So much hinges on the messaging from the Fed.
I mean, it does feel like the market is pricing in too much optimism when you
take a look at the rally that we've seen in recent days.
I mean, it's priced for disappointment morning,
hasn't it? Thanks for having me today.
I mean, let's just think about the setup.
The setup what we had was housing data that was coming off, consumer sentiment
coming off, soft data, telling us that there might be some room for slowing,
but the data isn't so great. You look at wages and employment rates.
Yes. Still very much in the tight labor
market. And you had the rest of the central
bank's kind of going at a slower pace wanting to intervene.
We know the pressure is outside the US and which is why the market is reacting
to what it is. What we have is still we're still
thinking about us having five basis points in the couple days, but the
market will also have to take solace in what data is going to come.
Fed has told us they want us to look at the data and the market will take the
Fed and then watch the data. The thing is, the Fed has made it clear
it will get rates to restrictive levels and stay there.
It's not just about getting too restrictive and then easing.
Absolutely. We have disagreed with what the market
is doing in terms of cuts. How we are thinking about this is that
levels are restrictive and how do we think about restrictive.
If you see the Fed's forecast in 23, 24 nominal growth.
Is there about 4 percent if they think about a 5 percent rate?
We are 100 basis points above neutral rate.
And that in itself, if you think about a rule of thumb, four quarters above that
is somewhere that they are happy needs to talk up or top down to level rates.
I mean, just a couple of days after. I mean, we're going to be also getting a
what happening with regards to the employment situation.
Non-farm payrolls are up then. And you know, that could actually
unleash a Pandora's box if we do actually see something like wage growth
suddenly accelerating more than anticipated and the unemployment rate
also just drifting higher. Absolutely.
I think where we're kind of thinking about payrolls or the market is thinking
about it is when do we revert to the pre called it pre pandemic type of levels 4
4 for the NFP, given that we are kind of seeing a rise in the payroll numbers.
So I think anywhere between this this hundred to 300 number was where it was.
The market wants to see a trend basis going to to to that.
And if numbers are going to go up way higher than what the market expects.
I think we are going to go back to where the market has to pricing more, more
rate hikes again. So tell me here.
I mean, how does this maybe three up all sorts of opportunities view with regards
to what you are looking at, fixed income wise?
I mean, you can look at the yields attractive, but what happens if the
price goes further down? And so surely investment grade is one
thing, but a high yield must be there must be some amazing opportunities as
some of those companies have slipped down the rungs of the ladder.
Absolutely. I think how we think about duration is
going to be on two counts before I go to high you on duration.
I think this is a world that active duration has to be going to be managed,
as we are saying, is not cast in stone. Where where the Fed hiking cycle is
going to go to the market keeps looking for Tom Keene.
But the Fed itself doesn't know where it has to be until we know where where
inflation settle, which is why active inflation, active duration management is
gonna be extremely important front and rates I mentioned.
I mean, think about this. If you're going to get four and a half
percent in two years, a high quality credit, 150 basis point on top gives you
6 percent. You've got to with that roll down,
you've got to have rates going up 3, 400 basis points before you lose money.
On the short duration, you have to talk about China, slew of bad news
properties, sector getting smacked front and center.
What's the outlook? What would it take for the government to
do to reverse that course? I think, first off, what we're seeing
over the last 10, 15 days in terms of China equities, China credits, what
we're seeing in the markets is not going to be the one that's going to drive the
macro picture for China. China remains steady in terms of how
they think about where the one growth to see, but the mix of how they achieve
that growth is going to be different. Right.
The parity on where they won the central government or on government let sectors
kind of take the lead. The mix will have to change.
But for us, China growth still remains a function of what happens in the near
term with Covid management. SBC Precious.
I still remain very much there. Number two, with regards to the property
sector, right. Whether there are a few that, you know,
they are able to kind of arrest candidate the job in there.
And then number three, which is what DAX the external environment is about with
the US and Europe. If we're talking about the slowdown,
it's going to be very difficult for China to kind of get a much boost from
exports.