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Speaker 1: Let's get to our guest. We've got Michael Metcalf, global

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Speaker 1: head of macro Strategy State Street Global Markets with us

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Speaker 1: here in the Singapore studios. So we have just heard

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Speaker 1: from President Biden, Michael on CNN saying that a recession

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Speaker 1: in the US is possible, but any downturn would be

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Speaker 1: very slight. And at the same time, the i m

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Speaker 1: F warning of this worsening outlook for the global economy,

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Speaker 1: saying the worst is yet to come. Your view here,

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Speaker 1: and I guess how much is priced in? I mean,

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Speaker 1: I think recession risks, certainly the we're talking about recession

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Speaker 1: risks an awful lot, but you look at kind of

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Speaker 1: equity valuations and they're still well, that's still quite significantly

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Speaker 1: higher than they would be if you if we were

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Speaker 1: about to get recession, and certainly the kind of global

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Speaker 1: slow down that the IMF is talking about. So I

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Speaker 1: don't think we're there yet. And actually just just just

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Speaker 1: highlighting the Biden comments. If the recession does come, certainly

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Speaker 1: consumer balance sheets and maybe even corporate balance sheets do

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Speaker 1: suggest that it should be fairly shallow. So what the

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Speaker 1: equity market may be telling us, I'm just wondering how

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Speaker 1: loud is that the FED is going to have to pivot,

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Speaker 1: and so it's going to be a lesson earnings driven

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Speaker 1: story when it comes to stocks and more about liquidity

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Speaker 1: because the FED has no choice. Something is going to

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Speaker 1: break in the system and this tightening regime is going

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Speaker 1: to come to an end. Well, yeah, I mean, look

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Speaker 1: that that that that was the lesson of the last

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Speaker 1: tightening cycle, of course, wasn't it. Uh, And we're getting uh,

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Speaker 1: I suppose a heads up or a warning of what

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Speaker 1: might happen in the US with with with the UK

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Speaker 1: right now, where you know clearly you've got tension between

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Speaker 1: the Bank of England's need to get rates up quickly

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Speaker 1: to combat inflation against financial stability concerns. So I think

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Speaker 1: that's going to be a new and difficult conflict for

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Speaker 1: central banks to cope with. Which central bank kind of

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Speaker 1: blinks first here and potentially does pause or pivot. Oh

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Speaker 1: that's a good question, actually, I mean, well, I guess

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Speaker 1: you've already seen some example of it with the r

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Speaker 1: b A. Uh. You know that's uh relatively small open economy,

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Speaker 1: so you know they're going to get hit from the

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Speaker 1: headwinds of uh, you know, this global growth slowdown that

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Speaker 1: the IMF is warning about. But I do think in

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Speaker 1: Australia's case, there are local factors which have allowed them

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Speaker 1: to pause, which are that the housing markets rolled over

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Speaker 1: more clearly, and actually they don't have much wage growth.

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Speaker 1: So I don't know how much I can extrapolate from that,

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Speaker 1: but that there's an example, I suppose of a central

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Speaker 1: bank that's moving down from jumbo rate hikes to you know,

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Speaker 1: I guess normal rate hikes. I suppose. I think it's

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Speaker 1: fair to say the b o E is in a

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Speaker 1: very tight spot too, wouldn't you say in about thirty seconds? Oh? Completely,

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Speaker 1: I look, but I think right now they need to

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Speaker 1: get short rates up very very quickly to to reinforce

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Speaker 1: the fact that they're fighting inflation. So can you weigh

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Speaker 1: in here on the Bank of Career, we had a

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Speaker 1: policy decision of a half point increase fifty basis points

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Speaker 1: widely expected. Is the b o K on track to

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Speaker 1: kind of contain inflation or are they behind the curve

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Speaker 1: very quickly? No? I I think they're getting there, and

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Speaker 1: and it's interesting that they you know, step back and

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Speaker 1: then went back to fifty basis points, shows that they

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Speaker 1: take the weakness of the currency seriously and going to

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Speaker 1: try and combat inflation. Mike, we were talking the other

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Speaker 1: day about this move from the Biden administration to further

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Speaker 1: restrict China's access to US cutting edge computer chip technology.

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Speaker 1: What does this mean for China and the future of

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Speaker 1: the semiconductor industry on the mainland. Yeah, I mean, I

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Speaker 1: I think this is the sort of the trade war

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Speaker 1: narrative just come back in a different form, isn't that,

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Speaker 1: you know it albeit more specific um And look, I

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Speaker 1: I do think we're at a sort of a pivotal

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Speaker 1: point for China now where obviously we've just had that

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Speaker 1: kind of the reiteration of zero covid um. It looks

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Speaker 1: like that policy has been successful in you know, doing

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Speaker 1: quite a significant deleveraging in the housing market. And what

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Speaker 1: we're kind of waiting for now is whether that will

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Speaker 1: open up, um a much more submitive policy set set

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Speaker 1: of settlings from and it doesn't look like we're there yet.

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Speaker 1: And so unfortunately, I think having been a you know,

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Speaker 1: an area of upside growth surprises for quite some time,

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Speaker 1: it's now actually running in the opposite direction. And as

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Speaker 1: you know, I think it's part of the reason actually

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Speaker 1: why the i m F we pulling growth forecast down

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Speaker 1: as well overnight. So you know, I think that the

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Speaker 1: obviously the geopolitical tensions and tensions between US and China

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Speaker 1: are part of it. But then it's just more a

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Speaker 1: question of can China really go back to being the

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Speaker 1: growth engine for the global economy that it was, and

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Speaker 1: so far it doesn't look like that's the case. It

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Speaker 1: certainly does need to see a pivot, as you say,

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Speaker 1: on the COVID zero policy, but at the same time

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Speaker 1: a lot of other domestic headwinds too when you look

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Speaker 1: at the property space. So does that just make you

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Speaker 1: want to remain sort of cautious on the China story.

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Speaker 1: I mean it does, and it's it's and actually it's

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Speaker 1: on em more generally because right now, you know, we

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Speaker 1: know that this crisis has thrown out significant value opportunities

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Speaker 1: and in in e M currencies in particular, but e

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Speaker 1: M s sets more generally. But the fact that we've

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Speaker 1: got these kind of concerns about China means that we

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Speaker 1: can hesitate for now. So if the wheels are coming

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Speaker 1: off the wagon, so to speak, and there are going

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Speaker 1: to be very few jurisdictions that drive growth, Maybe the

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Speaker 1: smart trade is to go to the credit side of

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Speaker 1: the equation. I mean, if central banks are going to

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Speaker 1: pivot at some point here in the nearer term, Man,

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Speaker 1: some of these these bonds looks like screaming buys. It's

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Speaker 1: it's interesting from evaluation point of view. Right now, it's

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Speaker 1: quite hard to make a case for either equities or bonds.

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Speaker 1: But I think we'll get to bonds quicker. Uh. And

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Speaker 1: look it all comes to you know, look, if the

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Speaker 1: central bank pivot is driven by a financial sector dislocation, uh,

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Speaker 1: you know, unfortunately, credit might get worse before it gets better.

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Speaker 1: I think that's that's my only concern is if we're

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Speaker 1: hoping that the central banks pivots will be um created

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Speaker 1: by something breaking that that means you get more risk

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Speaker 1: off first. And I think that the only kind of

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Speaker 1: good news from a central bank pivot will if it

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Speaker 1: if it comes through lower inflation, and unfortunately we're not

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Speaker 1: doesn't look like we're going to get that just yet,

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Speaker 1: but we will get it in the future, but it's

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Speaker 1: not yet. And so this risk of a sentiment also

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Speaker 1: means the dollar remains strong. We're looking at very big

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Speaker 1: weakness coming through in Asian currencies, and and we're worries

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Speaker 1: about whether or not we see a repeat of seven.

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Speaker 1: What do you expect from the Bank of Japan. So

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Speaker 1: I think the Bank Japan is, you know, obviously under

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Speaker 1: a lot of pressure to release its yield curve control

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Speaker 1: to some degree. And I do actually think that that

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Speaker 1: there's building evidence that inflation in Japan is back. You know,

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Speaker 1: we see that in some of the online data we collect.

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Speaker 1: I think you can see it in some of the

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Speaker 1: household expectations surveys and also the breadth and the official data.

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Speaker 1: And so I do think ultimately the Bank of Japan

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Speaker 1: will allow yields to drift high, and of course, at

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Speaker 1: the same time, the Minister Finance, I think we'll continue

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Speaker 1: to intervene in the end. I don't actually think it's

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Speaker 1: a line in the sand. It's just about protecting the

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Speaker 1: end from a you know what is already quite a

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Speaker 1: significant and almost ridiculous overshoot in the weakness of the currency. So, Mike,

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Speaker 1: I can give you thirty seconds to give me your

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Speaker 1: best trade trade ideas a way of making money over

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Speaker 1: the next six months. Oh right, now, we we just

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Speaker 1: stick with the US assets. So you go with the

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Speaker 1: dollar overshoot US treasuries, US equities, and if you don't

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Speaker 1: have to avoid the US, try try taking the yen

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Speaker 1: against one of the crosses, but just not against the dollar. Alright,

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Speaker 1: Michael mcmcalf great to have you with us in the

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Speaker 1: Singapore studio. Michael mccalfe is Global head of macro Strategy

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Speaker 1: State Street Global Markets,