I sort of with looking at the comments that we had and this is the seventh time
we've seen a massive sell off on the S&P for instance and that's engendered of
course weakness right across the globe. I think we will have equities at one
month lows globally speaking that the VIX barely moved.
I mean this is a story we've got right now which is a bit perplexing that it
seems that investors are rather unperturbed amongst itself.
There's no panic out there. That's certainly what it seems like to
me. I mean if we look at the months running
up to this selloff that we saw sort of the end of last week and last night you
know we hadn't actually really seen that many investors putting risk on assets.
And I think we saw a bit of a rotation. And if you look at fixed income some
moves back into high yield longer duration type exposures.
But for the most part in equities investors have been buying defensive
type proxies minimum volatility high dividend type investments somewhat in
technology space. That's clearly been impacted by rates
moving higher. But also you know what volumes have been
extremely low. Right.
So there is a real lack of conviction out there.
And I think for us you know the Fed pal's statement he didn't really tell us
that much. So you know I think terminal rate is
still kind of the same but the expectation of pivot has now moved out
slightly which is impacting ago. It may come back on Labor Day.
So maybe next Monday we'll see something else.
I don't know how long holidays you take but
nothing really changed. Despite we've saw this sort of summer
rally. Right.
That June you know things were looking a little bit better about this Fed pivot
or whatever but there is going to be a complete unwind of what we saw.
Is there more for them to adjust. I think we'll see some adjustment.
But again I think it's mostly short term positioning here.
So you'd expect you know what we saw in June July I think was more around short
covering as we saw sort of solid rate projections moving lower for a long
time. Investors again.
I don't think they've really been positioning for it for risk rallies in
fact. Most investors that we speak to have
sort of been sitting on the sidelines wondering what to do and almost kind of
panicking in this situation because as markets have moved higher clearly that
they've been underperforming in those two months.
But where we are now you know I think investors are looking into the end of
the year but not really looking to take risk on.
And that's kind of our house position as well.
And this isn't just a U.S. story as Kathleen.
This is also an ECB story. Now this whole global global tightening
phase you know in particular that the US tenure year we're still having our 3
percent. Is that still optimistic
in terms of the outlook. I think it is a little bit optimistic.
Again I don't think the terminal rate has really moved that much in the
forward. Projections on when we'll get a pivot is
the main thing that investors are looking at at the moment.
And for us I think the issue is that you know if you if you raise interest rates
aggressively and don't pivot then yes you can quell demand.
But you know this is really being driven by supply rates.
If you look at food inflation energy et cetera these are really the main
drivers. And raising interest rates doesn't
really do that much for us. So.
So what are they doing. I mean you've got a aggressive.
Yeah. I mean we look at the put politics put
politics of inflation. You know energy is a big thing
particularly for U.S. consumers.
If you look between April and June we saw about a 20 percent decline in the
price of gas. And that kind of maybe gave the Fed a
little bit more room to be slightly more dovish in their in their rhetoric.
Are we seeing any moves towards the demand.
I don't see any demand inflation which is what monetary policy can deal with
and also to figure out the nature of relations changing structure.
It's a long term shift. I mean we've got demographic changes on
top of that. We've got the D globalization and of
course green flexion too. Yeah.
I think demand is slowly coming down as we as we expected as economies contract
on the supply side you still have the issues with the labor market you know
very very tight labor market energy. What's happening.
Russia Ukraine food prices. So on the supply side you know I think
long term this is going to be this is going to be an issue.
And I think the Fed will pivot eventually but they won't do it until
there's been a very structural impact in terms of in terms of growth in GDP.
So by the time they do that it might be a little bit too late.
In terms of in terms of the the dollar just that the safest thing to go along
on now these days. And what sort of defense Australia are
you laying out the next weeks or months. The U.S.
dollar has been the main sort of safe haven for investors in terms of in terms
of equities. It's been more into like month minimum
volatility type investments. Investors are looking at dividends.
Japan has been very interesting has performed pretty well.
Particularly topics which is more sensitive to exports.
And on the fixed income side it's really just about duration.
So investors have have moved back into a longer duration over the last couple of
months. But I expect over the next couple of
weeks they'll move back into sort of one to three year safe haven paper in the US
which I was very very quickly. I mean when you get everybody on this
program and being a dollar bull. Right.
Countries are notoriously difficult to predict.
You always sort of think you know to get whipsawed the other direction.
Well I don't really make predictions on currency of course.
Yeah I know. But I mean it's it's all going to be
driven by by what the Fed did. Right.
And also if you get the ECB being more. More aggressive than expectation at the
moment then you'll you'll start to see euro picking up and dollar coming down.
So you know who knows. I think U.S.
dollar 20 year highs. It looks a little bit expensive but it's
a safe haven. So.