1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,240 --> 00:00:13,080 Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Ley, we bring 3 00:00:13,119 --> 00:00:17,159 Speaker 1: you insight from the best and economics, finance, investment, and 4 00:00:17,280 --> 00:00:22,440 Speaker 1: international relations. Find Bloomberg Surveillance on Apple podcast, sun Cloud, 5 00:00:22,840 --> 00:00:26,320 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg terminal. 6 00:00:29,760 --> 00:00:33,080 Speaker 1: George boy joins us now, and this is extremely timely 7 00:00:33,200 --> 00:00:35,879 Speaker 1: with all Spring global investment. He's trying to place a 8 00:00:35,920 --> 00:00:39,479 Speaker 1: long term perspective on short term and marshal emotions and 9 00:00:39,520 --> 00:00:42,680 Speaker 1: were thrilled it he could be with us today. George, 10 00:00:42,680 --> 00:00:45,040 Speaker 1: What is a bond investor to do if I am 11 00:00:45,040 --> 00:00:48,000 Speaker 1: in fixed income and I want a coupon, do I 12 00:00:48,120 --> 00:00:52,879 Speaker 1: just as soon yield up in price down? Well, thank you, 13 00:00:52,960 --> 00:00:55,480 Speaker 1: good morning, good morning, Thanks for having me on the show. 14 00:00:55,920 --> 00:00:58,280 Speaker 1: It's it's great to be on again. Um you know, 15 00:00:58,320 --> 00:01:00,760 Speaker 1: as as as Lisa just mentioned, you know, it's sort 16 00:01:00,800 --> 00:01:04,080 Speaker 1: of opposite day and markets. It seems, as you know, 17 00:01:04,120 --> 00:01:08,200 Speaker 1: the market is rallying, at least stock markets rallying as um, 18 00:01:08,240 --> 00:01:10,560 Speaker 1: you know, as central banks kind of around the world 19 00:01:10,959 --> 00:01:14,440 Speaker 1: that they're trying to re establish their credibility as inflation 20 00:01:14,520 --> 00:01:17,800 Speaker 1: fighters and you know, the playbook if you will to 21 00:01:17,920 --> 00:01:20,840 Speaker 1: fight to fight inflation is is pretty well understood. You 22 00:01:21,240 --> 00:01:26,280 Speaker 1: tighten policy, you hopefully you reduce liquidity in the system, 23 00:01:26,319 --> 00:01:30,959 Speaker 1: that slows growth and inflation comes under control. Now, all 24 00:01:31,000 --> 00:01:33,679 Speaker 1: that takes time, takes a lot of effort, and what 25 00:01:33,760 --> 00:01:35,840 Speaker 1: seems to have happened in the last day or so 26 00:01:36,880 --> 00:01:39,720 Speaker 1: is the Fed. You know, the Fed has basically met 27 00:01:39,800 --> 00:01:43,360 Speaker 1: market expectations and in doing so, you know, now the 28 00:01:43,400 --> 00:01:46,640 Speaker 1: market seems to believe that we're on course for a 29 00:01:46,720 --> 00:01:49,920 Speaker 1: soft landing, that the market knew what they wanted, the 30 00:01:50,000 --> 00:01:52,640 Speaker 1: Fed gave it to them, and now all we need 31 00:01:52,720 --> 00:01:55,640 Speaker 1: to do is sit back. The glide path is set, 32 00:01:56,080 --> 00:01:59,880 Speaker 1: and we're gonna see slower growth next year and moderating inflation. 33 00:02:00,280 --> 00:02:04,120 Speaker 1: That's a very optimistic outlook. You know. Our view is that, 34 00:02:04,320 --> 00:02:06,040 Speaker 1: you know that things are gonna be a little bit 35 00:02:06,080 --> 00:02:09,919 Speaker 1: more choppy than that. And even Powell acknowledge that this 36 00:02:10,000 --> 00:02:13,360 Speaker 1: is this isn't this is a totally unique market, and 37 00:02:13,400 --> 00:02:16,000 Speaker 1: that they're going to watch the economy just like we will, 38 00:02:16,280 --> 00:02:20,359 Speaker 1: and they're gonna respond. They've basically told us that their 39 00:02:20,400 --> 00:02:22,720 Speaker 1: forward guidance is going to be a little less clear 40 00:02:22,800 --> 00:02:26,480 Speaker 1: going forward. So to use that flight path analogy, you know, 41 00:02:26,639 --> 00:02:29,000 Speaker 1: it's it's not so safe to move around the cabin. 42 00:02:29,600 --> 00:02:32,160 Speaker 1: It maybe might take a little bit more. There might 43 00:02:32,160 --> 00:02:34,600 Speaker 1: be a little bit more volatility. And you're right, Tom, 44 00:02:34,680 --> 00:02:38,040 Speaker 1: bond investors need to watch this very closely. It's been 45 00:02:38,080 --> 00:02:41,440 Speaker 1: pretty benign action in the bond market. Ten Your yields are, 46 00:02:41,720 --> 00:02:44,359 Speaker 1: you know, up a little They're probably gonna go up 47 00:02:44,400 --> 00:02:47,119 Speaker 1: a little more, and curves could steep in a bit 48 00:02:47,200 --> 00:02:49,800 Speaker 1: in here. But we're now starting to sort of play 49 00:02:49,800 --> 00:02:53,320 Speaker 1: the expectation game. FED hikes are now priced in and 50 00:02:53,360 --> 00:02:56,120 Speaker 1: the long end has remained anchored, so you have to 51 00:02:56,160 --> 00:02:58,880 Speaker 1: reach for yield. Sorry, go ahead, but Georgia have to 52 00:02:58,919 --> 00:03:00,560 Speaker 1: reach for yield. And this is the reason why you've 53 00:03:00,560 --> 00:03:02,960 Speaker 1: seen such disability and the credit markets as well. I'm 54 00:03:03,000 --> 00:03:06,120 Speaker 1: looking at spreads. They didn't widen on the heels of this, 55 00:03:06,720 --> 00:03:09,600 Speaker 1: of this announcement and more hawkish tilt from the Federal Reserve. 56 00:03:09,840 --> 00:03:12,160 Speaker 1: This is exactly again, the opposite of what happened in 57 00:03:12,200 --> 00:03:15,720 Speaker 1: two thousand and thirteen when our markets going to get 58 00:03:15,760 --> 00:03:18,280 Speaker 1: a little more rattled. Could that happen or is there 59 00:03:18,480 --> 00:03:21,799 Speaker 1: ultimate faith that FED share J. Powell will step in 60 00:03:21,840 --> 00:03:25,000 Speaker 1: the moment that there's turbulence and and really try to 61 00:03:25,040 --> 00:03:27,320 Speaker 1: calm the waters by taking a step off the pedal. 62 00:03:28,160 --> 00:03:30,160 Speaker 1: I think bond markets, we think bond markets are a 63 00:03:30,200 --> 00:03:32,120 Speaker 1: little too sanguine in here. You know, if you take 64 00:03:32,160 --> 00:03:35,160 Speaker 1: the largest buyer of bonds of certainly uh, you know, 65 00:03:35,240 --> 00:03:38,760 Speaker 1: treasuries out of the market. As we go forward, you 66 00:03:38,760 --> 00:03:42,440 Speaker 1: should expect more volatility. Also, the economic outcomes here are 67 00:03:42,520 --> 00:03:45,520 Speaker 1: not quite as certain perhaps as the market expects. But 68 00:03:45,720 --> 00:03:47,520 Speaker 1: the one thing that is certain is that, you know, 69 00:03:47,560 --> 00:03:50,920 Speaker 1: the economy is strong, inflations running high. That is pretty 70 00:03:50,920 --> 00:03:53,640 Speaker 1: good for for corporations. And so there's a there's an 71 00:03:53,720 --> 00:03:56,000 Speaker 1: argument to be made as to why, you know, stock 72 00:03:56,040 --> 00:03:58,480 Speaker 1: prices are at least holding moving up a bit higher. 73 00:03:58,600 --> 00:04:00,600 Speaker 1: But in the world of credit and the world of 74 00:04:00,600 --> 00:04:03,280 Speaker 1: of sort of you know, sort of credit based fixed income, 75 00:04:03,640 --> 00:04:06,280 Speaker 1: you know, sort of higher inflation is actually a pretty 76 00:04:06,320 --> 00:04:10,400 Speaker 1: good environment from from a default perspective, default should go down, 77 00:04:10,480 --> 00:04:13,800 Speaker 1: stay low, go down, remain low as we move forward. 78 00:04:14,040 --> 00:04:17,360 Speaker 1: And that's that's that's that's a healthy indication you need 79 00:04:17,440 --> 00:04:21,119 Speaker 1: the extra income. Diversified sources of income are the best 80 00:04:21,120 --> 00:04:24,320 Speaker 1: thing you can have in a fixed income portfolio today, 81 00:04:24,360 --> 00:04:26,760 Speaker 1: and you need that extra income. Number one, you may 82 00:04:26,839 --> 00:04:29,880 Speaker 1: use it, but more importantly, from an investment perspective, you're 83 00:04:29,920 --> 00:04:33,240 Speaker 1: looking for opportunities to reinvest. The income yields should go 84 00:04:33,320 --> 00:04:35,479 Speaker 1: a bit higher. We need to be able to reinvest 85 00:04:35,520 --> 00:04:38,479 Speaker 1: at higher rates, so we want slightly shorter duration. And 86 00:04:38,480 --> 00:04:41,880 Speaker 1: then liquidity. Liquidity is really really important in the market. 87 00:04:42,000 --> 00:04:44,520 Speaker 1: Liquidity has been great for a long period of time, 88 00:04:44,680 --> 00:04:47,760 Speaker 1: which is why risk premiums are so low. As liquidity 89 00:04:47,839 --> 00:04:50,840 Speaker 1: starts to decline, we need to preserve that liquidity and 90 00:04:50,920 --> 00:04:53,880 Speaker 1: portfolios we need to be able to tactically move when 91 00:04:53,920 --> 00:04:56,520 Speaker 1: the market shifts. Now all those things come together in 92 00:04:56,520 --> 00:04:59,599 Speaker 1: a fixed income portfolio, and so we need to protect 93 00:04:59,600 --> 00:05:02,279 Speaker 1: CAPA in a rising rate environment where the FED is 94 00:05:02,640 --> 00:05:06,080 Speaker 1: basically given the green light to start tightening policy. As 95 00:05:06,120 --> 00:05:09,120 Speaker 1: you guys have mentioned, Bank of England saw the green light. 96 00:05:09,360 --> 00:05:12,800 Speaker 1: They moved, Other banks around the world they've moved. We're 97 00:05:12,839 --> 00:05:16,359 Speaker 1: moving into a regime of tighter monetary policy. You know, 98 00:05:16,440 --> 00:05:19,839 Speaker 1: sort of basic principle of don't fight the Fed is 99 00:05:19,880 --> 00:05:24,200 Speaker 1: something that people should adhere to. One Taylor Riggs teaches 100 00:05:24,240 --> 00:05:26,840 Speaker 1: me day in day out that it is about rate 101 00:05:26,920 --> 00:05:30,040 Speaker 1: of change. And of course we are seeing significant rate 102 00:05:30,080 --> 00:05:32,400 Speaker 1: of change a move of were boring cost for the 103 00:05:32,480 --> 00:05:35,240 Speaker 1: United Kingdom yell spike higher across the Guild curve. I mean, 104 00:05:35,279 --> 00:05:37,160 Speaker 1: you see the six basis point move on the teniest 105 00:05:37,200 --> 00:05:39,520 Speaker 1: similar moves. Who're seeing the short term, but we've seen 106 00:05:39,520 --> 00:05:44,000 Speaker 1: a slight bull stephening of the US yel curve today. 107 00:05:44,040 --> 00:05:46,400 Speaker 1: What though a rate of change of how much steeper 108 00:05:46,440 --> 00:05:48,640 Speaker 1: these yel C couves could become and how quickly? From 109 00:05:48,640 --> 00:05:51,720 Speaker 1: your perspective, So, I think the rate of change has 110 00:05:51,760 --> 00:05:53,960 Speaker 1: a lot to do with market expectations. And I think 111 00:05:53,960 --> 00:05:56,720 Speaker 1: one of the reasons that the the the long end 112 00:05:56,760 --> 00:05:59,640 Speaker 1: of curves are remaining so well behaved is they still 113 00:06:00,040 --> 00:06:04,480 Speaker 1: market still sees very strong government intervention. And the market 114 00:06:04,480 --> 00:06:07,200 Speaker 1: and the and the and the Fed and other central 115 00:06:07,200 --> 00:06:10,040 Speaker 1: banks have indicated the pace at which they are going 116 00:06:10,080 --> 00:06:12,799 Speaker 1: to change. Now the Fed increase the rate of change, 117 00:06:12,920 --> 00:06:15,640 Speaker 1: and bond yield state the same. So there's always sort 118 00:06:15,640 --> 00:06:18,080 Speaker 1: of this tension between the market and the you know, 119 00:06:18,200 --> 00:06:21,760 Speaker 1: policymakers is to where is the breaking point? Uh and 120 00:06:21,760 --> 00:06:23,920 Speaker 1: and the market seems to be comfortable with the rate 121 00:06:23,920 --> 00:06:27,040 Speaker 1: of change, of the deceleration if you will, of q 122 00:06:27,240 --> 00:06:31,080 Speaker 1: E and and not too spooked, spooked by that. If 123 00:06:31,120 --> 00:06:34,760 Speaker 1: inflation remains much hotter than expected, if it actually accelerates 124 00:06:34,800 --> 00:06:37,640 Speaker 1: from here, well, then those paces that rate of change 125 00:06:38,040 --> 00:06:40,680 Speaker 1: is ultimately going to have to change. The rate of 126 00:06:40,760 --> 00:06:43,119 Speaker 1: change of money coming into the market was like nothing 127 00:06:43,160 --> 00:06:46,479 Speaker 1: you've never experienced. Back in the rate of change of 128 00:06:46,480 --> 00:06:48,960 Speaker 1: money coming out of the market tends to be slow 129 00:06:49,120 --> 00:06:52,520 Speaker 1: and steady until you reach that tipping point the markets 130 00:06:52,520 --> 00:06:55,520 Speaker 1: selling you. Right now, we're far far from that tipping point. 131 00:06:55,760 --> 00:06:58,760 Speaker 1: There's a long runway ahead of us, but we simply 132 00:06:58,760 --> 00:07:00,920 Speaker 1: don't know, and we're gonna have to see. It does 133 00:07:01,000 --> 00:07:04,160 Speaker 1: seem like it's more than twelve months away, but again 134 00:07:04,240 --> 00:07:06,240 Speaker 1: we're gonna have to see. We think you should keep 135 00:07:06,279 --> 00:07:11,200 Speaker 1: those seatbelts buckled, extra income, shorter duration, and lots of 136 00:07:11,200 --> 00:07:14,840 Speaker 1: liquidity in your fixed income. Work secuy nicely for me, George, 137 00:07:14,840 --> 00:07:17,120 Speaker 1: as we talk about seat belts buckled. George Bowie with 138 00:07:17,280 --> 00:07:19,800 Speaker 1: us there from all spring, and thank you for the perspective. 139 00:07:25,520 --> 00:07:29,200 Speaker 1: We now moved to Seth Carpenter, cheat global economist at Morgan, 140 00:07:29,280 --> 00:07:32,480 Speaker 1: Stanley and South. I want to frame those pushing against 141 00:07:32,960 --> 00:07:35,760 Speaker 1: the zeitgeist. I think of Priam Miserable at t D 142 00:07:35,960 --> 00:07:39,880 Speaker 1: Securities who made clear, yes, rising inflation is there, but 143 00:07:40,080 --> 00:07:44,120 Speaker 1: if it ebbs, it will not dissuade the Central Bank. 144 00:07:44,560 --> 00:07:48,200 Speaker 1: And the brilliant note from your colleague Ellen Zentner overnight, 145 00:07:48,560 --> 00:07:52,880 Speaker 1: who stood aground and said inflation will cool in February 146 00:07:53,000 --> 00:07:57,280 Speaker 1: or March of next year. What does Jerome Pool Jerome 147 00:07:57,400 --> 00:08:03,880 Speaker 1: Powell do if we see a inflation I think the 148 00:08:03,920 --> 00:08:06,280 Speaker 1: real answer is it depends on how much it's cooling. 149 00:08:06,360 --> 00:08:10,080 Speaker 1: So uh, Ellen's forecast is great, and we think the 150 00:08:10,200 --> 00:08:12,200 Speaker 1: monthly prints are going to start to come down and 151 00:08:12,240 --> 00:08:14,240 Speaker 1: you'll start to see it in Q one and more 152 00:08:14,280 --> 00:08:17,560 Speaker 1: in Q two um. But just coming down isn't going 153 00:08:17,600 --> 00:08:20,360 Speaker 1: to be enough. What I took the change in Powell's 154 00:08:20,440 --> 00:08:23,000 Speaker 1: rhetoric to mean is that he still cares a lot 155 00:08:23,160 --> 00:08:26,440 Speaker 1: about the trajectory of inflation, but he also cares about 156 00:08:26,480 --> 00:08:30,040 Speaker 1: the level. Now he started talking about price stability being 157 00:08:30,280 --> 00:08:33,760 Speaker 1: uh the path to to full employment, and he said 158 00:08:33,800 --> 00:08:35,840 Speaker 1: there's versions of the world where they would hike even 159 00:08:35,880 --> 00:08:38,400 Speaker 1: before they got to full employment if inflation was too high. 160 00:08:38,720 --> 00:08:40,680 Speaker 1: So now we're looking at not just the need for 161 00:08:40,720 --> 00:08:43,320 Speaker 1: inflation to come down, for them to sort of come 162 00:08:43,320 --> 00:08:45,400 Speaker 1: off the boiler a little bit. But also what that 163 00:08:45,480 --> 00:08:48,000 Speaker 1: level is going to look like. SOE, I'd loved your 164 00:08:48,000 --> 00:08:51,320 Speaker 1: sense of what happened yesterday in markets in response to 165 00:08:51,360 --> 00:08:54,040 Speaker 1: this hawk is chilt from a fatal reserve that may 166 00:08:54,040 --> 00:08:56,280 Speaker 1: be unwarranted to some degree if you do see a 167 00:08:56,320 --> 00:09:00,760 Speaker 1: cooling off in inflation. We saw stocks rally, bonds rally, 168 00:09:00,840 --> 00:09:03,360 Speaker 1: we saw everything rally, and people said why. And one 169 00:09:03,400 --> 00:09:06,720 Speaker 1: theory is because Jerome Powell basically said they would not 170 00:09:06,920 --> 00:09:09,720 Speaker 1: just halt any purchases right away because they didn't want 171 00:09:09,720 --> 00:09:12,960 Speaker 1: to disrupt markets. It would be too difficult to absorb. 172 00:09:13,240 --> 00:09:16,560 Speaker 1: Is this basically tacit admission that the markets are an 173 00:09:16,559 --> 00:09:19,320 Speaker 1: incredible call on anything that they do, and that they 174 00:09:19,360 --> 00:09:24,880 Speaker 1: will not do anything to unduly route royal valuations. Well, 175 00:09:25,440 --> 00:09:27,280 Speaker 1: I don't think it's quite quite as strong as that. 176 00:09:27,400 --> 00:09:30,480 Speaker 1: I think Powell was clear that they are going to 177 00:09:30,480 --> 00:09:34,200 Speaker 1: be cautious, they were not intending to to disrupt markets, 178 00:09:34,280 --> 00:09:36,720 Speaker 1: and so I think there's probably some comfort taken from that. 179 00:09:37,240 --> 00:09:41,400 Speaker 1: I think there's probably a slightly more fundamental version of things, though, 180 00:09:41,440 --> 00:09:44,400 Speaker 1: which is the whole market started to has already had 181 00:09:44,400 --> 00:09:47,080 Speaker 1: already thought that that the FED was going to turn hawkish. 182 00:09:47,120 --> 00:09:49,320 Speaker 1: If you look at market pricing for rate hikes. There's 183 00:09:49,320 --> 00:09:52,520 Speaker 1: still material probability on a rate hike as soon as March. 184 00:09:53,320 --> 00:09:56,880 Speaker 1: So the turn to hawkishness I think was not a surprise. 185 00:09:58,160 --> 00:10:00,160 Speaker 1: The relief, perhaps in part, was that they didn't in 186 00:10:00,200 --> 00:10:02,640 Speaker 1: fact get more hawkish than they than they did. I 187 00:10:02,640 --> 00:10:05,360 Speaker 1: think there was a part of the market at tail, 188 00:10:05,400 --> 00:10:07,640 Speaker 1: if you will, the distribution that was worried that they 189 00:10:07,640 --> 00:10:09,520 Speaker 1: could be even more hawkish than they were. So you 190 00:10:09,559 --> 00:10:11,760 Speaker 1: put together the fact that he he said they weren't 191 00:10:11,760 --> 00:10:14,640 Speaker 1: going to actively try to disrupt markets, and the fact 192 00:10:14,679 --> 00:10:17,560 Speaker 1: that some people were probably relieved that they weren't more hawkish, 193 00:10:17,559 --> 00:10:19,880 Speaker 1: and you get the price action. How much can we 194 00:10:19,920 --> 00:10:23,040 Speaker 1: actually glean in terms of a narrative from the market, 195 00:10:23,040 --> 00:10:25,680 Speaker 1: and particularly the bond market, because right now it is 196 00:10:25,720 --> 00:10:29,160 Speaker 1: not signaling any worry about runaway inflation or frankly any 197 00:10:29,200 --> 00:10:32,560 Speaker 1: inflation whatsoever, and doesn't see what the FED is seeing 198 00:10:32,640 --> 00:10:36,839 Speaker 1: in terms of something new. Uh Yeah, So that I 199 00:10:36,880 --> 00:10:40,480 Speaker 1: think is the tricky part. Tom mentioned ellen Zentner and 200 00:10:40,600 --> 00:10:43,360 Speaker 1: the great work that she does here. I'll highlight Matt 201 00:10:43,400 --> 00:10:46,120 Speaker 1: Hornback and his team at the point to jet Still, 202 00:10:47,240 --> 00:10:50,200 Speaker 1: how much liquidity central banks globally or put you know, 203 00:10:50,240 --> 00:10:52,480 Speaker 1: have have added to markets just how big balance sheets 204 00:10:52,480 --> 00:10:54,720 Speaker 1: still are, and that's got to be weighing on the 205 00:10:54,800 --> 00:10:58,080 Speaker 1: long end of the curve, you know, over time. As uh, 206 00:10:58,360 --> 00:11:01,200 Speaker 1: the FED keeps hiking rates over the course of next 207 00:11:01,280 --> 00:11:04,520 Speaker 1: year and starts to signal the discussion about balance sheet runoff. 208 00:11:04,880 --> 00:11:07,880 Speaker 1: Presumably the long end starts to go up from here. 209 00:11:08,520 --> 00:11:11,800 Speaker 1: But there they've been very vocal that the global central 210 00:11:11,800 --> 00:11:14,520 Speaker 1: bank liquidity of provision is weighing on the long end. 211 00:11:16,000 --> 00:11:18,520 Speaker 1: You of course, that's spent fifteen years over at the FED, 212 00:11:18,600 --> 00:11:21,160 Speaker 1: and I'm interested. There was a lot of handwringing across 213 00:11:21,200 --> 00:11:24,680 Speaker 1: Bloomberg and many an intelligent writer saying, look, they there's 214 00:11:24,760 --> 00:11:27,319 Speaker 1: never been such a signal from the yield curve and 215 00:11:27,360 --> 00:11:30,160 Speaker 1: we cannot hike into this sort of a flatten yield 216 00:11:30,160 --> 00:11:32,680 Speaker 1: curve expectation. But from your perspective, we heard from j 217 00:11:32,800 --> 00:11:35,560 Speaker 1: Pow saying, look, we are focused on maximum employment, on 218 00:11:35,600 --> 00:11:39,720 Speaker 1: price stability, and not on some model. What does how 219 00:11:39,800 --> 00:11:41,559 Speaker 1: much do they care about the yield curve or not. 220 00:11:43,160 --> 00:11:45,480 Speaker 1: One of my former bosses that the FED was find 221 00:11:45,480 --> 00:11:48,120 Speaker 1: of saying that the m C is seventeen people that 222 00:11:48,160 --> 00:11:50,920 Speaker 1: don't agree on the color of an orange. So there's 223 00:11:50,920 --> 00:11:53,240 Speaker 1: a range of views as to how important the yield 224 00:11:53,280 --> 00:11:55,120 Speaker 1: curve is. We can just go back to the last 225 00:11:55,200 --> 00:11:58,480 Speaker 1: right hiking cycle. The market chatter then was also about 226 00:11:58,480 --> 00:12:00,280 Speaker 1: the flattening of the yield curve, and they were members 227 00:12:00,280 --> 00:12:02,680 Speaker 1: of the committee that said they would not vote for 228 00:12:02,720 --> 00:12:06,160 Speaker 1: a rate hike that would flatten or invert the curve, 229 00:12:06,679 --> 00:12:08,559 Speaker 1: and there are others that were willing to just keep 230 00:12:09,600 --> 00:12:11,559 Speaker 1: hiking along with it. I think what I heard from 231 00:12:11,559 --> 00:12:15,720 Speaker 1: Powell yesterday as he pointed to strong job growth, he 232 00:12:15,760 --> 00:12:19,200 Speaker 1: pointed to strong GDP growth that's still above potential and 233 00:12:19,240 --> 00:12:23,320 Speaker 1: inflation running well above target as as a backdrop for 234 00:12:23,440 --> 00:12:26,920 Speaker 1: an economy that he thinks can handle some more normalization 235 00:12:26,920 --> 00:12:29,480 Speaker 1: of policy. So if I want to go to your 236 00:12:29,520 --> 00:12:33,360 Speaker 1: Princeton PhD. And there's a good guy there named Blinder 237 00:12:33,640 --> 00:12:37,240 Speaker 1: who's done pretty good in economics and blind one of 238 00:12:37,280 --> 00:12:41,600 Speaker 1: Blinders acclaimed quotes is, you know inflation is not a 239 00:12:41,640 --> 00:12:45,760 Speaker 1: problem when people stop talking about it. When do we 240 00:12:45,880 --> 00:12:51,280 Speaker 1: stop talking about inflation? I think that's probably some time off, 241 00:12:51,800 --> 00:12:56,120 Speaker 1: because I think for the regular person, they don't look 242 00:12:56,120 --> 00:12:58,600 Speaker 1: at the CPI index and take the month on month 243 00:12:58,720 --> 00:13:01,600 Speaker 1: change annualize it. They they ask themselves, and might paying 244 00:13:01,640 --> 00:13:05,560 Speaker 1: more to put gas in my guest tank? Am I 245 00:13:05,640 --> 00:13:08,439 Speaker 1: paying more to buy food of the grocery store? And 246 00:13:08,760 --> 00:13:12,240 Speaker 1: we could easily see inflation itself come down a great deal, 247 00:13:12,480 --> 00:13:15,040 Speaker 1: but price levels staying high, especially for the ones that 248 00:13:15,080 --> 00:13:17,320 Speaker 1: are most salient for consumers. So I think there's gonna 249 00:13:17,320 --> 00:13:19,880 Speaker 1: be a long time that the discussion of inflation is 250 00:13:20,640 --> 00:13:22,840 Speaker 1: in the air. Seth, thank you so much, Seth Carpenter. 251 00:13:22,960 --> 00:13:28,800 Speaker 1: With Morgan Stanley, it's so hard to make sense of 252 00:13:28,840 --> 00:13:30,840 Speaker 1: any of this. Biat of her will do a better 253 00:13:30,920 --> 00:13:33,200 Speaker 1: job than I. She has co head of investment Strategies 254 00:13:33,240 --> 00:13:36,520 Speaker 1: at Bernstein Private Wealth Management, joining us now Biada. What 255 00:13:36,600 --> 00:13:39,600 Speaker 1: do you make of the markets shrug to all of 256 00:13:39,640 --> 00:13:42,920 Speaker 1: these hawkish proclamations. Has it all just been baked in 257 00:13:43,160 --> 00:13:47,920 Speaker 1: or is there something that you're gleaning that's a message. Well, 258 00:13:47,920 --> 00:13:50,880 Speaker 1: what we make of the market's reaction to the FED 259 00:13:50,960 --> 00:13:55,319 Speaker 1: statement yesterday is the market cares about clarity and communication, 260 00:13:55,840 --> 00:13:57,960 Speaker 1: and what the market is responding to is that this 261 00:13:58,200 --> 00:14:01,640 Speaker 1: FED has moved in an extraordinary every way from their 262 00:14:01,760 --> 00:14:05,240 Speaker 1: talk track this summer when transitory ruled the day and 263 00:14:05,280 --> 00:14:08,400 Speaker 1: there was not an acknowledgement of the persistence of inflation. 264 00:14:09,000 --> 00:14:12,679 Speaker 1: Just one meeting later, the mood has shifted completely, and 265 00:14:12,720 --> 00:14:15,240 Speaker 1: I think the market just feels confident that the FED 266 00:14:15,360 --> 00:14:19,800 Speaker 1: is being clear about its communication, being transparent about what 267 00:14:19,880 --> 00:14:22,720 Speaker 1: it intends to do, and I think that is really 268 00:14:22,760 --> 00:14:26,640 Speaker 1: confidence inducing. What part of the equity market am I 269 00:14:26,720 --> 00:14:30,880 Speaker 1: most comfortable in? While I'm going to go with the 270 00:14:30,920 --> 00:14:32,960 Speaker 1: part that it's not a sector and it's not a stock, 271 00:14:33,040 --> 00:14:37,680 Speaker 1: it's quality. Which companies can control the supply chain the best, 272 00:14:38,160 --> 00:14:42,000 Speaker 1: which companies have an edge in terms of retention of 273 00:14:42,120 --> 00:14:46,200 Speaker 1: labor assets and attraction of labor assets, and then which 274 00:14:46,200 --> 00:14:50,760 Speaker 1: companies can exert pricing power. It's not an even outcome. 275 00:14:50,840 --> 00:14:53,720 Speaker 1: It is very much a stock pickers market because some 276 00:14:53,800 --> 00:14:56,400 Speaker 1: companies are going to be able to exert that price 277 00:14:56,440 --> 00:14:59,440 Speaker 1: pressure and really control the supply chain better than others. 278 00:14:59,680 --> 00:15:02,000 Speaker 1: It's to of out there, and we see that with 279 00:15:02,320 --> 00:15:05,240 Speaker 1: both the employment picture and the supply chain picture, and 280 00:15:05,320 --> 00:15:08,360 Speaker 1: that's not going to be easily resolved in twenty two. 281 00:15:08,880 --> 00:15:11,680 Speaker 1: What will be the dynamic of margins We really haven't 282 00:15:11,680 --> 00:15:13,440 Speaker 1: talked about it in the last week, but the bulls 283 00:15:13,480 --> 00:15:17,520 Speaker 1: obviously taking a victory lap here with a terrific move, 284 00:15:18,120 --> 00:15:22,760 Speaker 1: but what is your shops say about margin dynamics? Given 285 00:15:23,120 --> 00:15:27,280 Speaker 1: what central banks are doing, we think there's likely to 286 00:15:27,320 --> 00:15:30,080 Speaker 1: be real pressure on margins. We do feel like that's 287 00:15:30,080 --> 00:15:32,600 Speaker 1: a vulnerability of the market, that's a risk that we 288 00:15:32,680 --> 00:15:36,240 Speaker 1: have to watch. We're still optimistic about equities because we 289 00:15:36,320 --> 00:15:39,720 Speaker 1: see earnings growth next year still in the high single 290 00:15:39,760 --> 00:15:43,480 Speaker 1: digit range. But again, it's going to be very specific 291 00:15:43,520 --> 00:15:46,440 Speaker 1: to companies on what they are able to control, and 292 00:15:46,680 --> 00:15:49,080 Speaker 1: there's not that much that they can control. It's just 293 00:15:49,200 --> 00:15:52,040 Speaker 1: which companies are taking matters into their own hands, whether 294 00:15:52,080 --> 00:15:56,240 Speaker 1: it's buying their own planes for logistics and distribution, or 295 00:15:56,480 --> 00:15:59,360 Speaker 1: real changes on the labor cost pecture. But margins are 296 00:15:59,360 --> 00:16:03,200 Speaker 1: a key area for us to watch next year. So 297 00:16:03,320 --> 00:16:05,240 Speaker 1: can you go as far to say as you can 298 00:16:05,840 --> 00:16:09,920 Speaker 1: look at industry groups or indeed the way in which 299 00:16:09,920 --> 00:16:12,120 Speaker 1: you can focus on a value versus a growth stock, 300 00:16:12,240 --> 00:16:14,560 Speaker 1: or do you really have to be individual stock named 301 00:16:14,560 --> 00:16:17,080 Speaker 1: by individual stock name at this moment because we all 302 00:16:17,120 --> 00:16:19,600 Speaker 1: anticipated that at some point value might get its time 303 00:16:19,640 --> 00:16:22,480 Speaker 1: in the sun. Many anticipating in Europe could outperform us, 304 00:16:22,560 --> 00:16:25,400 Speaker 1: for example, because they're more value in nature than growth. 305 00:16:25,520 --> 00:16:29,240 Speaker 1: But growth can can sometimes help held up in terms 306 00:16:29,240 --> 00:16:32,800 Speaker 1: of margins, certainly for big tech. Yeah, I look at 307 00:16:32,800 --> 00:16:36,040 Speaker 1: the market response yesterday in big cap tech. A lot 308 00:16:36,120 --> 00:16:39,280 Speaker 1: of market watchers really believe that when the FED starts 309 00:16:39,440 --> 00:16:41,680 Speaker 1: raising rates, growth is going to be vulnerable. And in 310 00:16:41,760 --> 00:16:44,720 Speaker 1: the end big cap tech, when you look at their 311 00:16:44,760 --> 00:16:48,920 Speaker 1: defensive modes around pricing and the need for their goods, 312 00:16:49,040 --> 00:16:52,160 Speaker 1: that didn't happen. So we would not be abanned any growth, 313 00:16:52,200 --> 00:16:54,640 Speaker 1: but we also would not be ignoring value. We want 314 00:16:54,680 --> 00:16:57,800 Speaker 1: to remain balanced across sectors. We want to remain a 315 00:16:57,920 --> 00:17:01,960 Speaker 1: global investor as well. You can't deny that x US 316 00:17:02,080 --> 00:17:06,800 Speaker 1: markets are more attractive on evaluation basis. And let's talk 317 00:17:06,840 --> 00:17:10,000 Speaker 1: about Europe in particular. You've got more cyclicals there, You've 318 00:17:10,000 --> 00:17:13,600 Speaker 1: got more financials, So as Amicron makes its way around 319 00:17:13,640 --> 00:17:16,800 Speaker 1: the world, they may be able to emerge first, really 320 00:17:16,880 --> 00:17:20,600 Speaker 1: opening up the opportunity for more of those value stocks 321 00:17:20,600 --> 00:17:25,359 Speaker 1: and cyclicals x US where valuations are much more attractive. Vietta, 322 00:17:25,520 --> 00:17:28,640 Speaker 1: does it concern you that the consensus is bullish at 323 00:17:28,640 --> 00:17:31,920 Speaker 1: a time of such incredibly high valuation, certainly on many 324 00:17:31,960 --> 00:17:36,560 Speaker 1: historical levels. Well, if you look at valuations on the 325 00:17:36,680 --> 00:17:40,040 Speaker 1: US market at twenty one times with the tenure where 326 00:17:40,040 --> 00:17:42,840 Speaker 1: it is. It's not that out of line, Frankly, and 327 00:17:42,880 --> 00:17:45,240 Speaker 1: I think you have to look back to rate hike 328 00:17:45,480 --> 00:17:48,560 Speaker 1: cycles and I think we've got thirteen of them since 329 00:17:48,680 --> 00:17:52,680 Speaker 1: nineteen fifty. The S and P is actually up eight 330 00:17:52,680 --> 00:17:56,280 Speaker 1: percent on average in those rate hike periods, and that's 331 00:17:56,280 --> 00:17:59,520 Speaker 1: an important statistic to keep in mind. Again, Why did 332 00:17:59,520 --> 00:18:03,800 Speaker 1: Actuality have the response they did yesterday and continuing throughout today? 333 00:18:04,080 --> 00:18:07,200 Speaker 1: It could be okay, right, the messaging from the FAT 334 00:18:07,280 --> 00:18:09,960 Speaker 1: is going to be the most important part of what 335 00:18:10,119 --> 00:18:13,080 Speaker 1: happens in twenty two, So we don't look at valuations 336 00:18:13,400 --> 00:18:16,760 Speaker 1: as incredibly high relative to the rate environment. We come 337 00:18:16,760 --> 00:18:20,400 Speaker 1: back to Tina, there is no alternative. The flows into 338 00:18:20,480 --> 00:18:23,480 Speaker 1: equities are going to continue to be sustained. Um. We 339 00:18:23,520 --> 00:18:26,480 Speaker 1: think there's tremendous liquidity and excess savings out there to 340 00:18:26,520 --> 00:18:29,280 Speaker 1: support that. Be out to thank you so much. Out 341 00:18:29,280 --> 00:18:37,959 Speaker 1: of Kurt with burnste in Private Wealth Management right now 342 00:18:38,200 --> 00:18:42,040 Speaker 1: parachuting in. Stephen Englander joins us with that question. The 343 00:18:42,160 --> 00:18:44,879 Speaker 1: number one Cross Rates guy in the world working for 344 00:18:45,000 --> 00:18:48,280 Speaker 1: the Cross Rates Bank standard Charter. We're thrilled at Steve 345 00:18:48,359 --> 00:18:51,639 Speaker 1: Englander could attend this morning. Steve, I want to go 346 00:18:51,800 --> 00:18:54,040 Speaker 1: Matthew on you what you have the ability to do. 347 00:18:54,880 --> 00:18:58,320 Speaker 1: Chairman Powell changed the ex excess yesterday he was on 348 00:18:58,400 --> 00:19:00,800 Speaker 1: the edge of draggy and he tried to pull the 349 00:19:00,880 --> 00:19:05,040 Speaker 1: discussion out to twenty three and twenty four. What is 350 00:19:05,119 --> 00:19:11,520 Speaker 1: the lengthening of the Fed's vista mean for the US dollar? Well, 351 00:19:11,840 --> 00:19:13,840 Speaker 1: you know, I agree with what Bill Dudley said, and 352 00:19:14,080 --> 00:19:16,920 Speaker 1: I think that's going to be the eventual outcome, that 353 00:19:17,000 --> 00:19:19,440 Speaker 1: the Fed ends up being more dubbish and that the 354 00:19:20,400 --> 00:19:24,760 Speaker 1: uh sort of token withdrawal of stimulus isn't going to 355 00:19:24,800 --> 00:19:28,480 Speaker 1: be enough um and the dollar is gonna fall. I 356 00:19:28,840 --> 00:19:32,040 Speaker 1: think that the you know, circumstances that were likely to 357 00:19:32,119 --> 00:19:35,120 Speaker 1: find ourselves, say in the middle of next year when 358 00:19:35,280 --> 00:19:38,560 Speaker 1: rates hikes are going to be on the table, will 359 00:19:38,600 --> 00:19:42,600 Speaker 1: be somewhat different, and that they probably won't be quite 360 00:19:42,640 --> 00:19:45,640 Speaker 1: as hawkish as they make themselves out to be made 361 00:19:45,680 --> 00:19:48,440 Speaker 1: themselves out to be yesterday, Stephen is that basically the 362 00:19:48,520 --> 00:19:51,840 Speaker 1: Betton markets right now that the FED isn't going to 363 00:19:52,040 --> 00:19:54,200 Speaker 1: balk and is not going to come through on some 364 00:19:54,320 --> 00:19:56,640 Speaker 1: of his projections for as many as three rate hikes 365 00:19:56,680 --> 00:19:59,480 Speaker 1: next year. You know, I don't know if it's the 366 00:19:59,520 --> 00:20:03,120 Speaker 1: bed and more kids. But I think looking at the forecast, right, 367 00:20:03,240 --> 00:20:06,960 Speaker 1: the inflation rates up like half a percent in two 368 00:20:07,119 --> 00:20:10,760 Speaker 1: and you know, almost a quarter percent, I think, and 369 00:20:11,080 --> 00:20:14,560 Speaker 1: all you all you have is a quarter percent more 370 00:20:15,040 --> 00:20:17,320 Speaker 1: interest rate hikes. So you know, for much of the period, 371 00:20:17,800 --> 00:20:21,040 Speaker 1: real rates are even more negative projectively more negative than 372 00:20:21,040 --> 00:20:23,800 Speaker 1: they were before. You know, I think the market looking 373 00:20:23,880 --> 00:20:25,920 Speaker 1: at this is kind of saying that, you know, they're 374 00:20:26,000 --> 00:20:28,200 Speaker 1: they're not over the top, And that was the big 375 00:20:28,359 --> 00:20:30,880 Speaker 1: fear I think going into the meeting. You know, our 376 00:20:30,960 --> 00:20:34,240 Speaker 1: questions weren't are they going to stick to you know, 377 00:20:34,800 --> 00:20:38,920 Speaker 1: fifteen billion, the questions where are they going to do fifty? 378 00:20:39,000 --> 00:20:41,680 Speaker 1: Are they gonna go to zero? And so the market 379 00:20:41,760 --> 00:20:44,399 Speaker 1: was really scared and kind of was caught, meaning in 380 00:20:44,440 --> 00:20:47,920 Speaker 1: the hawkers direction, and that was pulling back. So what's 381 00:20:47,920 --> 00:20:50,560 Speaker 1: your view on the dollar? Considering that people have the 382 00:20:50,640 --> 00:20:53,320 Speaker 1: most overweight according to one Bank of America survey, going 383 00:20:53,359 --> 00:20:56,640 Speaker 1: back to thinking that the dollar will strengthen more next 384 00:20:56,720 --> 00:20:59,840 Speaker 1: year after what maybe it's biggest annual gain in six years, 385 00:21:00,400 --> 00:21:03,800 Speaker 1: is it basically premature to make that bet that this 386 00:21:04,160 --> 00:21:06,199 Speaker 1: is one of the most likely bets to get up 387 00:21:06,320 --> 00:21:09,320 Speaker 1: ended as the FED is likely to disappoint, as is 388 00:21:09,359 --> 00:21:14,040 Speaker 1: being basically communicated to us by the market. I think 389 00:21:14,040 --> 00:21:16,639 Speaker 1: they're likely to disappoint. But that said that there are 390 00:21:16,640 --> 00:21:19,960 Speaker 1: two forces driving up the market. With dragging up the dollar. 391 00:21:20,200 --> 00:21:22,720 Speaker 1: You know, since say beginning of October when is that 392 00:21:22,800 --> 00:21:26,720 Speaker 1: inflation numbers have been much higher than expected. But I 393 00:21:26,800 --> 00:21:29,879 Speaker 1: think the market is also underestimating the risk off fact 394 00:21:29,920 --> 00:21:32,679 Speaker 1: there by COVID first, you know, the spread of delta 395 00:21:32,720 --> 00:21:36,800 Speaker 1: across the world, and now concerns about omicron um. Both 396 00:21:36,880 --> 00:21:40,720 Speaker 1: of those together are very dollar positive. We expect both 397 00:21:40,800 --> 00:21:43,480 Speaker 1: of them to say over time. So in the short 398 00:21:43,600 --> 00:21:47,200 Speaker 1: term we're getting bad COVID news and you know, bad 399 00:21:47,280 --> 00:21:51,760 Speaker 1: inflation news, and dollars still confined some support once that passes, 400 00:21:51,880 --> 00:21:53,639 Speaker 1: which we think will be kind of at the end 401 00:21:53,680 --> 00:21:56,600 Speaker 1: of Q one and into Q two. We do see 402 00:21:56,640 --> 00:21:59,440 Speaker 1: dollar weakness ahead and then extended period of dollar weakness 403 00:22:00,960 --> 00:22:03,119 Speaker 1: that Donna smile the many had talked about maybe just 404 00:22:03,200 --> 00:22:05,840 Speaker 1: planning out slide to your perspective. Then, it was interesting 405 00:22:05,880 --> 00:22:07,760 Speaker 1: that we got sort of shout out from J. Powe 406 00:22:07,880 --> 00:22:12,159 Speaker 1: yesterday regarding currency hedged treasury yield, schooling us on the 407 00:22:12,200 --> 00:22:14,479 Speaker 1: fact that this is why the long end has been 408 00:22:14,560 --> 00:22:17,880 Speaker 1: so bid because well, once you hedge out the fex 409 00:22:17,960 --> 00:22:20,080 Speaker 1: risk with you and it's still a great Viye, does 410 00:22:20,200 --> 00:22:25,639 Speaker 1: that at any point change from your perspective? You know? 411 00:22:25,760 --> 00:22:27,800 Speaker 1: I I think he was stressing that a bit too much. 412 00:22:27,880 --> 00:22:30,960 Speaker 1: I mean that, you know, that's something of a factor. 413 00:22:31,000 --> 00:22:32,960 Speaker 1: I think in terms of you know, buying dollars. I 414 00:22:33,000 --> 00:22:36,159 Speaker 1: don't think it's it's an enormous factor. I mean, the 415 00:22:36,320 --> 00:22:39,880 Speaker 1: real interest rates from the US are really really negative 416 00:22:40,280 --> 00:22:42,800 Speaker 1: as far as the eye can see UM. And if 417 00:22:42,840 --> 00:22:47,400 Speaker 1: you don't believe in what we call immaculate disinflation, UM, 418 00:22:47,720 --> 00:22:51,760 Speaker 1: they're likely to stay negative for an extended period. Steve. 419 00:22:52,000 --> 00:22:54,840 Speaker 1: One final question if I can, and this goes to 420 00:22:54,920 --> 00:22:58,480 Speaker 1: your cross right work. How fragile is EM right now? 421 00:22:58,840 --> 00:23:01,040 Speaker 1: I mean you're the guy that honitors this down to 422 00:23:01,119 --> 00:23:05,280 Speaker 1: cross moments. How fragile is e M? Does it hearken 423 00:23:05,359 --> 00:23:08,680 Speaker 1: back to the fears of stan Fisher of decades ago? 424 00:23:09,160 --> 00:23:13,440 Speaker 1: Or is it a new em more resilient? Parts of 425 00:23:13,480 --> 00:23:17,000 Speaker 1: it are are more resilient. I think the investors are 426 00:23:17,080 --> 00:23:20,440 Speaker 1: looking at Chinese government bonds and and kind of saying, 427 00:23:20,760 --> 00:23:22,919 Speaker 1: you know, c N Y c N H verry stable 428 00:23:23,040 --> 00:23:27,040 Speaker 1: yields are high government very cautious in what they're doing. Um. 429 00:23:27,240 --> 00:23:28,960 Speaker 1: You know, there are other bits and bobs, you know 430 00:23:29,040 --> 00:23:33,320 Speaker 1: that benefit from higher oil prices that are doing well. Um. 431 00:23:34,240 --> 00:23:36,200 Speaker 1: And I think a lot, a lot of bad news 432 00:23:36,320 --> 00:23:38,159 Speaker 1: is now priced into e M. It's not where we 433 00:23:38,280 --> 00:23:41,160 Speaker 1: were in September, you know. We I think the market 434 00:23:41,240 --> 00:23:44,600 Speaker 1: understands the issues that certainly the short term EM is facing. 435 00:23:44,960 --> 00:23:47,359 Speaker 1: So if we're right that things look better in the 436 00:23:47,440 --> 00:23:50,159 Speaker 1: sense that we get past COVID and you know, at 437 00:23:50,200 --> 00:23:52,760 Speaker 1: least the FED isn't quite as hawk as as advertised. 438 00:23:53,000 --> 00:23:55,000 Speaker 1: There's a lot of room for EM to go up. 439 00:23:55,480 --> 00:23:58,720 Speaker 1: But right now everybody is super cautious. Steven Angler in 440 00:23:58,800 --> 00:24:02,760 Speaker 1: short notice greatly ship adding value with Standard Charter Bank 441 00:24:02,880 --> 00:24:13,000 Speaker 1: this morning, Paul, it has been way too long since 442 00:24:13,080 --> 00:24:16,280 Speaker 1: we've spoken to Shahab john Nus of Credit Sweets. He 443 00:24:16,400 --> 00:24:19,840 Speaker 1: is outstanding folks, and and and the way I would 444 00:24:19,880 --> 00:24:24,040 Speaker 1: would would put this is his notes are so dense 445 00:24:24,520 --> 00:24:26,240 Speaker 1: that the only way you can read him, and I 446 00:24:26,320 --> 00:24:30,000 Speaker 1: say this with great effects and job is you sit 447 00:24:30,080 --> 00:24:33,159 Speaker 1: there and you lean in a chair forward, and you 448 00:24:33,240 --> 00:24:35,240 Speaker 1: have a desk or whatever you're holding the paper on 449 00:24:35,800 --> 00:24:39,760 Speaker 1: with a pencil, and you read every line like it's 450 00:24:39,800 --> 00:24:43,560 Speaker 1: the old testament. They are so detailed and so smart. 451 00:24:43,640 --> 00:24:46,640 Speaker 1: They they bring me back to Peter Cook years ago 452 00:24:46,800 --> 00:24:48,919 Speaker 1: with us in Washington, or do you remember the late 453 00:24:49,040 --> 00:24:51,640 Speaker 1: David Guray, So late David Girl is the same way 454 00:24:52,000 --> 00:24:54,520 Speaker 1: he would sit there. David would read research and notes 455 00:24:54,600 --> 00:24:57,200 Speaker 1: like word at a time. That's what you do with 456 00:24:57,280 --> 00:25:01,680 Speaker 1: the FX strategist of credit sweets Shabab in those paragraphs 457 00:25:01,760 --> 00:25:05,280 Speaker 1: of detail. What is your number one f X message 458 00:25:05,560 --> 00:25:10,320 Speaker 1: for next year? Hi? They um, thank you very much 459 00:25:10,400 --> 00:25:12,919 Speaker 1: for that. I think in terms of our number one message, 460 00:25:12,960 --> 00:25:15,600 Speaker 1: it's still to try to stay long the dollar where 461 00:25:15,640 --> 00:25:19,159 Speaker 1: where possible the price sanction will be will be tricky, 462 00:25:19,200 --> 00:25:23,040 Speaker 1: obviously and noisy, but the underlying trend is, at least 463 00:25:23,160 --> 00:25:26,040 Speaker 1: within G tennant still towards the higher dollar. And it 464 00:25:26,160 --> 00:25:28,080 Speaker 1: might be getting a bit repetitive to say this, but 465 00:25:28,600 --> 00:25:31,320 Speaker 1: no change from on site. Forget about Turkey, that's its 466 00:25:31,359 --> 00:25:36,119 Speaker 1: own idiosyncratic story. Where's the big figure opportunity of resilient 467 00:25:36,280 --> 00:25:42,160 Speaker 1: dollar weaker em next year? Well, I think, as you said, 468 00:25:42,200 --> 00:25:45,440 Speaker 1: Turkey is a tricky one. Um. There are other e 469 00:25:45,680 --> 00:25:48,120 Speaker 1: m s that that that are potentially going to struggle. 470 00:25:48,119 --> 00:25:50,679 Speaker 1: For example, Mexico is one that we have an ol 471 00:25:50,760 --> 00:25:54,159 Speaker 1: radar simply because uh, it could be the case that 472 00:25:54,960 --> 00:25:58,760 Speaker 1: the composition of the central bank changing may create the 473 00:25:58,840 --> 00:26:03,600 Speaker 1: more dovish slant there and over time degrade the real 474 00:26:03,760 --> 00:26:07,240 Speaker 1: rates uh support for the Mexican pay. So, so that's 475 00:26:07,280 --> 00:26:10,600 Speaker 1: one to keep on the agenda. Uh. And we're still 476 00:26:10,640 --> 00:26:14,320 Speaker 1: a bit cautious on the C three currencies and maybe 477 00:26:14,320 --> 00:26:17,640 Speaker 1: even the Russian rules to some extent, given their longer 478 00:26:17,760 --> 00:26:22,040 Speaker 1: term popularity UM and relatively strong positioning in those at 479 00:26:22,080 --> 00:26:24,840 Speaker 1: a time when particularly in the C three, there are 480 00:26:25,000 --> 00:26:28,560 Speaker 1: questions about whether they're central banks are behind the curve 481 00:26:28,640 --> 00:26:31,560 Speaker 1: at this moment. How about we we had the Bank 482 00:26:31,600 --> 00:26:35,240 Speaker 1: of England today, I guess surprising some folks in raising rates. 483 00:26:35,320 --> 00:26:39,680 Speaker 1: What is your thoughts on sterling here? We've actually been 484 00:26:39,920 --> 00:26:42,920 Speaker 1: bullish on sterling because we've actually been in the camp 485 00:26:43,040 --> 00:26:45,360 Speaker 1: that did expect the Bank of Williman to hike, which 486 00:26:45,520 --> 00:26:48,280 Speaker 1: I know was a was a not very commonly held view, 487 00:26:48,320 --> 00:26:54,240 Speaker 1: but well it was in our in the notes that 488 00:26:54,280 --> 00:26:57,560 Speaker 1: you mentioned, we discussed the symmetry in favor of you know, 489 00:26:57,720 --> 00:27:00,720 Speaker 1: going with that view, given how how little the marko 490 00:27:00,880 --> 00:27:07,680 Speaker 1: was pricing in for it. UM. Well, look that the 491 00:27:07,960 --> 00:27:09,960 Speaker 1: issue with the Bank of England from our perspective is 492 00:27:10,119 --> 00:27:14,120 Speaker 1: it's one of those central banks that UH still has 493 00:27:14,280 --> 00:27:20,120 Speaker 1: a symmetric target in price stability target and inflation target. 494 00:27:20,400 --> 00:27:24,120 Speaker 1: It does not have a mandate, for example, to try 495 00:27:24,240 --> 00:27:27,440 Speaker 1: to reach full employment. So it's very traditional, I guess 496 00:27:27,480 --> 00:27:30,840 Speaker 1: in terms of its mandates UM and as we can 497 00:27:30,880 --> 00:27:33,560 Speaker 1: see from the exchange of letters today between the Chancellor 498 00:27:33,960 --> 00:27:36,560 Speaker 1: and the Bank of England, the government in the UK 499 00:27:37,240 --> 00:27:39,800 Speaker 1: is supportive of this at this point in time as well. UM. 500 00:27:40,200 --> 00:27:43,359 Speaker 1: So the truth there is that the Bank of England 501 00:27:43,760 --> 00:27:48,359 Speaker 1: does maybe have more reasons to worry about inflation expectations 502 00:27:48,400 --> 00:27:51,440 Speaker 1: getting undermined given that mandate than some other central banks. 503 00:27:51,520 --> 00:27:54,720 Speaker 1: So to deliver a fifteen basis point rate hike, which 504 00:27:54,800 --> 00:27:57,880 Speaker 1: is not very much in the big picture, and through 505 00:27:58,000 --> 00:28:01,160 Speaker 1: that signal that they're taking that mandate seriously, I don't 506 00:28:01,200 --> 00:28:02,719 Speaker 1: think that was too much of an answer for them. 507 00:28:02,760 --> 00:28:05,240 Speaker 1: And if you look at longer term rates in the 508 00:28:05,440 --> 00:28:08,360 Speaker 1: UK UM and but a longer time I am only 509 00:28:08,400 --> 00:28:13,320 Speaker 1: talking about twenty four expectations for those years barely changed. 510 00:28:13,440 --> 00:28:15,600 Speaker 1: Because the market knows that the Bank of England has 511 00:28:15,600 --> 00:28:19,800 Speaker 1: a lot of flexibility UM between now and then to 512 00:28:19,920 --> 00:28:23,880 Speaker 1: interpret data. However, it likes, particularly with O Macron as 513 00:28:24,040 --> 00:28:27,520 Speaker 1: early as the February inflation reports. So I think this 514 00:28:27,720 --> 00:28:30,280 Speaker 1: was not a particularly big ask of the Bank of 515 00:28:30,320 --> 00:28:33,119 Speaker 1: England to deliver fifteen basis points today. Shure, have you 516 00:28:33,160 --> 00:28:37,040 Speaker 1: said it is tough to derail the dollar strength? What 517 00:28:37,320 --> 00:28:42,000 Speaker 1: in fact could derail the US dollar here? In your opinion, 518 00:28:44,320 --> 00:28:51,400 Speaker 1: probably the most likely. I think we might have lot 519 00:28:51,720 --> 00:28:53,600 Speaker 1: up there a little bit of a problem coming from 520 00:28:54,240 --> 00:28:57,920 Speaker 1: eleven Madison Avenue, the home of credit Swiss. Yeah, well, 521 00:28:57,960 --> 00:29:00,640 Speaker 1: there we were with some effects dynamics, John and Nison. 522 00:29:00,720 --> 00:29:04,280 Speaker 1: What's interesting there to me is do we see obviously 523 00:29:04,360 --> 00:29:09,480 Speaker 1: the market celebration, the Dow up five hundreds, very close 524 00:29:09,560 --> 00:29:12,720 Speaker 1: to an inter day record high going back to Thanksgiving, 525 00:29:13,240 --> 00:29:15,680 Speaker 1: but in the in the VIX eighteen point seven nine. 526 00:29:16,000 --> 00:29:18,920 Speaker 1: But Paul, what's so interesting to me is does all 527 00:29:19,040 --> 00:29:22,520 Speaker 1: this mumbo jumbo, this bow tie fancy talk we're talking about, 528 00:29:23,080 --> 00:29:26,800 Speaker 1: how does it redound on e m There are Pacific 529 00:29:26,920 --> 00:29:29,880 Speaker 1: rim bulls who look for a renaissance. Yeah, I'm the 530 00:29:30,000 --> 00:29:33,400 Speaker 1: Pacific rim absolutely, and I think that obviously it boils 531 00:29:33,440 --> 00:29:35,760 Speaker 1: down a large part to what happens in China, and 532 00:29:36,000 --> 00:29:39,320 Speaker 1: of course China has taken a seemingly a more inward 533 00:29:39,440 --> 00:29:42,520 Speaker 1: looking view of their economy and their growth. That gives 534 00:29:42,800 --> 00:29:44,680 Speaker 1: some of those folks in Asia a little bit of 535 00:29:44,760 --> 00:29:48,560 Speaker 1: a pause here, But again that's where the growth has 536 00:29:48,680 --> 00:29:51,120 Speaker 1: been in the Pacific room, and that where it continues 537 00:29:51,200 --> 00:29:53,880 Speaker 1: to be. And we'll see to what extent Europe and 538 00:29:54,160 --> 00:29:56,760 Speaker 1: in North America can rebound and continue to rebound and 539 00:29:56,840 --> 00:29:59,600 Speaker 1: reopen here. So there's a lot of play out there 540 00:29:59,760 --> 00:30:02,240 Speaker 1: in in the currency markets. A few more ministers shot 541 00:30:02,280 --> 00:30:07,760 Speaker 1: up Jonas as well have after this ECB talk. What 542 00:30:07,960 --> 00:30:11,880 Speaker 1: will you listen for from the starting with Governor Waller 543 00:30:12,000 --> 00:30:14,960 Speaker 1: all the FED speakers here, what will you listen for 544 00:30:16,080 --> 00:30:18,720 Speaker 1: is they try to stagger to January into what is 545 00:30:18,760 --> 00:30:23,000 Speaker 1: I'm told a critical merchant meeting. Well, look, I think 546 00:30:23,360 --> 00:30:26,440 Speaker 1: we can now accept that there's a lot priced in 547 00:30:26,720 --> 00:30:30,400 Speaker 1: in terms of rate hikes for two um. The Fed 548 00:30:30,480 --> 00:30:34,440 Speaker 1: itself has validated that with the message that it gave yesterday. UM. 549 00:30:35,040 --> 00:30:37,440 Speaker 1: So it's difficult now for the market to to look 550 00:30:37,480 --> 00:30:39,640 Speaker 1: for more at this point near term from the Fed 551 00:30:40,400 --> 00:30:42,560 Speaker 1: in that sense, I think. So there's two things to 552 00:30:42,600 --> 00:30:45,720 Speaker 1: think about. On the doubst side, we are going to 553 00:30:45,840 --> 00:30:49,440 Speaker 1: be sensitive to any messages around O macron and how 554 00:30:49,520 --> 00:30:52,840 Speaker 1: quickly any growth slow down link to omcron could lead 555 00:30:52,880 --> 00:30:57,200 Speaker 1: to a reassessment of two rate high prospects. UM. I 556 00:30:57,280 --> 00:30:59,680 Speaker 1: don't expect that to come anytime soon because the data 557 00:30:59,800 --> 00:31:02,680 Speaker 1: is likely to be shown that anytime soon. So that's 558 00:31:02,720 --> 00:31:05,000 Speaker 1: more of a Q one issue probably. UM. The other 559 00:31:05,080 --> 00:31:07,560 Speaker 1: thing to think about, of course, is what could cause 560 00:31:07,840 --> 00:31:12,280 Speaker 1: the rate curve in the US too to stepend, particularly 561 00:31:12,280 --> 00:31:16,440 Speaker 1: between two and twenty four or twenty five, where actually 562 00:31:16,520 --> 00:31:18,320 Speaker 1: you have a very flat curve at this point, So 563 00:31:18,400 --> 00:31:22,680 Speaker 1: what could make rates uh go higher? Um? Now, the 564 00:31:22,760 --> 00:31:25,920 Speaker 1: problem there is that the Fed itself is trying to 565 00:31:26,000 --> 00:31:28,880 Speaker 1: push the market through the dots for a higher view 566 00:31:28,920 --> 00:31:31,240 Speaker 1: than what the markets already pricing in. So whether the 567 00:31:31,320 --> 00:31:33,960 Speaker 1: Fed can say anything to change that at this point, uh, 568 00:31:34,240 --> 00:31:36,960 Speaker 1: it's difficult. So so we need to try and figure 569 00:31:37,000 --> 00:31:39,000 Speaker 1: out what the what the tipping point for the market 570 00:31:39,120 --> 00:31:40,880 Speaker 1: is on that one. So thank you so much, it's 571 00:31:40,920 --> 00:31:43,040 Speaker 1: been too long shot. I've jealous with us with credit 572 00:31:43,080 --> 00:31:47,600 Speaker 1: sweeze on a resilient US dollar. This is the Bloomberg 573 00:31:47,640 --> 00:31:52,000 Speaker 1: Surveillance Podcast. Thanks for listening. Join us live weekdays from 574 00:31:52,080 --> 00:31:55,960 Speaker 1: seven to ten am. Eastern I'm Bloomberg Radio and Bloomberg 575 00:31:56,040 --> 00:32:00,480 Speaker 1: Television each day from six to nine am for insight 576 00:32:00,800 --> 00:32:04,920 Speaker 1: from the best in economics, finance, investment, and international relations. 577 00:32:05,440 --> 00:32:10,080 Speaker 1: And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, 578 00:32:10,280 --> 00:32:13,840 Speaker 1: Bloomberg dot com, and of course, on the terminal, I'm 579 00:32:13,920 --> 00:32:16,560 Speaker 1: Tom keene In. This is Bloomberg.