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Speaker 1: Let's get to our guests, Ludovic Subran, who's chief economist

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Speaker 1: at Alliance. Steve I was about ready to say we're

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Speaker 1: going to go into Ludovic mode with a nod to

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Speaker 1: Tesla owners, but Ludovic, thanks very much for joining us,

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Speaker 1: and apologies for that. Um. You know, there's there's often

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Speaker 1: a there's often a message in the market, and we

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Speaker 1: know what the messages from the FED fear us. So

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Speaker 1: we're going to stay tight for some considerable period of time.

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Speaker 1: What I'm most curious about is what the message from

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Speaker 1: the data is. How are you reading the data at

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Speaker 1: the moment um. Yeah, I'm I'm certainly more concerned than

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Speaker 1: the FED is about the determination too high? Right, because

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Speaker 1: the job report was not very good. Um, the US

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Speaker 1: has been through two consecutive cores of negative growth, even

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Speaker 1: though they don't want to call it the recession. And

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Speaker 1: to be fair, you know, all points, all signals point

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Speaker 1: to a lowering of the natural interest rate. Right, So

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Speaker 1: so either FED word you get to four percent or

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Speaker 1: even four points five percent, um, they are certainly, you know,

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Speaker 1: creating the condition for recession. And and so I I think,

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Speaker 1: I I value and I salute the determination I think

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Speaker 1: the overheating in the US is taking a toll on

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Speaker 1: the middle class. But now they really had tipping points.

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Speaker 1: All signs are of lower growth and um confidence being

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Speaker 1: you know, down, um production, order books also being down,

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Speaker 1: trade being slightly contracting. So I think it's time to

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Speaker 1: think about how to normalize to avoid the heart landing. Yeah,

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Speaker 1: but a little like this is Stephen Angle here. I

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Speaker 1: mean this OPEC plus decision to cut production by two

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Speaker 1: million barrels. I mean that really should dash hopes in

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Speaker 1: the market. Shouldn't it that central banks could potentially dial

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Speaker 1: back aggressive rate IX? I mean, but the markets have

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Speaker 1: been kind of firming. Well, you know, the problem is

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Speaker 1: you don't hike when there is a supply shock and

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Speaker 1: negative supply shock. You know that that's unfortunately, that's the

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Speaker 1: problem that central banks are in right now. The inflation

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Speaker 1: is mostly again in the US. Half of the inflation

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Speaker 1: is due to the helicopter money that President Trump did,

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Speaker 1: you know, two years ago, So there's still a lot

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Speaker 1: of fiscal stimils in the economy that is creating the overheating.

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Speaker 1: But the other half, and especially elsewhere in the world,

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Speaker 1: a lot of the inflation is driven by negative supply chalks,

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Speaker 1: and so I don't I'm not sure it's really great

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Speaker 1: to UM to hike when there is really a recession

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Speaker 1: already in the making, and especially because there's going to

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Speaker 1: be lower supply of energy. Right, So I understand energy

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Speaker 1: inflation is everybody is concerned, but we need to look

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Speaker 1: at the causes. Yeah, and and and you know, trying

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Speaker 1: to hide whatever the reasons of the inflation I think

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Speaker 1: is really leading to the risk of the body's mistake.

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Speaker 1: Can the market live with a mild recession? Um, Obviously

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Speaker 1: we can't live with a major recession, But the SNP

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Speaker 1: suggests maybe just mild recession. I think that's everybody's central scenario,

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Speaker 1: you know. I guess there's balance sheets of of engagents

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Speaker 1: are rather strong. There is still cash, you know, in

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Speaker 1: the household, in the hands of the households, there is

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Speaker 1: still cash on the bounty of companies. So I think

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Speaker 1: they can live with it a little bit. Let's pivot

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Speaker 1: to Asia Pacific. Obviously, we're about ten days away from

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Speaker 1: the beginning of the big political com fab in Beijing,

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Speaker 1: which he didn't thing. Of course, will host the meetings

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Speaker 1: the Party Congress behind closed doors, so there's lots that

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Speaker 1: we can potentially a glean from what he has to

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Speaker 1: say for economic recovery and obviously, uh, you know, possible

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Speaker 1: relaxation of that dampening of economic growth at COVID zero

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Speaker 1: policies and also their policies on property. But I'm curious overall,

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Speaker 1: as before we kind of dig into that, how do

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Speaker 1: how do you see Asia faring in three if the

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Speaker 1: US and Europe, as you predict, will go into recession. UM.

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Speaker 1: I think ASIAC could actually be quite resilient. Um. Even

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Speaker 1: though the main topic for me as we entered twenty

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Speaker 1: three is the double deeping global trade UM. And of

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Speaker 1: course there's strong financial head wins. Right, we just talked

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Speaker 1: about the mood which is a quite hockeys from central

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Speaker 1: banks and and the fact that this could affect currencies

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Speaker 1: in Asia in particular. So so I'm why I am

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Speaker 1: confident because there are buffers, because there are growth leavers,

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Speaker 1: you know Asian Asian countries on middle class, and you

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Speaker 1: know the sprint towards innovation and and you know, these

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Speaker 1: buffers and these alliances are essential to navigate the fragmented

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Speaker 1: dif fraction world. So I think Asia is going to

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Speaker 1: avoid a form of recession. And but of course it

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Speaker 1: depends and you just mentioned about what's going to come

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Speaker 1: out of the U S. China rivalry right as as

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Speaker 1: the planet in the mid term actually will dictate a

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Speaker 1: lot of the extents on on on on growth for

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Speaker 1: Asian economies that are depending on those two countries. So

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Speaker 1: it feels to you that Asia is much more stable

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Speaker 1: in a sense than what was happening in Europe and

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Speaker 1: the US. I think Asia is less affected by inflation

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Speaker 1: because there is that was less overeating the most the

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Speaker 1: main cause of inflation in the US, and there is

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Speaker 1: not an energy crisis per se as we see in Europe,

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Speaker 1: so inflation in Asia has been subdued. I think central

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Speaker 1: banks in Asia have been a bit late to the

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Speaker 1: tightening game. Now they're ready to ramp up. There's still

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Speaker 1: another hundred basis points you know, expected in most central banks.

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Speaker 1: Of course, there's a big difference between let's say Australia

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Speaker 1: and Malaysia whatnot. Um so so I think, you know,

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Speaker 1: and again there are some room to maneuver, right so so, so,

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Speaker 1: I think the main issue is the cyclical headwinds, you know,

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Speaker 1: lower growth, our inflation, our cost of financing is not good.

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Speaker 1: For highly globalized Asian economies, especially tradehoffs and so forth.

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Speaker 1: But somehow the impression that the financials are sounder than

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Speaker 1: some of the other imaging markets. That that that's when

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Speaker 1: I compare with the Asian region, let's say, with Eastern

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Speaker 1: Europe and Latin America. But also that there is you know,

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Speaker 1: domestic growth leavers that could still provide a form of

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Speaker 1: cushion as as the US and and Europe are heading

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Speaker 1: into recession. Well I mentioned about obviously she's and paying

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Speaker 1: that the Party Congress that starts in ten days is

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Speaker 1: a highly political event and it is behind closed doors.

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Speaker 1: Is there is there something in particular I would suggest,

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Speaker 1: probably COVID zero relaxation that that markets really need to

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Speaker 1: look for coming out of that Party Congress. I mean, look,

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Speaker 1: China is faced with the strongest real estate crisis, uh

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Speaker 1: since you know, I don't know, Japan in the middle

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Speaker 1: of the nineties, of Spain in the lights of two.

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Speaker 1: So I think the Congress will be all about you know,

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Speaker 1: common prosperity and trying to make sure that Priston Cheese

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Speaker 1: reassures the middle class in stress and the social protection

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Speaker 1: and creates and policy environment that is even better than

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Speaker 1: easy today. So markets are going to be looking at

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Speaker 1: whether um China's depressed economic environment is there to stay

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Speaker 1: or just like we saw yesterday, you know, Chinese policy

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Speaker 1: measures are back to where they were in sous and

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Speaker 1: chiefteen sixteen, which means China is ready to do again

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Speaker 1: whatever it takes so that they get out of of

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Speaker 1: you know, having them back against the recession wall. So

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Speaker 1: that's that's what people are gonna be waiting um to

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Speaker 1: see whether China is going to be rowing or helping

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Speaker 1: Asia grow out of the recession vertex that is mainly

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Speaker 1: coming from the US and Europe or detracting from I

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Speaker 1: got a highly theoretical question before you here, does the

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Speaker 1: neutral rate or even the terminal rate for any central

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Speaker 1: bank get adjusted lower given financial instability considerations? In other words,

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Speaker 1: should the rate be lower because of high debt and

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Speaker 1: the rapidity of the of the rate hikes we've seen. Yes,

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Speaker 1: the answer is yes. I think I think we had.

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Speaker 1: You know, the Fed of se Francisco had a very

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Speaker 1: interesting paper that was you know, issued in April in

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Speaker 1: the peak of the pandemic. That's that showed that after

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Speaker 1: a pandemic, and of course it's like you know, every

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Speaker 1: hundred years or so, you have you know, much lower

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Speaker 1: um uh. You know, productivity grows, much lower, potential grows,

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Speaker 1: and much lower natural interest rates. Ludovic Subran apologies were

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Speaker 1: up against the clock. We'll have you back soon. Chief

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Speaker 1: Economists at Alliance, Ludovic Subran