WEBVTT - Equities, COP27, and Big Tech Turmoil (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:21.560 at Bloomberg dot com slash podcast. All right, so we've 0:00:21.560 --> 0:00:24.919 got some mid term elections tomorrow. A lot of key 0:00:24.960 --> 0:00:28.960 states are having some some big races. Here Bloomberg, we'd 0:00:29.000 --> 0:00:31.920 like to talk about the political side in the context 0:00:31.920 --> 0:00:35.160 of the impacts on markets. So we bring in Cameron 0:00:35.200 --> 0:00:38.400 christ He's a macro strategist for Bloomberg News. So Cameron, 0:00:38.640 --> 0:00:42.520 you know you're looking across the markets here broadly defined. 0:00:43.159 --> 0:00:48.040 How are you kind of handicapping this midterm election as 0:00:48.040 --> 0:00:50.640 it relates to markets. Are you thinking traders are putting 0:00:50.640 --> 0:00:52.560 on any bets? Is it a wait and see type 0:00:52.560 --> 0:00:55.360 of thing? What are you hearing? Yeah? I think it's 0:00:56.240 --> 0:00:58.840 I mean, it's tough because there's so much going on 0:00:58.920 --> 0:01:02.319 outside of the of the US political sphere. Um as 0:01:02.320 --> 0:01:05.600 you alluded to, We've got CPI later this week, and 0:01:05.640 --> 0:01:07.960 there's also the China stuff. I mean, people seem to 0:01:08.000 --> 0:01:13.160 be getting excited about the prospect of China reopening, even 0:01:13.200 --> 0:01:17.640 though domestically, you know, there are still officially denying that 0:01:17.640 --> 0:01:21.400 that's imminent, and COVID cases in China are are rising. 0:01:21.440 --> 0:01:24.080 So it's it's kind of tough to sort of just 0:01:24.200 --> 0:01:28.679 pick out the isolated impact of mid terms. Um, insofar 0:01:28.680 --> 0:01:34.560 as you can. I guess there's this idea that, um, 0:01:34.840 --> 0:01:39.759 that a switch in in the House would be kind 0:01:39.800 --> 0:01:44.759 of positive for the stock market. UM. I'm not sure 0:01:44.800 --> 0:01:48.120 how plausible that is. I think generally speaking, people tend 0:01:48.200 --> 0:01:54.480 to overestimate the significance of individual political actors in driving 0:01:55.120 --> 0:01:59.200 economic and certainly financial market returns. Now, obviously there are 0:01:59.240 --> 0:02:02.600 exceptions to that we've seen in the UK this year. Uh, 0:02:02.640 --> 0:02:08.519 But broadly speaking, UM, I mean, is the is the 0:02:08.600 --> 0:02:13.400 US economy gonna look radically different depending on who wins 0:02:13.600 --> 0:02:17.480 the House uh tomorrow? You know, is it gonna look 0:02:17.560 --> 0:02:21.799 radically different over the next two years? Arguably not that 0:02:21.880 --> 0:02:26.360 much different. Cam. So, I was just sitting on set 0:02:26.360 --> 0:02:28.440 with John Farrow from nine to ten AM, and I 0:02:28.520 --> 0:02:32.040 loved the question that he asked. Morgan Stanley's Mike Wilson 0:02:32.080 --> 0:02:34.000 I want to ask you the same question. If you 0:02:34.040 --> 0:02:37.480 could know the outcome of the midterm elections, or you 0:02:37.520 --> 0:02:40.839 could know what this week's CPI reading would be, which 0:02:40.840 --> 0:02:44.760 one would you pay without a doubt CPI without a doubt. 0:02:44.840 --> 0:02:47.440 That's actually not what Mike Wilson said. Why would you 0:02:47.520 --> 0:02:49.959 rather know cp I? Because you know, as I just said, 0:02:50.000 --> 0:02:52.800 I I really don't think it matters UM who gets 0:02:52.840 --> 0:02:56.760 in UH to to to Congress. I really don't. I mean, 0:02:56.880 --> 0:02:59.880 the the pattern there is a quite a strong path 0:03:00.000 --> 0:03:03.919 earned based on the calendar UH in in in terms 0:03:04.040 --> 0:03:07.720 of UM, the third year of a presidential term is 0:03:07.760 --> 0:03:12.040 typically very very strong UH for the stock market. UM. 0:03:12.080 --> 0:03:15.120 And that is kind of irrespective of who of who 0:03:15.160 --> 0:03:18.280 of who gets in UM. I know, I know Wilson 0:03:18.400 --> 0:03:20.720 thinks that it's it's going to be it's pretty supportive 0:03:20.720 --> 0:03:22.239 of the stop mark in the near term if the 0:03:22.280 --> 0:03:24.440 Republicans get in, so obviously, if he has that view, 0:03:24.440 --> 0:03:26.720 and then that's what he wants to know. UH. And 0:03:27.120 --> 0:03:28.880 I guess in the micro term, if people want to 0:03:28.880 --> 0:03:31.079 get excited about the outcome of the election, whatever it 0:03:31.160 --> 0:03:33.040 might be, then yeah, maybe you want to know that. 0:03:33.120 --> 0:03:36.520 But again, I'm pretty skeptical that it matters very much 0:03:36.520 --> 0:03:40.160 at all in the in the medium term. Um, so 0:03:40.560 --> 0:03:42.440 I would rather know the CPI. I would rather know 0:03:42.480 --> 0:03:44.920 the CBI number, even though as we saw on Friday, 0:03:44.920 --> 0:03:47.320 and maybe that doesn't matter either. So I guess I 0:03:47.320 --> 0:03:49.120 really want to know is one's China going to reopen? 0:03:49.200 --> 0:03:54.200 If I can I canswer the question? Yeah please? Yeah, yeah, 0:03:54.600 --> 0:03:58.400 all right? So Cameron, Um, you know, the CPI data 0:03:58.520 --> 0:04:00.200 is on the Thursday, and obviously that will be a 0:04:00.240 --> 0:04:03.360 key driver for these markets and handicapping what the Feds 0:04:03.360 --> 0:04:04.640 are gonna do. But a lot of folks are saying, 0:04:04.680 --> 0:04:08.160 you know, that's a backward looking, uh kind of measurement here. 0:04:08.200 --> 0:04:11.280 What's what's your inflation call? Do you feel like it's peaked? 0:04:11.360 --> 0:04:13.440 You feel like it's coming down? I mean, we heard 0:04:13.440 --> 0:04:16.080 from Rich Truman, who produces Bloomberg Surveillance this morning that 0:04:16.120 --> 0:04:19.040 his favorite pasta dish at his favorite restaurant from eighteen 0:04:19.080 --> 0:04:22.320 bucks pre pandemic to thirty two dollars today. That's inflation. 0:04:22.720 --> 0:04:25.640 How are you viewing inflation? Yeah, I mean, I mean 0:04:25.680 --> 0:04:29.240 I have to sort of define the rules of engagement here. 0:04:29.520 --> 0:04:32.039 If you're talking about the year on your change in 0:04:32.040 --> 0:04:36.160 the headline CPI index. Then yeah, it's it's it's very 0:04:36.240 --> 0:04:41.640 likely peaked. UM. If you're saying that if inflation is peaked, 0:04:41.680 --> 0:04:44.599 that means that the marginal price changes are going to 0:04:44.640 --> 0:04:49.200 get with with some rapidity, go back to levels of 0:04:49.240 --> 0:04:52.520 the FED is comfortable with. I think that's that's that's 0:04:52.680 --> 0:04:57.240 less likely. UM. For one, the shelter component UH tends 0:04:57.320 --> 0:05:00.320 to lag. It's a big portion of c b I 0:05:00.720 --> 0:05:03.600 PC partically on a core basis, UH, and that's going 0:05:03.640 --> 0:05:07.479 to continue to push up inflation for you know, the 0:05:07.520 --> 0:05:10.440 next few quarters. UM. Kind of regardless of what what 0:05:10.520 --> 0:05:13.560 the housing market does, not just the nature of of 0:05:13.640 --> 0:05:17.080 the beast UM. More generally, as long as the labor 0:05:17.120 --> 0:05:23.000 market reminds tight services beyond the housing market are are 0:05:23.000 --> 0:05:25.720 going to continue generating inflation because it's still tough to 0:05:25.760 --> 0:05:27.880 get you know, it's still tough to get labor. I mean, 0:05:27.920 --> 0:05:31.480 part of that pasta dish cost is. Yeah, the price 0:05:31.560 --> 0:05:33.520 of the price of rigatoni has gone up. Part of 0:05:33.520 --> 0:05:35.640 it's the price of bolon at sauce have gone up. 0:05:35.839 --> 0:05:39.120 But part of it is because it's difficult to hire 0:05:39.120 --> 0:05:41.200 people to cook the food and serve the food and 0:05:41.240 --> 0:05:43.760 then clean the food up. Yep, that's kind of what 0:05:43.880 --> 0:05:46.320 he was lamenting. But I mean, you've gotta feel for 0:05:46.360 --> 0:05:49.400 a guy whose favorite pasta dish so much, so much 0:05:49.560 --> 0:05:51.640 over the past few years. That's when he brings it, 0:05:51.720 --> 0:05:54.840 brings it home. There, Camera Christ good stuff. They're appreciated 0:05:54.920 --> 0:05:59.360 as always. Cameras a macro strategists for Bloomberg News comfortably 0:06:00.000 --> 0:06:03.640 working from home. We might add so a great time too, Yeah, 0:06:03.720 --> 0:06:05.560 I mean exactly. So, you know, I'm just looking at 0:06:05.600 --> 0:06:07.360 these markets. It's kind of an odd day. Obviously, the 0:06:07.440 --> 0:06:10.719 dollop you know, two points, that's a half of one percent, 0:06:10.800 --> 0:06:14.440 whereas NASDAC still feeling the hangover. I think of the 0:06:14.800 --> 0:06:17.839 earnings we saw, you know, last week, and now some 0:06:17.839 --> 0:06:20.720 of these layoff announcements today. Uh, you know, I think 0:06:20.720 --> 0:06:23.360 it's really calling into question kind of the growth story 0:06:23.520 --> 0:06:26.200 underpinning that tech sector, maybe getting a little bit of 0:06:26.200 --> 0:06:32.799 a rerating their mid term elections tomorrow, CPI Data Thursday. 0:06:32.880 --> 0:06:36.200 Lots for this market to digest. In addition to continued earnings, 0:06:36.520 --> 0:06:39.400 got Mickey Mouse's uh Walt Disney Company reporting after the 0:06:39.400 --> 0:06:42.359 close tomorrow. Lots of cross currents there. Let's check in 0:06:42.400 --> 0:06:44.400 with the professional who does this stuff for living. Hugh 0:06:44.520 --> 0:06:48.479 Robert's head of analytics at quant Insights. Before that, he 0:06:48.520 --> 0:06:53.160 did stints at Merrill Lynch, my former firm, Credit Swiss, 0:06:53.480 --> 0:06:55.680 my former firm. You get a sense of what's going 0:06:55.720 --> 0:06:58.400 on here, Hugh, Thanks so much for joining us here again. 0:06:58.480 --> 0:07:02.600 Lots across currents out there, tons of underperformance no matter 0:07:02.600 --> 0:07:05.560 where you look as a classes so far in two. 0:07:06.160 --> 0:07:10.080 What are you telling clients these days? Yeah? I agree 0:07:10.120 --> 0:07:13.000 totally with the lots of cross currents, and I think 0:07:13.040 --> 0:07:16.000 what's jumping out off our models at the moment is 0:07:16.040 --> 0:07:19.400 that now we've been pretty bearish on equities for most 0:07:19.440 --> 0:07:23.600 of two. You know, the message from the power FED 0:07:23.600 --> 0:07:27.720 about tightening financial conditions to fight inflation has been very 0:07:27.800 --> 0:07:31.160 evident on our models, and we've seen a substantial move 0:07:31.240 --> 0:07:34.200 in that direction. But even though we kind of got 0:07:34.400 --> 0:07:37.000 Jackson hole two or whatever you want to label the 0:07:37.080 --> 0:07:41.920 tone to last week's FED meeting ads, we haven't seen 0:07:43.400 --> 0:07:46.400 the same move in terms of tightening financial conditions. If 0:07:46.440 --> 0:07:49.760 you look at credit spreads, tighter real yields of stop 0:07:49.800 --> 0:07:53.160 legging higher, the dollars come back a bit. Now, there 0:07:53.200 --> 0:07:55.600 are indio some trastic stories at play. Even there you 0:07:55.600 --> 0:07:57.720 know that the dollar move might be as much about 0:07:57.800 --> 0:08:01.160 China reopening as it is about anything the estic us driven. 0:08:01.680 --> 0:08:04.880 But the bottom line on our modeling is that the 0:08:04.920 --> 0:08:08.120 tightening the financial conditions there has been a huge headwind 0:08:08.160 --> 0:08:10.880 and the major driver of the equity by bear market. 0:08:10.960 --> 0:08:14.880 In the last few months, they've stopped tightening and that 0:08:15.000 --> 0:08:17.800 opens up a little bit of evaluation gap on our 0:08:17.840 --> 0:08:22.240 models where you're starting to see US equity indices spoons 0:08:22.320 --> 0:08:24.760 now is that there they are all cheap to macro 0:08:25.280 --> 0:08:28.480 on the modeling that we've done. So that's probably the 0:08:28.480 --> 0:08:31.840 most interesting thing that we're watching at the moment. So 0:08:31.880 --> 0:08:34.720 talk to me about what cheap to macro means. Is 0:08:34.720 --> 0:08:38.480 that a bi signal in your models? It is, yes, Sorry, 0:08:38.480 --> 0:08:39.960 So it to be clear what we do is we 0:08:40.040 --> 0:08:43.079 take a huge number of macro factors, but they fall 0:08:43.160 --> 0:08:46.760 into three broad buckets. So it's economic fundamentals, that's levels 0:08:46.760 --> 0:08:52.560 of growth, tracking GDP numbers, expectations around inflation. They fall 0:08:52.600 --> 0:08:55.679 into a bucket that is kind of overall financial conditions 0:08:55.720 --> 0:08:57.760 at the level of real yields, the slope of the 0:08:57.800 --> 0:09:01.880 yield curve, how strong the dollar is, um what the 0:09:01.960 --> 0:09:04.200 Fed might be doing in terms of tightening or easing, 0:09:04.320 --> 0:09:07.440 both in terms of rates and the balance sheet. And 0:09:07.480 --> 0:09:09.800 then the last big bucket would be measures of risk 0:09:09.800 --> 0:09:13.520 appetites and stuff like vix um and then more traditional 0:09:13.600 --> 0:09:17.479 measures like cold silver. But it's all those economic fundamentals, 0:09:17.480 --> 0:09:20.839 financial conditions, risk appetite all rolled up to say, right, 0:09:21.280 --> 0:09:24.720 given where all these macro variables are right here, right now, 0:09:25.360 --> 0:09:27.880 fair value on spoons is X, on the net back 0:09:28.040 --> 0:09:32.440 is y, etcetera. And because mainly because of the financial 0:09:32.480 --> 0:09:36.920 condition side of that three legged kind of input, because 0:09:36.960 --> 0:09:39.520 they've not actually tightened and actually come back a bit, 0:09:39.679 --> 0:09:42.840 our model values actually tipped a little bit higher for 0:09:42.920 --> 0:09:45.640 your sequity and disease while you've had this sell off 0:09:45.640 --> 0:09:48.000 of the last couple of weeks. So that's opened up 0:09:48.040 --> 0:09:53.800 a cheap valuation in our language. So I guess what 0:09:53.960 --> 0:09:56.240 is your recession call here? I mean, I guess you 0:09:56.240 --> 0:09:59.199 know there's definitely and over in Europe, you guys have 0:09:59.320 --> 0:10:03.120 some real real economic challenges. What's your recession car for 0:10:03.160 --> 0:10:06.240 the US? So we're not actually a traditional kind of 0:10:06.280 --> 0:10:09.079 a macro forecasting shop. We don't have a call to say, 0:10:09.080 --> 0:10:11.520 you know, the Eurozone is going to contract by this 0:10:11.760 --> 0:10:15.760 much whereas the US might just engineer a softer landing. Um, 0:10:16.200 --> 0:10:19.240 there's plenty of very clever economists out there and talking 0:10:19.280 --> 0:10:22.320 heads who do that. What q I S value added 0:10:22.440 --> 0:10:25.360 is we can tell you the market's reaction function to 0:10:25.440 --> 0:10:28.440 those economic fundamentals. So if you were, for example, a 0:10:28.520 --> 0:10:31.240 massive growth bear and you said Eurozone is going to 0:10:31.320 --> 0:10:34.400 bear the brunt of it because of geographical proximity to 0:10:34.480 --> 0:10:37.640 Russia and the energy crisis and everything else, we can 0:10:37.640 --> 0:10:39.760 tell you, right, but it's had a long duration trade. 0:10:39.760 --> 0:10:43.200 Should I be long buns? Should I be short the EUROFX? 0:10:43.679 --> 0:10:46.640 Is it a short eurostock fifty play? Or which sector 0:10:46.679 --> 0:10:49.920 within euros is it? So that's really more Our value 0:10:49.920 --> 0:10:54.440 added is measuring the relationship between any financial security, bond, 0:10:54.520 --> 0:11:00.000 currency equity, whatever it may be, and the macro environment. 0:11:00.120 --> 0:11:02.079 But we're not a shop that's going to turn around 0:11:02.080 --> 0:11:05.960 and say three U s GDP is going to be 0:11:06.040 --> 0:11:08.360 this euro presenting GDP is going to be that. All right, 0:11:08.400 --> 0:11:10.640 Well you're based and looking at the Bloomber turnal fifty 0:11:10.679 --> 0:11:14.319 Liverpool Street, is that right where we were? Yet we're 0:11:14.360 --> 0:11:17.200 London based, Yeah, yeah, So what's it like in the 0:11:17.280 --> 0:11:19.600 city of London these days? It's you know, three thirty 0:11:19.679 --> 0:11:22.360 a p m. There you went out for lunch, presumably. 0:11:22.960 --> 0:11:26.840 How are the streets of London the prett marmang airs 0:11:26.880 --> 0:11:29.800 for example. Yeah, well there's a there's a very rude 0:11:29.800 --> 0:11:32.920 acronym that I can't repeat live on air. But most 0:11:32.920 --> 0:11:36.520 people have turned into Tuesday, Wednesday, Thursday working from the 0:11:36.559 --> 0:11:40.240 office and Monday and Friday from home, So Monday is 0:11:40.240 --> 0:11:43.800 probably not a fair representative I got you. Yeah, middle 0:11:43.840 --> 0:11:46.520 of the week. I would say London is back to 0:11:46.600 --> 0:11:49.320 kind of like volume and foot traffic or what you 0:11:49.440 --> 0:11:54.440 used to see. I think in terms of the mood, um, yeah, 0:11:54.440 --> 0:11:58.920 people are very aware, especially near the whole trosonomic saga. Um, 0:11:58.960 --> 0:12:01.480 I think brought so much of what we do, which 0:12:01.520 --> 0:12:05.520 is normally quite leash uh in the middle of the newspaper, 0:12:05.640 --> 0:12:08.280 brought it very much onto the front pages. I think, 0:12:08.880 --> 0:12:12.920 you know, mortgage rates is probably where what do meets 0:12:12.960 --> 0:12:16.240 Main Street right first and foremost, and that story has 0:12:16.280 --> 0:12:19.480 been splashed everywhere in the UK media. So the mood 0:12:19.600 --> 0:12:22.760 is pre downbeat. I think people are expecting now the 0:12:22.840 --> 0:12:26.120 housing market correction and tough times ahead. So it is 0:12:26.160 --> 0:12:28.360 not greater the UK. All right, we'll hanging there, Hugh 0:12:28.480 --> 0:12:34.839 Robert's head of analytics at quant Insights. Well, this Federal Reserve, 0:12:34.920 --> 0:12:38.360 if nothing else, has been quite clear in its messaging 0:12:38.600 --> 0:12:42.280 what it's what it's doing with rates. You had, obviously, uh, 0:12:42.800 --> 0:12:45.280 a couple of big, big meetings recently, and they've been 0:12:45.360 --> 0:12:48.359 quite clear that number one issue is to fight inflation. 0:12:48.800 --> 0:12:50.439 How how did they go? When do they start? Pre 0:12:50.520 --> 0:12:52.959 a Miserraam, Managing director and global head of rates Strategy 0:12:52.960 --> 0:12:56.800 of TV Securities, joins us. So, what's your takeaway here, 0:12:57.120 --> 0:13:00.520 um as as to where this Federal Reserve is going 0:13:00.559 --> 0:13:03.000 after we think about the next three to six months 0:13:03.040 --> 0:13:06.880 in terms of rates. Sure, thanks for having me. So. 0:13:07.160 --> 0:13:09.440 I think that the Fed is trying to give a 0:13:09.520 --> 0:13:12.240 very nuanced message here that they could slow down the pace, 0:13:12.280 --> 0:13:15.000 and that's what they suggested, could happen as early as 0:13:15.000 --> 0:13:18.000 the December meeting, but they could keep going until they 0:13:18.040 --> 0:13:20.880 see very clear and convincing signs. Those are the terms 0:13:20.920 --> 0:13:23.839 that they've been using that inflation is decelerating. So our 0:13:23.920 --> 0:13:27.040 view is a fifty basis point in December, another fifty 0:13:27.080 --> 0:13:30.200 in March, and then a series of twenty to bring 0:13:30.240 --> 0:13:32.400 the terminal rate to five and a half and that's 0:13:32.440 --> 0:13:35.080 really because we see inflation declining and actually we have 0:13:35.160 --> 0:13:39.960 a lower than consensus called CPI podcast for Thursday, But 0:13:40.080 --> 0:13:43.320 it's it's so broad based that we think that decline 0:13:43.400 --> 0:13:46.920 is going to be slow and inflation is sticky because 0:13:46.920 --> 0:13:49.880 it's so broad based. So you know, if inflation doesn't 0:13:49.880 --> 0:13:52.280 decelerate that fast, we think it's going to prevent the 0:13:52.400 --> 0:13:55.000 FED from being able to stop soon. So they can 0:13:55.000 --> 0:13:57.640 slow down the pace but keep going. We think until 0:13:58.240 --> 0:14:00.599 really middle of next year in doing it five and 0:14:00.600 --> 0:14:02.440 a half and then they're going to have to be 0:14:02.480 --> 0:14:05.240 resolute and just keep it there because inflation is still 0:14:05.280 --> 0:14:07.920 going to look high. We focus about four percent inflation 0:14:07.960 --> 0:14:10.600 at what point they stop, and then we actually have 0:14:10.720 --> 0:14:13.400 them easing by the end of next year or more 0:14:13.480 --> 0:14:16.600 so really into twenty four because by then inflation becomes 0:14:16.640 --> 0:14:19.360 less of an issue, but the growth side becomes problematic 0:14:19.400 --> 0:14:21.840 for the FED because we see the unemployment rate rising. 0:14:21.920 --> 0:14:24.040 So I think it's going to be a tricky one 0:14:24.120 --> 0:14:27.040 for the FED next year. Preal Let's game plan what 0:14:27.320 --> 0:14:29.840 a five and a half percent terminal rate would look 0:14:29.880 --> 0:14:31.800 like in terms of the bond market, because I'm looking 0:14:31.800 --> 0:14:35.880 at two year yields right now at four points seven 0:14:36.080 --> 0:14:39.360 per cent, do they eclipse five? The terminal rate really 0:14:39.400 --> 0:14:42.600 does go that far. You know, I think we could 0:14:42.640 --> 0:14:45.720 just about touch five, but I don't think we get 0:14:45.760 --> 0:14:47.400 as high as five and a half, or that we 0:14:47.440 --> 0:14:51.200 can sustain five for the two years because the markets 0:14:51.240 --> 0:14:53.560 forward looking and is going to price in rate cuts. 0:14:53.880 --> 0:14:56.160 I mean, we think we're already seeing signs of some 0:14:56.280 --> 0:14:58.640 slowing in the consumer. You look at the third quarter 0:14:58.680 --> 0:15:02.000 GDP number, how sing of course it's clearly snow slowing. 0:15:02.320 --> 0:15:03.680 So this is the first time the fat is going 0:15:03.680 --> 0:15:06.280 to be hiking into a growth slowdown, and I think 0:15:06.280 --> 0:15:09.400 that's going to keep these cuts. In twenty four I 0:15:09.400 --> 0:15:12.320 think we'll actually see more of that cut pricing being 0:15:12.360 --> 0:15:15.120 built in and that will prevent that front tent from rising. 0:15:15.160 --> 0:15:18.960 But yeah, I would say risks are more asymmetric, meaning 0:15:19.000 --> 0:15:21.680 those front ten rates can still keep rising because you know, 0:15:21.680 --> 0:15:24.360 we're saying five and a half. Maybe it's higher than 0:15:24.400 --> 0:15:27.120 five and a half if inflation really doesn't decelerate fast. 0:15:28.040 --> 0:15:30.400 So I'm looking at the two year and a ten 0:15:30.480 --> 0:15:34.240 year treasury still inverted, you know, fifty fifty one points here. 0:15:34.880 --> 0:15:37.440 What does that tell you? What is what? What are 0:15:37.840 --> 0:15:42.560 you hearing from clients about that? Is that's still an issue? Yeah, 0:15:42.600 --> 0:15:46.320 I think the inversion has been something we've had to 0:15:46.360 --> 0:15:48.480 get used to, and I think we'll have to live 0:15:48.520 --> 0:15:51.680 with this inversion for quite some time. I think investors 0:15:51.680 --> 0:15:53.840 are asking me, you know, when's the time to put 0:15:53.840 --> 0:15:55.880 on a steep now? If we think the fat's going 0:15:55.920 --> 0:15:57.840 to be cutting at the end of next year, is 0:15:57.880 --> 0:15:59.720 now the time for the steep now? And you know 0:16:00.000 --> 0:16:02.200 a term, Yes, if you get a weaker CPI, the 0:16:02.200 --> 0:16:04.480 curve can steepen a little bit. I think it's still 0:16:04.520 --> 0:16:06.880 too early for that steep now. We really the curve 0:16:06.920 --> 0:16:09.800 tends to only steepen when cuts are about three months 0:16:09.920 --> 0:16:12.640 UM priced out. And I don't think this FED can 0:16:12.680 --> 0:16:14.800 even talk about cutting let alone. I mean they're not 0:16:14.840 --> 0:16:18.800 even talking about pausing. So I think the curve stays inverted. 0:16:19.200 --> 0:16:22.160 Any big steepening should be feeded. And you really have 0:16:22.320 --> 0:16:24.760 to wait for that inflation fear from the FED from 0:16:24.760 --> 0:16:27.360 the market to come down before we can start legging 0:16:27.400 --> 0:16:30.800 into steepness, legging into steepness. So you said that you 0:16:30.800 --> 0:16:33.840 know three months out from the cut is if I'm 0:16:33.920 --> 0:16:36.960 understanding you correctly, that's when you would start going in 0:16:37.040 --> 0:16:40.320 on the steepener or recommending it. If if the FED 0:16:40.440 --> 0:16:43.520 is going to cut by the end of next year, 0:16:44.080 --> 0:16:47.040 does that mean September next year is when you know, 0:16:47.080 --> 0:16:49.280 maybe you do see that two year ye'ld start following 0:16:49.280 --> 0:16:53.200 those steepeners make a little bit more sense. Sure, yes, 0:16:53.760 --> 0:16:57.040 so we're thinking fourth quarters when you start thinking about steepness. 0:16:57.200 --> 0:17:00.280 I mean, if inflation has ends up being high than 0:17:00.320 --> 0:17:02.760 our forecast, which is possible, I would say that bias 0:17:03.280 --> 0:17:06.399 is higher inflation just because wage inflation is high and 0:17:06.440 --> 0:17:09.240 it's a broad based increase. Maybe it's even closer to 0:17:09.280 --> 0:17:11.520 the end of next year. So the trade I think 0:17:11.560 --> 0:17:14.840 between now and then is more a long duration stand 0:17:15.200 --> 0:17:18.080 rather than a curve steepna because you know, at some 0:17:18.160 --> 0:17:21.639 point investors are going to want to a recession risk hedge, 0:17:22.119 --> 0:17:25.440 and I think that's just owning long end treasuries rather 0:17:25.520 --> 0:17:28.040 than playing for that fadies because the Fed is going 0:17:28.080 --> 0:17:32.600 to be very reluctantly easy when they do. So we 0:17:32.680 --> 0:17:35.880 do have midterm elections tomorrow. I wonder how you think 0:17:35.920 --> 0:17:37.919 about that. I don't know how much you've kind of 0:17:37.960 --> 0:17:42.440 factor in politics geopolitics into your outlook. How do you 0:17:42.480 --> 0:17:46.160 think about that sure, so not a whole lot um. 0:17:46.200 --> 0:17:50.240 I mean, even with the Democrats controlling all three chambers 0:17:50.280 --> 0:17:53.920 of government, we actually didn't see a whole lot of stimulus. 0:17:53.960 --> 0:17:56.480 I think other than COVID stimulus, we haven't had much 0:17:56.520 --> 0:17:59.879 physical stimulus. So if you get gridlock, normally conventional with 0:18:00.000 --> 0:18:03.760 them would mean less policy. Good for risk assets, probably 0:18:03.760 --> 0:18:06.160 good for bonds. I would say we've been in that 0:18:06.240 --> 0:18:09.560 regime already because it was such a tight split. I 0:18:09.600 --> 0:18:12.320 do worry about the dead ceiling. I hate talking about it, 0:18:12.359 --> 0:18:14.720 but we're going to be dealing with dead ceiling early 0:18:14.800 --> 0:18:17.040 next year. It's going to go down to the wire. 0:18:17.160 --> 0:18:19.720 Markets never like that, so I think that's one source 0:18:19.800 --> 0:18:22.560 of sort of wild card around the dead ceiling. I 0:18:22.560 --> 0:18:25.200 think political pressure on the FED will be high as well, 0:18:25.240 --> 0:18:27.439 But I think this FED has been clear that it's 0:18:27.480 --> 0:18:30.440 about inflation um, and I think we don't get any 0:18:30.440 --> 0:18:32.800 fiscal stimulas. So even in my view, where the economy 0:18:32.880 --> 0:18:35.200 hits the recession by the third quarter of next year, 0:18:35.520 --> 0:18:39.480 normally we'd look for fiscal easing and monitories ing. I 0:18:39.520 --> 0:18:42.880 think this time, inflation doesn't allow monitories. In split government 0:18:42.920 --> 0:18:46.080 doesn't allow fiscal easing, so that's why you know that 0:18:46.200 --> 0:18:48.760 recession need not be very short lived because you just 0:18:48.800 --> 0:18:51.480 don't have any policy support. Pretty I'm going to ask 0:18:51.480 --> 0:18:55.360 you the question that John Pharaoh asked Michaelson from Morgan Stanley, 0:18:55.440 --> 0:18:58.280 and then I asked him Christ about an hour ago, 0:18:58.320 --> 0:19:00.840 I think, or a little lessn't that would you rather 0:19:00.960 --> 0:19:03.639 know the outcome of the midterm elections or would you 0:19:03.760 --> 0:19:06.320 rather know what the CPI print on Thursday is going 0:19:06.359 --> 0:19:10.200 to be? Oh? C p I A need. I think 0:19:10.200 --> 0:19:12.440 that's what's going to tell us a lot more about 0:19:12.440 --> 0:19:15.320 FED policy, which is actually front and center in everyone's mind. 0:19:15.480 --> 0:19:18.159 Mike Wilson is the odd man out. He is. I 0:19:18.160 --> 0:19:20.520 know he wants to know the mid term election chare, 0:19:20.560 --> 0:19:22.560 but I kind of agree with Prea. Just feels like 0:19:22.600 --> 0:19:26.000 what's driving this market is and earnings, it's it's it's 0:19:26.040 --> 0:19:27.359 just kind of the Fed and what are they going 0:19:27.440 --> 0:19:30.320 to do? So I agree with you, so Priam, thank 0:19:30.359 --> 0:19:33.000 you so much for joining us. Managing Director and Global 0:19:33.040 --> 0:19:42.080 head of Rate Strategy for t D Securities. United Nations 0:19:42.160 --> 0:19:45.280 Climate Change Conference, more commonly known as COP twenty seven 0:19:45.359 --> 0:19:49.159 is taking place as we speak in Egypt. Uh. The 0:19:49.240 --> 0:19:52.199 question is what can they get done at this conference here, 0:19:52.200 --> 0:19:55.520 and let's check in with Sadekwaba, member of the President's 0:19:55.600 --> 0:19:59.520 National Infrastructure Advisory Council. Uh. He is also the founder, 0:19:59.600 --> 0:20:02.920 chairman and managing partner of I Squared Capital. He's a 0:20:03.000 --> 0:20:06.640 member of the Council of Foreign Relations since March. He's 0:20:06.680 --> 0:20:10.360 also got a few advanced degrees. Uh. You know, kind 0:20:10.359 --> 0:20:12.840 of just thrown in there for good measure. But Soedak, 0:20:12.880 --> 0:20:16.119 thanks so much for joining us from Egypt. Given the 0:20:16.160 --> 0:20:21.679 global geopolitical backdrop, Sedek, what is a reasonable expectations for 0:20:21.760 --> 0:20:26.960 COP twenty seven in your mind? Thanks for having the 0:20:27.040 --> 0:20:30.800 appointing to so. Look, the purpose of the COP twenties 0:20:30.800 --> 0:20:34.520 seven is really to achieve five goals. One is an 0:20:34.520 --> 0:20:38.280 obvious one, which is stronger commitments from countries in terms 0:20:38.359 --> 0:20:41.879 of reducing carbon emission, which is what they've degreed in 0:20:41.960 --> 0:20:44.680 the previous confidence. The second one, which is a little 0:20:44.680 --> 0:20:48.080 bit more controversial, which is what they call loss of damage, 0:20:48.520 --> 0:20:52.200 not of the emerging markets and emerging economies are basically 0:20:52.240 --> 0:20:57.080 seeing we're going to bear the disproportionate share of climate change, 0:20:57.560 --> 0:21:00.840 so you need to in one way or another compensate us, 0:21:01.119 --> 0:21:04.479 and of course the world compensate is not something that 0:21:04.680 --> 0:21:09.200 industrial economies like to hear. And also given the economic 0:21:09.280 --> 0:21:12.400 crisis we're all feeling today, it's unclear where this money 0:21:12.400 --> 0:21:15.879 is going to come from. Another goal is adaptation. We 0:21:15.960 --> 0:21:19.960 need to find ways to reduce emission and these helped 0:21:20.680 --> 0:21:25.320 African economies and other madrigal economies find those technological ways. 0:21:25.760 --> 0:21:28.639 And then of course climate finance. How are you going 0:21:28.680 --> 0:21:30.520 to pay for all this? So at the bottom line, 0:21:30.520 --> 0:21:33.240 it's a question of where can we get the money, 0:21:33.320 --> 0:21:35.199 who's going to pay for it, and who's going to 0:21:35.280 --> 0:21:40.399 help pay for those increased expenses. Uh. And in the 0:21:40.480 --> 0:21:44.480 current environment, I think it's cant be very difficult because 0:21:44.560 --> 0:21:49.080 we have rising budget deficits uh GDP debt of soevern 0:21:49.119 --> 0:21:52.120 economies is at an all time high, in fact higher 0:21:52.119 --> 0:21:55.480