1
00:00:00,080 --> 00:00:03,800
Speaker 1: Let's get to our guest. It's Pierre Chartress, fixed income

2
00:00:03,960 --> 00:00:08,879
Speaker 1: investment director at MERG Investments. So I guess it's tempting,

3
00:00:08,960 --> 00:00:11,000
Speaker 1: with the two year yield up around four and a

4
00:00:11,000 --> 00:00:13,840
Speaker 1: half percent, to think that we're getting pretty close to

5
00:00:13,920 --> 00:00:16,960
Speaker 1: discounting where we might be going. But when you look

6
00:00:16,960 --> 00:00:19,960
Speaker 1: at this inflation reading in the US may have surprised

7
00:00:20,000 --> 00:00:25,079
Speaker 1: people were not seeing inflation come down now. I suppose

8
00:00:25,160 --> 00:00:27,640
Speaker 1: some might say, well, maybe this was the last to

9
00:00:27,800 --> 00:00:30,280
Speaker 1: raw and that we start to trend down from here

10
00:00:30,320 --> 00:00:33,440
Speaker 1: because there are such signs. But others might say, look,

11
00:00:33,600 --> 00:00:38,000
Speaker 1: high inflation is here to stay. What do you think, yes,

12
00:00:38,040 --> 00:00:41,800
Speaker 1: good morning. I I do believe that yesterday's inflation print

13
00:00:42,320 --> 00:00:45,680
Speaker 1: was indeed quite hot, zero point six percent a month

14
00:00:45,720 --> 00:00:49,279
Speaker 1: of a month, month of a month for core inflation. UM.

15
00:00:49,400 --> 00:00:51,400
Speaker 1: I do also believe that it's maybe not all doom

16
00:00:51,400 --> 00:00:54,400
Speaker 1: and gloom. You do get the sense that's the inflation

17
00:00:54,600 --> 00:00:57,520
Speaker 1: is stabilizing to some extent at least at the moment.

18
00:00:57,680 --> 00:01:00,280
Speaker 1: Definitely not at the level that the federal Federal Reserve

19
00:01:00,280 --> 00:01:03,639
Speaker 1: would like, but there is maybe some stability there. UM.

20
00:01:03,840 --> 00:01:07,520
Speaker 1: Core goods um as well, inflation was flat months of

21
00:01:07,560 --> 00:01:12,319
Speaker 1: a month, so that transition from goods to services is happening.

22
00:01:12,560 --> 00:01:15,679
Speaker 1: And finally, really the the main indicator inflation was was

23
00:01:15,720 --> 00:01:18,000
Speaker 1: shelter inflation. That was really hot. But some of that

24
00:01:18,040 --> 00:01:20,319
Speaker 1: could be a catch up from what is happening in

25
00:01:20,360 --> 00:01:23,160
Speaker 1: rents six or twelve months ago, and the U s

26
00:01:23,200 --> 00:01:26,480
Speaker 1: c p I Index is just catching up. So definitely

27
00:01:26,520 --> 00:01:31,360
Speaker 1: sticky inflation, probably higher interest rates for longer, but but

28
00:01:31,360 --> 00:01:35,160
Speaker 1: potentially not that not not the apocalypse people were saying

29
00:01:35,160 --> 00:01:38,000
Speaker 1: it was. Does it put a hundred basis points on

30
00:01:38,040 --> 00:01:41,560
Speaker 1: the table, and when I guess, does kind of push

31
00:01:41,600 --> 00:01:45,520
Speaker 1: out the likelihood of a FED pause or pivot. Yeah.

32
00:01:45,720 --> 00:01:48,080
Speaker 1: I think that's that's an interesting one. I mean, obviously,

33
00:01:48,560 --> 00:01:50,520
Speaker 1: the problem for the Federal Reserve is they were quite

34
00:01:50,600 --> 00:01:53,880
Speaker 1: late in in increasing interest rates. The first rate hike

35
00:01:53,960 --> 00:01:57,720
Speaker 1: was only in March of this year, and potentially a

36
00:01:57,720 --> 00:01:59,800
Speaker 1: lot of the tightening that they've been doing the last

37
00:01:59,800 --> 00:02:02,520
Speaker 1: six months hasn't really had any effect yet on on

38
00:02:02,560 --> 00:02:06,520
Speaker 1: the economy because of of the lag. It probably means

39
00:02:06,520 --> 00:02:08,799
Speaker 1: that they need to continue to do more. I think

40
00:02:08,960 --> 00:02:11,520
Speaker 1: is what will be interesting is once they hike maybe

41
00:02:11,560 --> 00:02:15,240
Speaker 1: another seventy five basis points in November, another fifty or

42
00:02:15,280 --> 00:02:18,640
Speaker 1: seventy five in December, you know what happens. What happens

43
00:02:18,680 --> 00:02:21,760
Speaker 1: then when interest rates or at five percent, potentially inflation

44
00:02:21,800 --> 00:02:24,880
Speaker 1: is still at at a high level. Hopefully the Federal

45
00:02:24,880 --> 00:02:29,000
Speaker 1: Reserve will be patient, waits for kind of the tighter

46
00:02:29,040 --> 00:02:31,600
Speaker 1: polity policy to have an effect on the economy and

47
00:02:31,680 --> 00:02:36,080
Speaker 1: just and not continue to just blindly rise rates. So

48
00:02:36,160 --> 00:02:38,640
Speaker 1: once we get past um, I mean, I think we

49
00:02:38,680 --> 00:02:40,360
Speaker 1: have to assume that a lot of what we're going

50
00:02:40,400 --> 00:02:43,120
Speaker 1: through is because of the war in Ukraine, in the

51
00:02:43,200 --> 00:02:45,880
Speaker 1: in the pandemic. But if you know, if we look

52
00:02:45,880 --> 00:02:47,760
Speaker 1: back over the past fifty years, it has been pretty

53
00:02:47,760 --> 00:02:50,080
Speaker 1: common of interest rates up around three or four percent.

54
00:02:50,440 --> 00:02:53,240
Speaker 1: It's really the last fifteen years that's been the anomaly.

55
00:02:53,760 --> 00:02:56,320
Speaker 1: Once we get past the next year or so, do

56
00:02:56,320 --> 00:02:58,640
Speaker 1: do you think that rates will just cover at a

57
00:02:58,680 --> 00:03:00,720
Speaker 1: higher level or do you think they will slip back

58
00:03:00,720 --> 00:03:05,600
Speaker 1: to the old model? Yeah? I think always difficult to tell,

59
00:03:05,680 --> 00:03:08,600
Speaker 1: but I think the the old model in well, in

60
00:03:08,639 --> 00:03:10,600
Speaker 1: the future we might realize that the old that's what

61
00:03:10,680 --> 00:03:13,799
Speaker 1: happened in the the last decade was the anomaly. Potentially we'll

62
00:03:13,800 --> 00:03:17,480
Speaker 1: have higher inflation going forwards and actually keep rates higher. Probably,

63
00:03:17,680 --> 00:03:20,160
Speaker 1: so we've been talking about a lot of the concerns

64
00:03:20,200 --> 00:03:22,560
Speaker 1: over the global economy, but I wanted to ask your

65
00:03:22,960 --> 00:03:26,040
Speaker 1: conviction calls here because you're saying longer term, there is

66
00:03:26,080 --> 00:03:31,160
Speaker 1: a lot of opportunities in fixed income where you're looking. Yeah,

67
00:03:31,160 --> 00:03:33,040
Speaker 1: that's correct. I mean, if you just look at the

68
00:03:33,160 --> 00:03:36,880
Speaker 1: environment and where yields are today within fixed income, whether

69
00:03:36,920 --> 00:03:40,720
Speaker 1: it's treasuries or corporate bonds, I think you're looking at, um, Yeah,

70
00:03:40,840 --> 00:03:43,520
Speaker 1: levels of yields that we haven't seen in a long time.

71
00:03:43,920 --> 00:03:48,360
Speaker 1: For example, you can buy today a index linked US

72
00:03:48,480 --> 00:03:51,880
Speaker 1: treasury over ten or thirty years and get a real

73
00:03:51,960 --> 00:03:54,080
Speaker 1: yield of over one and a half percent, So as

74
00:03:54,080 --> 00:03:57,000
Speaker 1: a US household you cannot worry about inflation for the

75
00:03:57,040 --> 00:03:59,600
Speaker 1: next ten or thirty years and still get a positive yield.

76
00:04:00,040 --> 00:04:02,840
Speaker 1: Corporate bonds as well, investment grade or the higher part

77
00:04:03,000 --> 00:04:06,640
Speaker 1: of high yield, and we're also finding quite attractive opportunities today.

78
00:04:07,400 --> 00:04:10,720
Speaker 1: If you see value in emerging market effects, you must

79
00:04:10,720 --> 00:04:13,360
Speaker 1: think that the dollar is coming close to topping out.

80
00:04:14,360 --> 00:04:19,240
Speaker 1: If that's the case, tell us why. It's a combination

81
00:04:19,320 --> 00:04:22,479
Speaker 1: of Yes, the dollar rally that has now gone a

82
00:04:22,520 --> 00:04:25,000
Speaker 1: long way over the past few months, UM, and a

83
00:04:25,000 --> 00:04:29,120
Speaker 1: lot of also emerging market central banks, particularly in Latin

84
00:04:29,160 --> 00:04:32,440
Speaker 1: America that had actually preempted the FED, maybe in Brazil

85
00:04:32,640 --> 00:04:36,039
Speaker 1: and Mexico. Those currencies are still resilient because interest rates

86
00:04:36,040 --> 00:04:38,640
Speaker 1: have now been high and much higher than in the

87
00:04:38,760 --> 00:04:40,800
Speaker 1: US for a lot a lot longer, and that's been

88
00:04:40,800 --> 00:04:44,719
Speaker 1: supportive for for these currencies. We're going to see the

89
00:04:44,800 --> 00:04:48,239
Speaker 1: Bank of England of course finish up it's bond buying program,

90
00:04:48,320 --> 00:04:51,040
Speaker 1: but it did buy another record four point six eight

91
00:04:51,040 --> 00:04:54,040
Speaker 1: billion or five point three billion dollars worth of assets

92
00:04:54,040 --> 00:04:55,880
Speaker 1: the day before that program is due to finish. What

93
00:04:55,920 --> 00:05:01,360
Speaker 1: happens next, how much further volatility and guilts? Yes, that's um,

94
00:05:01,400 --> 00:05:03,359
Speaker 1: that's an interesting question. I guess we'll have to see

95
00:05:03,560 --> 00:05:06,520
Speaker 1: what happens on Monday and next week. I mean, the

96
00:05:06,560 --> 00:05:11,240
Speaker 1: Bank has always said that this is an emergency intervention.

97
00:05:11,320 --> 00:05:14,280
Speaker 1: They really don't want to be seen as as financing

98
00:05:14,279 --> 00:05:16,920
Speaker 1: the budget deficit in the UK, so they would like

99
00:05:17,480 --> 00:05:21,920
Speaker 1: to not intervene anymore and to let the what the

100
00:05:22,200 --> 00:05:25,320
Speaker 1: guilt trade freely. But of course I think if you

101
00:05:25,360 --> 00:05:28,839
Speaker 1: do get pressure again on on UK guilt um they

102
00:05:28,880 --> 00:05:32,440
Speaker 1: they and and it's threatn threatens financial stability, they will

103
00:05:32,440 --> 00:05:34,960
Speaker 1: have to intervene again at some point in the future. Yeah,

104
00:05:34,960 --> 00:05:37,680
Speaker 1: we just saw a newsflash that Quasi Quartang has left

105
00:05:37,720 --> 00:05:41,280
Speaker 1: the I m F talks early as the UK government

106
00:05:41,320 --> 00:05:43,680
Speaker 1: there is is planning to to make a U turn

107
00:05:44,240 --> 00:05:46,719
Speaker 1: on some of these tax cuts that they talked about.

108
00:05:47,240 --> 00:05:49,680
Speaker 1: Setting that aside because we we you know, we don't

109
00:05:49,720 --> 00:05:52,240
Speaker 1: really know what's going to happen there with their decision.

110
00:05:52,680 --> 00:05:55,680
Speaker 1: If we if we just talk about generally investors with

111
00:05:55,760 --> 00:05:58,240
Speaker 1: a fixed income portfolio, what would be a sort of

112
00:05:58,360 --> 00:06:03,720
Speaker 1: nice diversified mix here at the moment. Yeah, I mean

113
00:06:04,279 --> 00:06:08,400
Speaker 1: we we think today again fixed income is attractive potentially

114
00:06:08,520 --> 00:06:11,960
Speaker 1: versus equities for for the first time in many years,

115
00:06:12,000 --> 00:06:14,440
Speaker 1: you know, there is an alternative to two equities, and

116
00:06:14,680 --> 00:06:20,279
Speaker 1: we would advocate probably having a diversified investment grade UM

117
00:06:20,440 --> 00:06:22,720
Speaker 1: corporate bond portfolio with maybe a little bit of high

118
00:06:22,800 --> 00:06:25,280
Speaker 1: yield to to generate some returns. And if you do that,

119
00:06:25,320 --> 00:06:27,680
Speaker 1: you kind of do get an old weather portfolio that

120
00:06:27,760 --> 00:06:30,360
Speaker 1: should be fairly resilient if we even if we do

121
00:06:30,400 --> 00:06:33,160
Speaker 1: get a recession over the next few months, and if

122
00:06:33,160 --> 00:06:34,919
Speaker 1: we do get a recession, it's always going to be

123
00:06:34,960 --> 00:06:38,520
Speaker 1: about how deep it is and how many economies garnered

124
00:06:38,640 --> 00:06:41,520
Speaker 1: in this How strong is the U S economy to

125
00:06:41,600 --> 00:06:44,800
Speaker 1: kind of pull out of a recession if it is

126
00:06:44,960 --> 00:06:49,120
Speaker 1: not going to be as deep as many fear. Yeah,

127
00:06:49,160 --> 00:06:51,400
Speaker 1: I mean, the the U. S economy does still have

128
00:06:51,800 --> 00:06:54,080
Speaker 1: a momentum, and of course we need to continue to

129
00:06:54,080 --> 00:06:57,479
Speaker 1: look at economic data to see how how fast it

130
00:06:57,520 --> 00:07:00,400
Speaker 1: is slowing. I mean the risk is, of course, as

131
00:07:00,400 --> 00:07:03,320
Speaker 1: has been discussed at the higher rates go and the

132
00:07:03,400 --> 00:07:06,520
Speaker 1: higher the likelihood the likelihood of a of a hard

133
00:07:06,600 --> 00:07:09,600
Speaker 1: landing in the US. So that's something that we're watching

134
00:07:09,640 --> 00:07:12,360
Speaker 1: for um. It could be as well that economies and

135
00:07:12,400 --> 00:07:15,080
Speaker 1: interest rates the couple a little bit more in two

136
00:07:15,160 --> 00:07:17,840
Speaker 1: thousand and twenty three, as maybe Europe and the UK

137
00:07:17,920 --> 00:07:21,600
Speaker 1: slow down and as the US remains relatively strong. Pr

138
00:07:21,640 --> 00:07:23,360
Speaker 1: always a pleasure. Thank you. We'll see you in TV

139
00:07:23,480 --> 00:07:25,480
Speaker 1: in a couple of hours as well. Patress is fixed

140
00:07:25,480 --> 00:07:28,240
Speaker 1: income investment director at MERG Investments. On the line from

141
00:07:28,240 --> 00:07:30,640
Speaker 1: Singapore for US here on Bloomberg Daybreak Asia