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Speaker 1: We moved to our guest now, Stephen Major, Global head

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Speaker 1: of Fixed Income Research at HSBC. So perhaps a few

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Speaker 1: comments first, even about the FED meeting today and the

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Speaker 1: comments from j Pale afterwards. He pretty much scoffed at

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Speaker 1: really worrying too much about recession, almost as though he

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Speaker 1: will brush aside whatever the g d P print is

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Speaker 1: this week. He's really focused on the jobs market, and

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Speaker 1: I wonder what your thoughts are on could we be

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Speaker 1: anywhere nearer recession when the job market is that strong? Yeah, Well,

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Speaker 1: let's remember that the FED is well served by maintaining

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Speaker 1: an optimistic tilt on the economy. That there that they're

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Speaker 1: not going to be going out of their way to

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Speaker 1: be pessimistic about the economy. That they have some responsibility

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Speaker 1: right to people's sentiment and confidence. And in a way,

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Speaker 1: I think their outlook on growth is you normally to

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Speaker 1: the upside, and that means if they've got that bias

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Speaker 1: to expecting better growth than is normally coming through, that

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Speaker 1: means they're not going to really have a recession in

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Speaker 1: their numbers. So I think recession probability is going up,

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Speaker 1: but they can't admit it. And to your point, the

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Speaker 1: connecting the growth and the jobs. It is a bit

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Speaker 1: of a challenge to work out why it is the

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Speaker 1: unemployment is so low so jobs that the market is

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Speaker 1: so strong for jobs when the economy is clearly weakening,

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Speaker 1: and and that must speak to the quality of the jobs. Perhaps,

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Speaker 1: um and uh, I think that that's probably one of

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Speaker 1: the best explanations unless the numbers are just wrong. But

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Speaker 1: but but, but my sense is, um, what the FED

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Speaker 1: says about growth and recessions should be taken with a

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Speaker 1: pinch of sort. Thank you if you talk about we

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Speaker 1: can see then in in the fixed income market, and

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Speaker 1: how much further I guess we see the curve flattened

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Speaker 1: two here, Well, you've got an inverted curve now between

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Speaker 1: the twos and tens on the coupon curve. As as

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Speaker 1: you guys will know, the Fed has got out of

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Speaker 1: its way to put the focus more on the front

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Speaker 1: end forward or the near term forward. That's the that's

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Speaker 1: the eighteen month forward, three month rad and and there's

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Speaker 1: a reason for this. The coupon curve, the bond curve

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Speaker 1: can be very distorted. We've had inversions in the past,

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Speaker 1: with the FED already in easing mode. We've had a

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Speaker 1: recent inversion with very high inflation, and the hawk is FED.

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Speaker 1: There's been inversions when at the turn of the century

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Speaker 1: it was about the strong fiscal position. We've talked about

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Speaker 1: the FED seventy five basis point high sending a clear

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Speaker 1: message when it comes to China, though, as you point out,

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Speaker 1: the focus shifting to support the economy. Tell us why

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Speaker 1: you've reduced your conviction on China government lines. Well, they

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Speaker 1: they've had a very good run for the last eighteen months,

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Speaker 1: and I think most investors world have noticed that that

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Speaker 1: whilst the yield on China has decoupled from the rest

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Speaker 1: of the world and the volatility has been low, the

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Speaker 1: prospects for rate cuts have really diminished, so so that

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Speaker 1: it's becoming a bit of a rates trade between China

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Speaker 1: and the US, where the U s yields have been

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Speaker 1: coming down, and the potential is that maybe slowly and

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Speaker 1: modestly Chinese yields could be going up, and that could

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Speaker 1: be in response to the fiscal loosening coming through, which

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Speaker 1: I think is the main thrust of policy. Thank you.

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Speaker 1: If if, if China is getting close to the end

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Speaker 1: of that cycle, how close are we to the end

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Speaker 1: of the of the hiking cycle in the West. And

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Speaker 1: we've been talking about the FED because they met today

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Speaker 1: and there's just so much dissonance in the markets. Two

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Speaker 1: of the heavyweights, and I think I would you in

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Speaker 1: their category. Um Scott Minor says the central bank is

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Speaker 1: slowing down too soon. Jeff Gunlock says that the FED

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Speaker 1: is no longer behind the curve. Where are we in

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Speaker 1: terms of the objective? Yes, so the policy is responding

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Speaker 1: to the data, and the data comes with a lag.

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Speaker 1: The peak for yields was already in and we can

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Speaker 1: see that from the way the ten year has moved,

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Speaker 1: the way the forwards have moved since the last f

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Speaker 1: O MC meeting in June. So so the market has

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Speaker 1: made its decision already and I think that's right. The

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Speaker 1: FED would be concerned though, if the market gets too

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Speaker 1: far ahead, because, as I think you mentioned before, financial

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Speaker 1: conditions start to loosen again and an important tool for them,

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Speaker 1: or a part of the policy at least is to

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Speaker 1: is to tighten financial condition conditions. And so it doesn't

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Speaker 1: work if the market is front running the FED too much,

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Speaker 1: and I guess that could be the fear here. Um

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Speaker 1: that the yields have come down may be a bit

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Speaker 1: too much for the vet's liking. You point there to

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Speaker 1: the data that they're looking at, the fact that we

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Speaker 1: are seeing these moves in conjunction with that as we

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Speaker 1: look ahead to data points becoming even more important as

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Speaker 1: we're looking about these recessionary fears. What are what are

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Speaker 1: you kind of looking at it, HSBC, well's the same

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Speaker 1: as everybody, but that the fast moving data is probably

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Speaker 1: more to do with housing and jobs. I think I

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Speaker 1: think most people are going to be focusing on the

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Speaker 1: big releases for the c P I p C. I

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Speaker 1: guess there's Jackson Hole in August, and that's a bit

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Speaker 1: of an unknown right now. So so I think everyone's

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Speaker 1: looking at the same thing. For many people in the

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Speaker 1: real economy, it feels like a recession anyway, So what

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Speaker 1: was the weather economists are calling this a recession or not?

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Speaker 1: Is really semantics? It already might feel like a recession. Yeah,

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Speaker 1: I'm really puzzled by that because I've heard that that

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Speaker 1: average people feel like they're in a recession, but yet

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Speaker 1: the jobs market is pretty strong. You've already hinted that

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Speaker 1: maybe those jobs aren't so great, but is it? Is

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Speaker 1: it primarily inflation? Then that is driving that thinking or

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Speaker 1: what is it? Well, the inflation reduces the real disposable income. Again,

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Speaker 1: that's kind of economists speak, isn't it. In plain English?

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Speaker 1: People have got less money in their pockets. That means

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Speaker 1: consume less, and consumption is what drives the GDP. So

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Speaker 1: so they've got less money to spend. And I think

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Speaker 1: if you were to overlay or interact the wealth inequality

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Speaker 1: and income inequality with the debt stock, you'll you'll get

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Speaker 1: a powerful effect. Again in plain English, a lot of

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Speaker 1: the people on lower incomes are also the ones who

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Speaker 1: have got the debt, so they could be more sensitive

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Speaker 1: to the increased rates and the fact that yeah, I

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Speaker 1: was just going to say, very quickly, is it is

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Speaker 1: it the concern about housing affordability to Yeah, we've we've

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Speaker 1: seen mortgage rates what five to six percent, so so

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Speaker 1: that really does have a big impact on the new

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Speaker 1: mortgage market and that could be worth what of of

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Speaker 1: the entire stock there. So, so it seems to me

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Speaker 1: that that's going to be a key a key feature.

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Speaker 1: It's mortgages, the price of credit in general, getting loans.

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Speaker 1: It's tough alright, Steven, Thank you, Steven Major Global head

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Speaker 1: of Fixed Income Research at HSBC, with us here on

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Speaker 1: daybreak Asia. This is Bloomberg