Let's start with the top line which is we broke one forty five on dollar yen.
Twenty billion bucks in unilateral intervention so far.
It's gonna take a lot more than that to stop the yen.
Do you reckon. Yeah it's going to take the Bank of
Japan to move its policy stance. We've called it fundamentally when we're
at 135 140 145 on dollar yen. Until you address the root cause of the
problem there's no point trying to patch this over with cosmetic intervention
now. The Bank of Japan is very clever in the
sense that when how it executed this 20 billion cut wilder it did it in a
stealthy way. So to add that kind of risk in some
markets and to remove the possible speculation side of it because all of a
sudden you do have that kickback. But the problem is as soon as the
fundamentals come back into play it's just going to drain the Bank of Japan.
The problem is the strong dollar. You need to fix the root as you say of
the issue. So until that happens what will be the
effect of Japan potentially other central banks continuing to intervene to
no permanent effect. I think they're just laying out speed
bumps. I don't think they necessarily have the
intention here of completely reversing the course and strengthening our own
domestic currencies. It's just to stop something that is a
bit more synonymous with a crisis. I'm just really kind of slow markets
down from getting that free money on what is quite an easy short short
sighted option. It's about reintroducing to a risk that
that's all that is. It doesn't stop the truck it just slows
it down. OK.
So we may get sizable concerted intervention.
That's a new live risk. The one thing we looked at this morning
was the cost of dollar funding constriction in dollar funding which is
nowhere near 2007. So just let's everybody be very clear.
We're not making some kind of radical call or we are flagging up is the risk.
And this is the OAS spread. It's back at pandemic highs.
It's nowhere near 2007. When does that liquidity jolt turn into
something much more manifest that you worry about from an effects perspective.
I think it's when we start to see central banks discussing it quite
aggressively and then start to see some liquidity.
Collateral. Yeah exactly.
And we start to see some kind of multilateral communications on this
before them swap lines are open. I don't think Gregory Brainard has
mentioned it. She said in a speech Friday crossover
cross-border spillovers and financial vulnerabilities are a consideration for
the Fed that they are a consideration. I think that's also looking at what
happened on the gilt market last week and the impact that had from fixed
income markets. I don't think we're necessarily looking
at it from an effects standpoint. ISE is something that's highly
concerning especially not at these levels.
Now if volatility stays higher and then all of a sudden we see another free 4
percent jump in the dollar I think that's when people are starting to get a
bit kind of twitchy. Twitchy.
Yeah. Yeah I do.
I'm a bit twitchy. I can't tell you what I want to see.
The IBEX better when it comes in. I don't necessarily.
It's got a lot better for me. I'm paid in dollars in trade in Durham.
So you know London was a breeze me. But if I look at starting let's dig into
this a little bit. We're a percent off the lows last Monday
so we're back at levels that we were before the catastrophic.
Budget communication. Many budget communication.
We've got a confidence deficit clarity deficit and a credibility deficit.
Do you think they attack the point again even though it's up 8 percent from the
lows last week. I think so.
I think this is very shaky ground. What we're seeing and I looked at last
week's price action or thought this is more of a technical reason for a rebound
here. My friend Flo supplies some kind of
adjustments in portfolios. I don't necessarily think is all of a
sudden that the stock that the storms passed and all of a sudden we're in
Clearwater. By no means wants that current account
deficit data starts coming from Q4. More political noise in the background
and then all of a sudden potentially another.
A ramp up in European gas prices which RTX is only just extends the
government's liabilities. So then what's fair.
And finally what's fair value in the pound right now at the moment bearing in
mind the government's balance sheet could just completely stretch out even
further over the winter. I mean how long is a piece of string.
It's just these miles long. You can't come onto DAYBREAK.
You have a sturdy says ISE as low as a piece of.
Come on you're gonna break parody. Where's it gonna go.
What does it re attack on starting look like.
What does a credible attack on starting like.
Take us through it. I think in the short term one or five is
kind of the big level. I mean we're talking all time lows that
wanted free 40 and very illiquid markets for a lot of people without look at that
and say that's just since fed synthetic price.
Once you can start putting some serious volume through those prices then we'll
actually start calling that low. So what I find is really kind of the
level that markets are looking at thinking this is the next psychological
barrier. What is the risk of a broker that
disappoints in terms of a market that at the moment is pricing an over 100 basis
points worth of hikes from a buyer. We how realistic is that and what
happens to this market if they don't go through with it.
For Ford it's worth I think 100 basis points is on the light side of things.
I think the bank thing would really need to come in to backstop this especially
if there is a U-turn from the government either because of their own volition or
the Bank of England. Everybody told us that they put a
sticking plaster. It's a temporary reprieve in terms of
the intervention in the gilt market which broke by the way.
And you wouldn't think that from walking around on another weekend.
They told us it's temporary. This monetary policy must lead for a
credibility void to be filled. It has to because one of the one kind of
main pillars of UK investment is the fact that there's institutional
credibility. So if that's then lost then all of a
sudden it becomes a very tricky climate for foreign investors coming into the
UK. If all of a sudden everything's kind of
being moved by the same lever which is the government policy.
So I think they do need to have a credible stance but at the same time
they can't have a credible stance by ramping up interest rates because you
look at what the government policies are.
They're inflationary. So the Bank of England will have to come
out if we roll back to meetings. Governor Bailey explicitly said the
reason why they went up to 50 basis points is because I don't like the fact
that businesses could pass through these costs.
The consumer. Now the consumer's got a better balance
sheet. Then all of a sudden they are able to do
this. The bank has the kind of money to do it
because of all the floating mortgages in the UK I mean hiking by 100 basis
points. That would be some pretty extreme pain
for folks out there in their mortgage payments.
Yes but you know it's the lesser of two evils at this point.
Do you do that or do you then have kind of a perpetual inflation problem that
you have to catch up on over the next five years.
So we actually think the bank's going to go big but it won't be for long.
We're not talking the Federal Reserve that wants to keep these interest rates
restrictive for the next 12 months. We think it's going to be do it quickly
take the short term pain then start to ease as we come into the kind of more
stable parts of the side as the dollar translate that hike temporary hold.
It's a very different context that you're putting forward.
Other people are talking about a much longer and enduring holding pattern from
the Fed. If you're looking for a road over when
as a rollover in the top of the Fed come and does the dollar begin to price that
in. Are we near.
I know we ask it every time you appear but should I prepare for an exhaustion
quickly. Every time you ask me questions.
Hey it's not quite ready yet. I think we're looking at least Q2 next
year if you need a quick answer or not.