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Speaker 1: Let's get to our guest, John Vail, chief global strategist

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Speaker 1: that Nico Asset Management. John, one of the biggest movers

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Speaker 1: today was a big drop in the ten year treasury yield,

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Speaker 1: down fifteen basis points or so. Uh. And right now

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Speaker 1: we've stabilized a little bit. In early trading in Tokyo.

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Speaker 1: It seems like perhaps equities moved up on a on

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Speaker 1: a bad news is good news kind of thinking. But

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Speaker 1: the economic data was pretty bad. Will we start to

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Speaker 1: be thinking a lot more about weakness here rather than

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Speaker 1: conditions conducive to a recovery in stocks? Well, yes, the

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Speaker 1: stock market did sort of struggle off the very bad

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Speaker 1: Philadelphia um P M I numbers not only the current

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Speaker 1: situation when in Philadelphia, but they're expected hum conditions going forward.

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Speaker 1: But I guess the equally market is looking at the

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Speaker 1: fact that, yes, things might slow down, but corporate earnings,

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Speaker 1: you know, are still hanging in there pretty well, and

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Speaker 1: guidance has been a bit negative for the second half.

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Speaker 1: But overall, um the second uarter numbers have come through

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Speaker 1: pretty well, and so counter year number numbers for EPs

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Speaker 1: have not fallen much. And certainly when you have a

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Speaker 1: lower bond yield than that helps support equity evaluations and

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Speaker 1: to some degree the equity markets or distrusts the fact

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Speaker 1: that we're going into a significant recession when that comes

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Speaker 1: to those thoughts as well, though, that has been behind

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Speaker 1: a lot of the dollar rally as well. Do you

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Speaker 1: think we've reached peak dollar? I think, well, I don't

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Speaker 1: really know the answer to the fact, to be honest.

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Speaker 1: I mean our forecasts, our Global Investment Committee met mid

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Speaker 1: June and forecasted, uh, the zero and the end to

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Speaker 1: be exactly or they are right now. So I'm going

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Speaker 1: to our official forecasts. Yes, you're would we would agree

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Speaker 1: with you on that that most of the dollar strength

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Speaker 1: is over. Let me ask you a question that will

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Speaker 1: tell us a lot about what you're thinking. I raised

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Speaker 1: this question earlier just for fun. You have a company

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Speaker 1: that you sort of like, you followed it for a

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Speaker 1: long time. It's a cyclical and it's it's the stock

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Speaker 1: is down about fifty cent is so, uh, it's divid

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Speaker 1: in yield it's about two point seven percent. Should you

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Speaker 1: buy that or should you buy a two year treasury?

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Speaker 1: Depends on your perspective. If you're long, well, I'm trying

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Speaker 1: to get yours yeah, well, yes, and you know a

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Speaker 1: lot of cyclicals are yielding a heck of a lot

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Speaker 1: more than two point seven percent UM. So yes, if

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Speaker 1: you're willing to ride through the cycle, sort of close

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Speaker 1: your eyes. Not everybody's able to do that, you know,

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Speaker 1: to be honest, and some people can't handle it, and

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Speaker 1: they sell um when things get even worse, and that's

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Speaker 1: the worst thing to do. But if you're really determined

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Speaker 1: to hold onto it through a cycle, uh, then yes,

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Speaker 1: I'd recommend equities over bonds any day. You mentioned they

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Speaker 1: fed more hawkish in consensus. What did you read into

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Speaker 1: the ECB move because it was at fifty basis point

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Speaker 1: move But then perhaps the forecast for what we could

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Speaker 1: see at the next meeting were a bit more doublish

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Speaker 1: than maybe some had expected. Well, yes, the ECB UM,

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Speaker 1: I don't know intentionally or unintentionally surprised everybody. UM. Only

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Speaker 1: a few smaller European banks predicted fifty. We predicted hundred

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Speaker 1: for the quarter, and so fifty plus fifty would be

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Speaker 1: in line with our expectations. And we have another seventy

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Speaker 1: five in the fourth quarter for the ECB UM. I

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Speaker 1: guess they were forced into it by the fact that

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Speaker 1: the Hawks there, they maybe had some additional leverage to

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Speaker 1: force the leadership, which tends to be dubbish UH into

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Speaker 1: something more serious in order to get the UH anti

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Speaker 1: fragmentation deal that they wanted. And the new tool um

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Speaker 1: antifragmentation does seem very specific, and I'm surprised the market

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Speaker 1: sort of panning it, but it seems pretty specific to me.

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Speaker 1: And so seeing Japan's key inflation gauge rise further above

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Speaker 1: the b o j's target level of two, the b

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Speaker 1: o J standing pat yesterday, but a lot of questions

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Speaker 1: about when they may be forced to move. What are

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Speaker 1: your thoughts, and of course whether or not we can

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Speaker 1: see for the weakness in the end too well in

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Speaker 1: terms of the Bank of Japan moving has say uh not,

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Speaker 1: don't pay too much attention to that for the next

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Speaker 1: three or four months. It's not going to probably happen. Um,

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Speaker 1: they're quite stuck on their current path, and I think

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Speaker 1: rightly so. To be honest, Um, they are witnessing inflation

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Speaker 1: that is externally driven as opposed to domesticically driven. Wages

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Speaker 1: are not rising here. There's no sort of supply chain

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Speaker 1: hiccups that's slowing the overall economy. Economy is growing quite slowly. Um.

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Speaker 1: So yes, you look at the core c E p

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Speaker 1: I and the ex fresh food and energy and that's

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Speaker 1: only growing out one percent, and the headline only grew

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Speaker 1: like zero point one month on month, uh, in the

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Speaker 1: data just release. So there's there's no really strong inflationary

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Speaker 1: pressure here. So the Bank of Japan is quite okay,

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Speaker 1: um with allowing that without hiking raids before a global slowdown. Yeah.

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Speaker 1: The title of one of our Bloomberg opinion pieces is

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Speaker 1: what's the point of hiking when recession looms. It's a

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Speaker 1: question that you could almost put to US policymakers. Although

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Speaker 1: there you do have much higher inflation, but maybe that's

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Speaker 1: going to change. Um. Well, you have very point, um,

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Speaker 1: and I agree with it. Um. As for changing the

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Speaker 1: inflation outlook, certainly it already has changed to some degree

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Speaker 1: with commodity prices coming down for the last month or so.

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Speaker 1: And that's you know, good news, absolutely. Um. The problem

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Speaker 1: the primary problem right now, um, in the States and

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Speaker 1: in Europe is whether labor strikes and wage gains are

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Speaker 1: large and there's a inflation sort of cycle developing. The

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Speaker 1: other major problem is in at least in the States

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Speaker 1: is housing rents and they will be rising for quite

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Speaker 1: some time. It seems to catch up with the new

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Speaker 1: rents that have been signed in the last year, and

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Speaker 1: the the CPI rent figures lagging indicator and that it

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Speaker 1: measures all rents, and that will be rising and keeping

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Speaker 1: core CPI quite high above five percent, probably through the

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Speaker 1: end of the year, and and it will probably fall

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Speaker 1: a great deal until next year. Now the Fed look

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Speaker 1: through that. Who knows, um, But certainly there's been some

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Speaker 1: good news on inflation already. Rising rents not limited to

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Speaker 1: just the US. Let me tell you that. Let's talk

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Speaker 1: about China though, and the property system there and certainly

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Speaker 1: the stress related to that real estate sector. How much

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Speaker 1: of a worry to global growth is that well? Um,

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Speaker 1: certainly um. China's economy is one of the world's largest,

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Speaker 1: is very important of unfortunately, as factories are humming right

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Speaker 1: now and exports are zooming, and so the effect via

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Speaker 1: that channel, UM is not very worrisome. But domestic demand um.

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Speaker 1: After the initial pop after the lockdowns ended in June, UM,

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Speaker 1: at least for some cities, um uh, you know that

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Speaker 1: the pop Who knows how long it's gonna last? You know,

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Speaker 1: there's a wealth effect going on with the housing crisis

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Speaker 1: that you're talking about, and it's by far and away

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Speaker 1: the large asset of the average Chinese person. So what's

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Speaker 1: happening to housing prices does matter, and and certainly the

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Speaker 1: picture is not very good. So um, yes, there is

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Speaker 1: reason to be concerned about the global economy due to

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Speaker 1: what's happening in China especially. There are more lockdowns ahead

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Speaker 1: because the cases are arising. Just briefly, what do you

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Speaker 1: like the most and what are you worried about? Well,

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Speaker 1: there's plenty to worry about, that's for sure. Um. You know,

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Speaker 1: not to mention the China thing. In Iran and North

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Speaker 1: Korea and Ukraine, obviously this plenty to worry about. Um

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Speaker 1: But um, I guess the things that we're looking at,

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Speaker 1: I mean, we still like Japanese equities. It's talking to

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Speaker 1: say that they're going down these topics is going down

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Speaker 1: two percent year to date in local currency terms, So

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Speaker 1: investors here are quite okay. Um, yeah, we we like

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Speaker 1: Japan and you like Japan. We're gonna have to leave

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Speaker 1: it there unfortunately. John, great to have you with us.

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Speaker 1: John Vale from Nico Asset Management, from Tokyo, This is bloom,