 0:15:05.040 --> 0:15:07.960 really gets into pretty ugly scenario. And we've had several 0:15:07.960 --> 0:15:11.040 reports over the weekend suggesting that the advisors around the 0:15:11.040 --> 0:15:13.200 president did not want him to tweet what he tweeted 0:15:13.200 --> 0:15:14.760 at the back end of last week, and he still 0:15:14.760 --> 0:15:16.760 did it. We know from a couple of weeks ago, 0:15:16.960 --> 0:15:18.880 a couple of tuesdays ago, there was a meeting within 0:15:18.880 --> 0:15:21.960 the White House about intervening directly in the currency market. 0:15:22.000 --> 0:15:25.120 Reportedly there was a proposal from pin and Navarro about 0:15:25.120 --> 0:15:28.640 weakening the dollar by say ten percent. The President pushed back, 0:15:28.960 --> 0:15:32.200 do you actually think direct intervention may well be on 0:15:32.240 --> 0:15:36.840 the table still for this White House? Um, Look, it's 0:15:36.880 --> 0:15:40.360 it's impossible to rule out, say some sort of in 0:15:40.400 --> 0:15:43.800 a brief foray into into the foreign exchange market. I 0:15:43.800 --> 0:15:46.800 think what would uh, well, I think authorities would quickly 0:15:46.880 --> 0:15:51.400 find is that this is a difficult market to push around. 0:15:51.960 --> 0:15:53.800 And you know, even for example, if they wanted the 0:15:53.840 --> 0:15:56.000 dollar week or with the dollar in nestree weekend, or 0:15:56.040 --> 0:15:59.640 how many billions of dollars of sales will be needed 0:16:00.000 --> 0:16:02.880 actually you know, achieve end goals. I think there's all 0:16:02.920 --> 0:16:06.400 sort of question marks that I think mostly answered on 0:16:06.440 --> 0:16:09.840 the on the on the side of suggesting that intervention 0:16:10.000 --> 0:16:12.360 is not going to be effective. So I think, you know, 0:16:12.440 --> 0:16:16.360 that's why the President's advises us suggesting, well, you know, 0:16:16.560 --> 0:16:19.120 that's not a good idea. There are other arguments, of course, 0:16:19.200 --> 0:16:21.040 not least you know, if you try to drive your 0:16:21.040 --> 0:16:24.320 currency week, it's disruptive for ACID markets in general, it 0:16:24.320 --> 0:16:26.440 will be disruptive for the US bond market, for the 0:16:26.520 --> 0:16:29.280 US equity marketers, et cetera. So I think, you know, 0:16:29.280 --> 0:16:31.920 there are a lot of good reasons why you don't 0:16:31.960 --> 0:16:35.400 really want to drive your currency weaker. So currently there's 0:16:35.400 --> 0:16:37.840 a lot of fear certainly baked into markets are being 0:16:37.920 --> 0:16:41.400 baked into markets. There's a question of how much that 0:16:41.560 --> 0:16:45.560 accurately reflects what the economic readout will be from this. 0:16:45.680 --> 0:16:48.080 And I'm wondering, do you think that there's a real 0:16:48.160 --> 0:16:52.480 possibility that escalating trade war will cause some sort of 0:16:52.560 --> 0:16:56.040 either recession global downturn that is not being fully presced 0:16:56.080 --> 0:17:00.360 into the market right now. Yeah, I think there's a 0:17:00.440 --> 0:17:03.200 level of disruption that could come from this that is 0:17:03.240 --> 0:17:05.399 not being fully priced into the market. I mean, I 0:17:05.400 --> 0:17:08.960 think even if you look at in a past episodes 0:17:09.080 --> 0:17:13.199 where tariffs were an issue. Where this trade issue reared 0:17:13.240 --> 0:17:17.959 its head, you saw the equity market, the US equity 0:17:18.000 --> 0:17:22.760 market in particular, for quite sharply. The adjustments we've seen 0:17:22.880 --> 0:17:25.800 relative to those past episodes is still quite small. So 0:17:25.800 --> 0:17:28.760 it's certainly possible that you could see a much larger 0:17:28.800 --> 0:17:33.919 movements in in a risky assets in general, and that 0:17:33.960 --> 0:17:37.640 will unwind some of the easy financial conditions that we've seen, 0:17:37.680 --> 0:17:39.840 partly helped by the FED. You know. As to whether 0:17:39.840 --> 0:17:42.520 it sort of pushes the US, for example, into recession, 0:17:42.560 --> 0:17:45.280 I think that's you know, we're not we're not nearly 0:17:45.320 --> 0:17:47.760 at that stage yet, but we're at a stage where 0:17:47.840 --> 0:17:51.639 certainly this is consistent with the ongoing global slowdown and 0:17:51.760 --> 0:17:53.800 the U S slowdown. And then let's try and wrap 0:17:53.840 --> 0:17:55.640 things up with a bit of a guide book playbook 0:17:55.640 --> 0:17:57.359 for the next twenty four hours down where maybe a 0:17:57.359 --> 0:17:59.879 little bit of a mini clinic over how the Chinese 0:18:00.000 --> 0:18:02.959 arency has managed. I've always thought the fix is an 0:18:03.040 --> 0:18:05.600 unfortunate phrase because it implies it is something that perhaps 0:18:05.680 --> 0:18:08.000 it is not. But alan just walk us through for 0:18:08.080 --> 0:18:10.159 our listeners that might not be too familiar with what 0:18:10.280 --> 0:18:13.640 happens with the Chinese currency and foreign exchange markets every 0:18:13.680 --> 0:18:16.399 single day, just how they do manage this currency, what 0:18:16.480 --> 0:18:21.920 the fix actually is, and what you're looking for later tonight. Yeah, John, 0:18:21.920 --> 0:18:24.480 I wouldn't make too much of the fix really because 0:18:24.480 --> 0:18:28.000 I think what you're seeing is that outside of the fix, 0:18:28.640 --> 0:18:33.399 you're seeing much larger adjustments by the free market, some 0:18:33.520 --> 0:18:36.440 of us led by the CNH market. So for listeners, 0:18:36.480 --> 0:18:40.600 that's really you know market that's effectively Chinese currency offshore, 0:18:40.680 --> 0:18:45.679 the UH so Hong Kong based Chinese currency um. But 0:18:46.200 --> 0:18:48.240 and we're seeing a bit of a gap developed between 0:18:48.280 --> 0:18:50.359 c and Y and c n H. But on the whole, 0:18:51.119 --> 0:18:57.399 this is a indication that we're seeing from much larger 0:18:57.480 --> 0:19:01.159 adjustments occurring across the board between c n Y and 0:19:01.280 --> 0:19:04.000 c NH. So you know, what we're seeing is something 0:19:04.040 --> 0:19:08.040 which is being tolerated by authorities independent of where they 0:19:08.080 --> 0:19:12.240 may be fixing the currency at any one moment in time. Alan, 0:19:12.240 --> 0:19:14.240 do you think the risk pressure though, because of optics 0:19:14.240 --> 0:19:15.960 and the way it will be perceived to do something 0:19:16.000 --> 0:19:22.080 difference with the fix later this evening going into tomorrow, possibly, 0:19:22.119 --> 0:19:25.960 I think where the fix could be interesting is in 0:19:27.160 --> 0:19:31.760 UH supporting the statements that we've seen from the pbo 0:19:31.920 --> 0:19:35.080 C now that they won't use the currency as a tool. 0:19:35.840 --> 0:19:38.879 If they try to attempt to example, fix the currency 0:19:39.000 --> 0:19:42.280 below seven again, that would be you know, interesting, It 0:19:42.320 --> 0:19:45.760 would be contradictory perhaps too, you know, everything we've just 0:19:45.800 --> 0:19:49.560 seen over the last twelve hours or so, but it 0:19:49.600 --> 0:19:53.600 would at least be indicative of, you know, some genuine 0:19:53.680 --> 0:19:57.960 desire to limit the fallout of the currency and the 0:19:58.240 --> 0:20:00.760 weakness in the currency, and to catch up with you 0:20:00.800 --> 0:20:03.040 as always, to break down some of these foreign exchange moves. 0:20:03.080 --> 0:20:05.640 And I'm Ruskin, their Dutch Bank Securities managing to director 0:20:06.040 --> 0:20:22.240 and chief International Strategists. Let's bring in Lallie Top Charlie 0:20:22.240 --> 0:20:26.160 Shower j HCM, senior fund manager the Bloomberg Barclays agg 0:20:26.240 --> 0:20:29.520 that index on high yield getting out to four hundred 0:20:29.560 --> 0:20:33.240 basis points. Again, Larly, you have been defensive. You've been 0:20:33.280 --> 0:20:36.040 talking about the risk in this credit market. Are we 0:20:36.119 --> 0:20:38.879 seeing a reflection of that or just a reflection of 0:20:38.920 --> 0:20:41.960 treasury yields dropping drastically lower and high yield not coming 0:20:42.000 --> 0:20:44.720 along for the party. I think it's the ladder. Um. 0:20:44.760 --> 0:20:46.240 I think there's a little bit of a risk off 0:20:46.240 --> 0:20:49.480 in high yield for sure. Um. Look four hundred is 0:20:49.600 --> 0:20:54.280 still tight. It's still hundred something basis points tight here 0:20:54.320 --> 0:20:57.280 to date. UM, And I don't think the spreads are 0:20:57.280 --> 0:20:59.000 going to be cheap until we get to five hundred. 0:20:59.119 --> 0:21:02.240 So we will stay we we'll continue to say defensive. 0:21:02.720 --> 0:21:05.200 So my question is, what's the catalyst to see further 0:21:05.280 --> 0:21:09.320 weakness here, further widening and credit spreads that would offset 0:21:09.640 --> 0:21:13.720 those lower rates. Because obviously the yield is two components, 0:21:13.760 --> 0:21:16.560 write the right component and the credit spread the risks component. 0:21:17.040 --> 0:21:19.120 So what's the what's what's sort of the trigger here? 0:21:19.400 --> 0:21:21.840 I mean it's you know, at some point the credit 0:21:21.880 --> 0:21:23.960 will return to fundamentals. So if you think of the 0:21:24.000 --> 0:21:26.480 high yield, which will have a different dynamics than the 0:21:26.480 --> 0:21:28.320 investment grade, which are the larger corporations. But if you 0:21:28.359 --> 0:21:31.000 think of high yield, look again, this is one earning 0:21:31.040 --> 0:21:33.480 season and we're still going through it. The numbers are 0:21:33.520 --> 0:21:36.879 not that great, um, the leveraging has stopped. There are 0:21:36.880 --> 0:21:40.960 more companies missing numbers, UM And eventually I think, you know, 0:21:41.000 --> 0:21:43.919