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Markets, Currencies, And The Dollar (Podcast) · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
0:04
Speaker 1: my co host Matt Miller. Every business day we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast
0:15
Speaker 1: called Apple Podcast or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com Slash Podcast. You've gone on this
0:22
Speaker 1: roller coaster wide with Elon Musk, with the Twitter CEO
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Speaker 1: as well, and really just shareholders trying to figure out
0:29
Speaker 1: what exactly is Twitter going to look like? And then
0:32
Speaker 1: we get the earnings well, I mean massive emphasis on
0:35
Speaker 1: the monetization this time around. H Yeah, and you've gotta
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Speaker 1: wonder whether it really matters if it's just going to
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Speaker 1: be a private company tomorrow. But there's other companies pretty
0:44
Speaker 1: that we'd like to talk to. We're gonna get into
0:47
Speaker 1: it now with Lauren Gilbert. She is the CEO of
0:49
Speaker 1: wealth Wise Discussing. She's going to discuss how markets are
0:52
Speaker 1: going to react to all of these massive, massive earnings.
0:54
Speaker 1: You know, as our analysts like to remind us, Twitter
0:57
Speaker 1: is just a small company compared to Apple, All and
1:00
Speaker 1: Amazon and some of the big numbers we have had, Lorien,
1:03
Speaker 1: thank you so much for joining us. When you look
1:05
Speaker 1: at the risks that these big big companies Apple, Amazon, Facebook,
1:11
Speaker 1: the they're just so big when you look at them
1:13
Speaker 1: compared to the rest of the market. So when you're
1:15
Speaker 1: looking at the next set of earnings, what are the
1:17
Speaker 1: biggest risks to you to not just these companies, but
1:21
Speaker 1: the broader markets at large. Right, Well, this is a
1:24
Speaker 1: big week for earnings with technology and focus and understanding
1:28
Speaker 1: where are these companies heading and get some guidance from
1:31
Speaker 1: these companies, and so you know what we're looking at.
1:34
Speaker 1: We want to hear from Apple, what are what do
1:37
Speaker 1: they see with the consumer. Apple has been very good
1:41
Speaker 1: at predicting consumer behavior um predicting how the consumer will
1:46
Speaker 1: be able to spend, and we want to hear if
1:48
Speaker 1: new products are going to be focused on more affordable
1:52
Speaker 1: products or if the consumer they expect will still be
1:56
Speaker 1: strong with some of the products that are more expensive. Well,
2:00
Speaker 1: so glad you mentioned that consumer behavior beacon, because I
2:02
Speaker 1: remember when the markets were trading, the entire market would
2:06
Speaker 1: rally or tank on these Apple store closures, which was
2:09
Speaker 1: essentially this idea of uh kind of Apple companies and
2:12
Speaker 1: these services that they provide for iPhone repairs, that foot
2:16
Speaker 1: traffic essentially being almost a proxy for mobility data, which
2:20
Speaker 1: is interesting to me. And speaking of that mobility data,
2:22
Speaker 1: we're getting uh, not so great mobility data from China
2:25
Speaker 1: and this idea that COVID lockdowns in China will have
2:29
Speaker 1: ripple effects around the world. How worried shure investors being
2:33
Speaker 1: about that. Well, that's a great point. That's another thing
2:35
Speaker 1: that we want to hear from companies like Apple. How
2:38
Speaker 1: are the lockdowns impacting them as far as um product
2:44
Speaker 1: completion as well as shipping, so all of those things
2:48
Speaker 1: are very important and how is that going to affect
2:51
Speaker 1: these companies going forward? So when we do look at
2:53
Speaker 1: risk the risks, there are many risks to look at.
2:57
Speaker 1: Um however, if so far in earning season, companies continue
3:01
Speaker 1: to be profitable, so, you know, looking to see how
3:04
Speaker 1: the companies are able to pass along price increases to
3:08
Speaker 1: consumers and who are those price setters. And I think
3:11
Speaker 1: that's a very important thing for investors to look at
3:14
Speaker 1: when they're deciding which companies to invest in. You know,
3:17
Speaker 1: I'm really curious here about what the limit is. One
3:20
Speaker 1: person we spoke to is the CEO of Chippotle, for example,
3:23
Speaker 1: where prices have increased. They're seeing avocado prices, paper prices,
3:27
Speaker 1: all these prices rising, but he's not quite willing to
3:30
Speaker 1: raise prices more. And so when you look at the
3:33
Speaker 1: next couple of months, how much inslation can consumers really
3:37
Speaker 1: take and how much our company is going to have
3:39
Speaker 1: to start eating the costs well, and that is the
3:41
Speaker 1: big question. And and Chippotle has done a great job
3:44
Speaker 1: of continuing to raise prices and maintain profit margins. But
3:48
Speaker 1: to your point, how far can they go and how
3:51
Speaker 1: far will the consumers allow these companies to go? So
3:54
Speaker 1: I think now is when you start seeing us some
3:58
Speaker 1: consumers just saying In fact, a recent poll that came
4:00
Speaker 1: out said of Americans, we're looking to decrease their expenses
4:06
Speaker 1: because of their concerns of inflation, because of the cost
4:10
Speaker 1: of goods rising, right, And we're also looking for the
4:13
Speaker 1: consumers to be shifting from good spending to services spending.
4:18
Speaker 1: And so we do see there. I think there's going
4:20
Speaker 1: to be some weakness there on durables as consumers then
4:25
Speaker 1: shift over to services and hopefully do some shifting, you know,
4:29
Speaker 1: like we're seeing in travel. Yeah, And I got to
4:32
Speaker 1: ask here. I mean, we've we've seen all of these
4:35
Speaker 1: really just downside moves, a lot of stocks just tanking
4:38
Speaker 1: across the board. Where are the dip buyers? Where are
4:41
Speaker 1: the what the dip buyers? Dip buyers? You would think
4:44
Speaker 1: if it sells off long enough, someone would say, well,
4:46
Speaker 1: that's that's a state, right right, right, Well, we've got
4:49
Speaker 1: some cash on the sidelines for that very purpose, and
4:52
Speaker 1: we don't see capitulation yet, So I think the dip
4:55
Speaker 1: buyers are looking for capitulation, which I don't think we've
4:58
Speaker 1: seen yet, So I still see some more downside pressure.
5:02
Speaker 1: I think for any big bank or asset manager, the
5:05
Speaker 1: question is what's the low what's the downside? How do
5:08
Speaker 1: you know? And and frankly it's a question for anyone
5:11
Speaker 1: who's looking to buy a stock, So how how low
5:14
Speaker 1: can it go from here? SMP for example, Well, we've
5:17
Speaker 1: already seen a correction, so we're in correction territory. And
5:21
Speaker 1: the big question when you're in a correction is are
5:24
Speaker 1: you heading into a recession? Because if we are heading
5:27
Speaker 1: into a recession, there could be quite a bit more
5:29
Speaker 1: downside pressure. However, when we look at a lot of
5:33
Speaker 1: the data, including employment, numbers which continue to be very strong,
5:37
Speaker 1: and the demand for employers to hire more people. When
5:41
Speaker 1: we look at that, we still see the economy being strong.
5:44
Speaker 1: When we look at p m I manufacturing numbers still
5:48
Speaker 1: very strong. So you know, I think we will see
5:50
Speaker 1: some capitulation. Hard to know exactly where that bottom is
5:53
Speaker 1: going to be, but we're probably pretty close before we
5:56
Speaker 1: start seeing some more rallies. Well, Laureen Gilbert found to
6:00
Speaker 1: see a Wealthwise Financial Services joining us right here in
6:02
Speaker 1: our interactive broker studio, making the track all the way
6:05
Speaker 1: from Dallas, Texas. Let's stick with the market perspective. Because
6:12
Speaker 1: we talked about G ten currencies with John Authors, we've
6:15
Speaker 1: got to talk about the e M side of things.
6:17
Speaker 1: There are so many countries out there who who have
6:21
Speaker 1: a whole other set of issues that the average American
6:23
Speaker 1: probably can't even fathom. No better person to break it
6:27
Speaker 1: all down with then Damien sass Our, chief EM fixed
6:30
Speaker 1: income strategist at Bloomberg Intelligence. We just like to call
6:33
Speaker 1: him the master of e M over here. But we're
6:36
Speaker 1: so good, so good, so good, and and decided to
6:41
Speaker 1: come into the office today, which we extra appreciate. Damian.
6:44
Speaker 1: Let's start with these Chinese lockdowns, how seriously should we
6:47
Speaker 1: be taking them? We need to be taking them seriously.
6:49
Speaker 1: I mean, if you look at the mobility data which
6:51
Speaker 1: everybody is talking about Shanghai and Ningbao, poor congestion is
6:54
Speaker 1: still egregious. And you know, basically if you just look
6:57
Speaker 1: at peak traffic in in Shanghai, it's running at lower
7:01
Speaker 1: than on a year over year basis. If you look
7:03
Speaker 1: at the two major airports in Shanghai, I think capacities
7:06
Speaker 1: running up below ten percent. So certainly the lockdowns are
7:09
Speaker 1: having an impact. But really the story in China isn't China.
7:12
Speaker 1: It's the Japanese yen and the fact that we have
7:14
Speaker 1: seen this depreciation of the end and how that's spilling
7:16
Speaker 1: over into the broader Asian block. I mean, that is
7:18
Speaker 1: really why you see China u on now it's six
7:21
Speaker 1: sixty three. Just to put things in perspective, that is
7:23
Speaker 1: a thirty big figure move this month alone. We haven't
7:27
Speaker 1: seen something like that since, so I think that's got
7:30
Speaker 1: a lot of people's attentions. And certainly the Korean juan
7:32
Speaker 1: and some mothers are are are are are depreciating as well,
7:35
Speaker 1: so you know, it's got a broader impact on Asia
7:37
Speaker 1: and that's spilling over into the broader young pop U
7:39
Speaker 1: m complex. Do we get a seven handle on the Uan?
7:42
Speaker 1: What do you think? I think that's definitely possible. I
7:44
Speaker 1: mean we were there just a few years back, right
7:46
Speaker 1: during the during you know, the Trump and the trade war.
7:49
Speaker 1: But I think you know, for me, it's it's it's
7:51
Speaker 1: it's about the near term. And if you look at
7:54
Speaker 1: the offshore on shore China Uan basis, we're now running
7:57
Speaker 1: it close to four hundred pips. That's like on three
8:00
Speaker 1: three and a half standard deviations above the five year average.
8:03
Speaker 1: So that just shows the stress. Let's be clear, the
8:05
Speaker 1: ento you on has a two percent band on either side,
8:08
Speaker 1: so it's kind of managed by the government. It's not
8:10
Speaker 1: allowed to move as freely as the offshore you on.
8:13
Speaker 1: And so this offshore you on is starting to really
8:15
Speaker 1: depreciate aggressively, which is you know, a sign of capital flight.
8:19
Speaker 1: So this is why they put me in Cretty together.
8:21
Speaker 1: It's the one to punch. She gives you the Macara,
8:23
Speaker 1: the trading strategy, so you know, the carry trade. Can
8:27
Speaker 1: you explain how this is playing out on Wall Street?
8:29
Speaker 1: And really what Critty has kept on outlining here truly
8:32
Speaker 1: is a historic moment for markets. Yeah, there are there
8:35
Speaker 1: are really three primary factors when you're looking at investing
8:38
Speaker 1: in currencies, right, There's there's carry what you mentioned, there's value,
8:42
Speaker 1: and there's trend. But the carry element of it has
8:44
Speaker 1: been very, very volatile. So anybody who has been investing
8:46
Speaker 1: in carry trades the the e M currency volatility has
8:50
Speaker 1: made it very very prohibitive to take advantage of that strategy.
8:53
Speaker 1: And it's still look am currency volatility is still relatively high.
8:57
Speaker 1: I mean, it's not high relative to fixed income equity,
9:00
Speaker 1: but it's certainly high relative to d MS. But d
9:03
Speaker 1: M f X is now starting to take up higher
9:05
Speaker 1: as well, so that may actually make the carry trade
9:08
Speaker 1: look a little bit a little bit more attractive. And
9:10
Speaker 1: certainly we have resource rich high carry currencies in Latin
9:13
Speaker 1: America like Brazil, Chile, Colombia even which which stand out,
9:17
Speaker 1: I mean you know that as being perhaps a good
9:19
Speaker 1: place to park your money and basically watch the paint dry.
9:22
Speaker 1: If if the volatility fits. Translation here, the people who
9:25
Speaker 1: have made a lot of money in the first three
9:27
Speaker 1: months of the year are about to make a lot
9:29
Speaker 1: more money trading currencies in the next two months of
9:31
Speaker 1: the year. But you know these do have devastating consequences.
9:34
Speaker 1: Let's let's be clear for many emerging markets. Damon, Yeah no,
9:38
Speaker 1: I mean, look, you know you can't ignore the currency
9:40
Speaker 1: impacted for for years and years now, I mean better
9:43
Speaker 1: part of the last decade. If you're a fixed income investor,
9:45
Speaker 1: I mean talking not just emerging market fixed income, developed
9:48
Speaker 1: market fixed income, you know you really didn't care so
9:51
Speaker 1: much about about the currency impact because currency vall was
9:54
Speaker 1: was was suppressed, it was low, and you're carrying so
9:57
Speaker 1: well with bonds rallying. Now yields your fall a rising
10:00
Speaker 1: and bond prices are falling and currency fall is high,
10:03
Speaker 1: So you know you need to I mean, if you're
10:05
Speaker 1: fixed income investor, you've got to be an f X investor,
10:07
Speaker 1: you've gotta look at the currency impact on your returns,
10:10
Speaker 1: and it's it's growing in terms of the active contribution
10:14
Speaker 1: to total returns. So I mean, yeah, you know, to
10:16
Speaker 1: your point, you really have to have a strategy about
10:18
Speaker 1: how you're looking at currencies. I mean, I've heard a
10:20
Speaker 1: lot of people talking about care. If you're a Japanese
10:23
Speaker 1: yet investor, it still makes sense to to carry in
10:26
Speaker 1: US treasuries on a hedge basis and all this crazy stuff. Look,
10:29
Speaker 1: a lot of that's going by the wayside because the
10:31
Speaker 1: cost of funding across borders is going up incrementally as
10:35
Speaker 1: we speak, and so I think it makes a lot
10:37
Speaker 1: of those strategies a little bit more challenging and a
10:39
Speaker 1: little bit more difficult to hold onto. Those interest rate
10:42
Speaker 1: differentials are really messing with I think almost every other
10:45
Speaker 1: every country in the world right now. As Michael mckeep
10:48
Speaker 1: pointed out, the Federal Reserve really can't do anything about
10:51
Speaker 1: it right there. This Their job is to focus on
10:53
Speaker 1: the American economy, but we have to talk about as
10:56
Speaker 1: Chanelie pointed out, the consequences for the e M space,
10:58
Speaker 1: the food consequence. I really want to point out record
11:02
Speaker 1: high food prices, especially when it comes to the bread
11:04
Speaker 1: basket Egypt is something Tom Keane does not stop talking
11:07
Speaker 1: about um. But there's other places as well that are
11:10
Speaker 1: really going to be feeling the pinch of the food spot.
11:14
Speaker 1: The food prices in addition to perhaps some other fears.
11:18
Speaker 1: I am F Managing Director Crystallina gorgeva In at the
11:21
Speaker 1: I'M of Spring Meetings underscoring the possibility of sovereign debt
11:25
Speaker 1: crises in emerging markets? What is the likelihood of that?
11:28
Speaker 1: So you're hitting on the nerve here, where will inflation
11:30
Speaker 1: peak and how far will growth decline? Effectively, monetary tightening
11:34
Speaker 1: is colliding with a it's it's colliding with the cost
11:36
Speaker 1: of living crisis, specifically an emerging market. So you're right
11:39
Speaker 1: to focus on you know, the Egypts, the Pakistans and
11:42
Speaker 1: Nigeria's who are most at risk. I mean, the UN
11:44
Speaker 1: International Food Price Index is something is up, something in
11:46
Speaker 1: the order of seventy May. But let's talk about the
11:50
Speaker 1: countries who are net food exporters, the ones that are
11:52
Speaker 1: supposed to benefit. I think that's what isn't really being
11:54
Speaker 1: talked about as much. So those countries Brazil, Chile, Thailand
11:58
Speaker 1: are probably less at risk than some of the others.
12:00
Speaker 1: And I think that's an interesting point that not a
12:02
Speaker 1: lot of people are looking at the net food exporters
12:04
Speaker 1: and how quite frankly, a lot of their currencies have
12:07
Speaker 1: outperformed in amidst the crisis. I have a perhaps fun
12:12
Speaker 1: slash not fun question. I know it's a dumb question.
12:14
Speaker 1: I'm gonna ask you to you anyway, we have to
12:16
Speaker 1: talk about Russia. We we've talked about everything else, we
12:18
Speaker 1: got to talk about Russia. It's pretty clear that if
12:21
Speaker 1: Russia ever perhaps rejoins uh the previous stage that it was,
12:27
Speaker 1: and it might take years before before it does that
12:30
Speaker 1: even in the best of circumstances. Does that mean the
12:33
Speaker 1: no brainer trade here is to just buy CDs is
12:37
Speaker 1: on Russian debt. No, I would not go near that.
12:39
Speaker 1: And and look, I mean it's not as a no
12:41
Speaker 1: brainer trade because really the credit the fal Simat market
12:43
Speaker 1: isn't open to retail investors or really to your average investor.
12:46
Speaker 1: It's more of an institutional headers market. But I think,
12:49
Speaker 1: you know, just if we're focusing on Russia, we gotta
12:51
Speaker 1: look to next week. May fourth is a key day.
12:53
Speaker 1: That's when the grace period ends for the six hundred
12:56
Speaker 1: and fifty million odd that Russia has paid its creditors roubles,
13:00
Speaker 1: which would constitute a default in the eyes of the
13:02
Speaker 1: raiding agency. So this could be again, you know, the first,
13:05
Speaker 1: uh really the first of fault we've seen on external
13:08
Speaker 1: debt from Russia in I mean since the early ten
13:10
Speaker 1: nine hundreds. But I think what's also interesting is soon
13:13
Speaker 1: thereafter we've got victory Day and that's when Russia prances.
13:16
Speaker 1: It's military out there, they parade, they in the streets,
13:19
Speaker 1: and a lot of people are thinking that May nine,
13:21
Speaker 1: that they're gonna want to deliver something to the Russian populace,
13:24
Speaker 1: a victory of some sort, something in Ukraine that you
13:26
Speaker 1: can hang your hat on. I think the one thing,
13:28
Speaker 1: um you know about the Russia Ukraine War that's kind
13:31
Speaker 1: of getting interesting here is you know, Ukraine's got a
13:33
Speaker 1: lot of external debt outstanding. They've got GDP warrants and whatnot.
13:36
Speaker 1: And if you're now the belief that Ukraine, whether or
13:39
Speaker 1: not they come out of this, you know, in whatever
13:41
Speaker 1: form they come out of this, the positive goodwill and
13:44
Speaker 1: the sentiment behind them, they're gonna have enough in the
13:47
Speaker 1: kitty that these bonds are starting to look very very
13:49
Speaker 1: attractive from a from a from an investor standpoint. And
13:52
Speaker 1: so I think that's an interesting point amidst all of it,
13:54
Speaker 1: is that you know, Ukraine, there is a place for
13:56
Speaker 1: Ukraine debt and people's portfolios. It's gotten absolutely coabered. You
14:00
Speaker 1: look at CDs in Ukraine. I mean, it's just as
14:02
Speaker 1: bad as Russia. But I would if I were I
14:04
Speaker 1: guess a betting man, I'd probably rather put my money
14:07
Speaker 1: in Ukraine CDs. Uh. Well, you know, looking for spreads
14:10
Speaker 1: to tighten rather relative to Russia. Yeah, that's less controversial
14:14
Speaker 1: of a trade to Yeah. Right, you can answer to
14:16
Speaker 1: your fiduciaries a whole hell of a lot more easily. Well,
14:18
Speaker 1: let's stick with the Russia theme here and talk about
14:20
Speaker 1: the ruble, because there are plenty of headlines that we're
14:22
Speaker 1: bringing this back to our worldwide audience here. European buyers,
14:26
Speaker 1: some of them paying in rubles, seving, some of them
14:28
Speaker 1: refusing to pay in rubles and getting their gas flows halted. Poland,
14:32
Speaker 1: Bulgaria come to mind. Is this potentially the start of
14:35
Speaker 1: a broader move by Russia to block those flows, that's
14:38
Speaker 1: the question. And how much of it is actually helping
14:40
Speaker 1: the ruble? Well, let's put a date on it. May fifteen.
14:43
Speaker 1: That's when the European gays to gas payments come do, right,
14:45
Speaker 1: And that's when we're gonna get real color and clarity
14:47
Speaker 1: on how that's handled, specifically by the CE three, the
14:50
Speaker 1: Eastern European block like Poland, Romania, Czech Republican, Hungary. I mean, look,
14:55
Speaker 1: if you look at the Hungarian Fiens that currency has gotten.
14:57
Speaker 1: I mean, they just had two high rates again and
14:59
Speaker 1: it's still not doing anything to stem the bleeding on
15:02
Speaker 1: on the foreign So I mean, you know, if you
15:03
Speaker 1: look at some of these countries, now, let's just be clear,
15:05
Speaker 1: Poland has definitively pivoted away from Russia, and you know,
15:09
Speaker 1: we're obviously providing all sorts of arms to Ukraine and
15:13
Speaker 1: very supportive. Hungry not so much, and so Hungry can't
15:16
Speaker 1: get out of its own way, it seems. And it
15:17
Speaker 1: seems like a lot of these countries that are kind
15:19
Speaker 1: of like Serbia for example, that are kind of signing
15:22
Speaker 1: with Russia, are really getting penalized in the capital markets
15:24
Speaker 1: because of it. And I don't see that changing anytime soon.
15:26
Speaker 1: So that's certainly something that you know, a lot of
15:28
Speaker 1: investors are taking advantage of and that we're monitoring very closely.
15:32
Speaker 1: Tabian sass Hour as brilliant as promised chief em Fixed
15:36
Speaker 1: Income Strategies over Bloomberg Intelligence. We thank you so much.
15:38
Speaker 1: I literally think in the span of I'm just looking
15:41
Speaker 1: at the clock here, ten minutes, we literally went around
15:43
Speaker 1: the world, right, so the world with you, pretty and
15:48
Speaker 1: it is most fun to do it. With Damien, who
15:50
Speaker 1: somehow knows everything about every detail of every bond being
15:54
Speaker 1: traded in the world. And it's really I don't know
15:56
Speaker 1: how well you know, guys. He comes in with his
15:58
Speaker 1: piece of paper and I've got no it's with yellow
16:00
Speaker 1: highlights on highlights ribbles. Let me tell you one time, Shinnali,
16:05
Speaker 1: I caught him in the TV set and he's about
16:07
Speaker 1: to throw this piece of paper and the recycling and
16:08
Speaker 1: I said, no, I want that, and I still have it. Actually,
16:11
Speaker 1: the other day Damien pulled up his screen, shared it
16:14
Speaker 1: with me and went through all the different Russian bonds.
16:18
Speaker 1: If only audience was as lucky as we are to
16:20
Speaker 1: get inside access to Damien's mind. We know you are
16:23
Speaker 1: a very busy man, Damien, so we will let you go,
16:26
Speaker 1: release you of us picking your brains, which will not
16:29
Speaker 1: stop anytime. Then. I think the strongest move here is
16:36
Speaker 1: going to be in the currency market. Extremely strong dollar,
16:39
Speaker 1: a one thirty on dollar. Yet who better to break
16:42
Speaker 1: it all down with than Christina Quino, our team leader,
16:45
Speaker 1: really the head of our coverage for FX and rates
16:48
Speaker 1: based out of London. Christine, thank you so much for
16:50
Speaker 1: joining us. How much lower can the Japanese yen fall.
16:53
Speaker 1: How much weaker can it get? Well? Pretty I think
16:57
Speaker 1: people now are starting to look at one thirty five
17:00
Speaker 1: versus the US dollar as the next level to watch.
17:02
Speaker 1: But you know, we really looking at a twenty year
17:05
Speaker 1: history of of Japan's history of interventions, which there have
17:08
Speaker 1: been several I think was the past trigger for end
17:13
Speaker 1: weakness that convinced policymakers to jump in and strengthen the currency.
17:19
Speaker 1: So that's definitely going to be a key level to
17:21
Speaker 1: watch as well. But certainly it seems like there's a
17:23
Speaker 1: lot of upper momentums here, probably a lot more end
17:26
Speaker 1: weakness to come. I mean, we're also saying weakness in
17:29
Speaker 1: the euro here, right one oh five and one. It's
17:30
Speaker 1: gonna comes down to the same story, these interest rate differentials,
17:33
Speaker 1: an inflationary environment, a hawkish federal reserve. A lot of
17:38
Speaker 1: people are calling for parody on the euro dollar. How
17:41
Speaker 1: long will it take to get us there? And what
17:43
Speaker 1: happens when you get parody? Well, cratty, you know, we
17:47
Speaker 1: already have a number of forecasters saying that parody is
17:50
Speaker 1: going to come in a matter of months, so potentially
17:53
Speaker 1: by the summer months here in the Northern Hemisphere and
17:57
Speaker 1: what that actually means in terms of hitting that level
18:01
Speaker 1: is it's quite a significant level. Of course, it's it's
18:03
Speaker 1: something that we haven't seen in years and years over
18:06
Speaker 1: here in in Europe and potentially a very very big
18:09
Speaker 1: implications depending on whether you're an exporting company in Germany
18:14
Speaker 1: or whether you're an energy importing economy elsewhere in the
18:18
Speaker 1: year Zone. You know, because again the level of your
18:21
Speaker 1: exchange it really determines how much pricing power, or rather
18:24
Speaker 1: how much purchasing power you have internationally. And so if
18:27
Speaker 1: you're an exporter, good for you. If you are someone
18:30
Speaker 1: who's buying up for instance, energy or supplies or anything
18:34
Speaker 1: that kind of counts as intermediate goods, then your costs
18:37
Speaker 1: are probably going to be a lot higher. Well, Christina
18:40
Speaker 1: and Kane, now I mean I think you hit it
18:42
Speaker 1: right on the head ahead of our FS and rate coverage.
18:44
Speaker 1: Coming out of the heart of the currency exchanges in London.
18:51
Speaker 1: We also have John Authors. I want to pose the
18:53
Speaker 1: same questions we pose to Mike to John John Authors
18:57
Speaker 1: of Bloomer Opinion. Thank you again for joining us UM.
19:00
Speaker 1: One of the things we have to discuss here to
19:03
Speaker 1: you specifically is the currency which is not in the end,
19:06
Speaker 1: not in these e M currencies down the pound, but
19:09
Speaker 1: in the Euro. For our listeners who don't know this,
19:12
Speaker 1: John Authors has written several books on the European crisis
19:17
Speaker 1: of the last decade. And I'm curious about the parody question.
19:21
Speaker 1: We're looking at one or four on euro dollars. Is
19:24
Speaker 1: parody realistic? Yes, Its just though it is at the
19:28
Speaker 1: moment very startled to be able to say that. But
19:33
Speaker 1: the current trajectory, it's quite difficult to see how that
19:37
Speaker 1: gets interrupted. It requires the e c B to be,
19:42
Speaker 1: you know, to change its approach in a way that
19:46
Speaker 1: could be very damaging for its credibility to make quite
19:50
Speaker 1: a strong u turn. If if we're not going to
19:54
Speaker 1: see the dollar continue to continue to strengthen, if we
19:59
Speaker 1: do continue to see the dollars continue to see the
20:02
Speaker 1: dollar strengthening, what ramifications does that have globally, especially for
20:07
Speaker 1: emerging markets, which would be very negatively tilted towards the scenario. Yes, um,
20:15
Speaker 1: I do think it's fair to say that emerging markets
20:18
Speaker 1: are less vulnerable to a strong dollar than they have
20:21
Speaker 1: been in the past because they tend, with some exceptions,
20:25
Speaker 1: to be less dependent on dollar denominated debt. That being said, plainly,
20:30
Speaker 1: this is still an alarming situation, particularly if you are
20:35
Speaker 1: not a commodity bought backed currency. So for example, the
20:39
Speaker 1: Korean one has come under under pressure recently. UM. It
20:43
Speaker 1: has fascinating, fascinating impact on China, which is now allowing
20:51
Speaker 1: its currency to weaken in a very swift way. But
20:57
Speaker 1: this can't be seen as some kind of an attempt
21:00
Speaker 1: to get ahead of the game as it was twenty
21:02
Speaker 1: years ago in an artificially weak currency. And then the
21:07
Speaker 1: yen is altogether extraordinary if you truly a historic moment
21:15
Speaker 1: on Dolian, and that has the important implications for China
21:22
Speaker 1: because obviously China cares about its relative competitiveness compared to
21:28
Speaker 1: compared to the end, and the Chinese currency started to
21:32
Speaker 1: turn down once it had reached the level at which
21:36
Speaker 1: to the yen, which it reversed course back in twif
21:40
Speaker 1: causing you know, minor crisis. Elaborate on that a little bit.
21:46
Speaker 1: What levels does China have, especially because we're thinking about
21:50
Speaker 1: this in the context also of the China lockdowns in China, UM,
21:55
Speaker 1: how do we think about the ability of the country
21:57
Speaker 1: to control its currency. Here well, it continues to control
22:02
Speaker 1: capital in a much greater way than anyone else. It's
22:05
Speaker 1: it's an odd hybrid currency where it is um subject
22:09
Speaker 1: to market winds, market forces, but it's also subject to
22:13
Speaker 1: the whims of the of the leadership. So there is
22:16
Speaker 1: some there is some possibility there you can continue. You
22:21
Speaker 1: could continue to see, um, the China actually abandon its
22:26
Speaker 1: hopes for fiding up the light word the real estate sector,
22:33
Speaker 1: for for for moving away from any risk of a
22:36
Speaker 1: of a Lehman style incidents in China. You could see
22:38
Speaker 1: them just decide, Okay, we're going to we're going to
22:41
Speaker 1: print money again. We're going to let the credits figots
22:44
Speaker 1: open again. Very intriguingly, despite everything kind of really hasn't
22:49
Speaker 1: done that this time around, or anything like the extent
22:52
Speaker 1: it's had with all its previous growth slowdowns over the
22:55
Speaker 1: last twenties. So I guess that's one main thing they
22:58
Speaker 1: could do which would make a lot of people very happy. Money.
23:02
Speaker 1: What does this all mean in the context of reserves.
23:06
Speaker 1: You know, when we started, when when Russia's war in
23:09
Speaker 1: Ukraine had started, there was a large conversation about the
23:12
Speaker 1: dollar being the reserve currency of the world. And now
23:14
Speaker 1: with the dollar strengthening as it is, you know, does
23:17
Speaker 1: it still pose questions about the meaning of the dollar
23:21
Speaker 1: for for countries around the world. Yes, one of the
23:27
Speaker 1: really interesting suggestions Creaty could tell you. I'm also very
23:31
Speaker 1: interested in the Britain Woods agreement, which finally ended fifty
23:34
Speaker 1: years ago. I think it makes it makes it appearance
23:37
Speaker 1: almost every other sense. I'm Indian, and so it's pretty
23:39
Speaker 1: So we understand the meaning of gold. Well, you do
23:45
Speaker 1: have the monetary global politics behind Russia saying they're going
23:51
Speaker 1: to back the ruble with gold as an attempt to
23:55
Speaker 1: make them established themselves as some kind of a plausible,
24:00
Speaker 1: um applausible second alternative currency and asking for payment in rubles.
24:09
Speaker 1: Because this was actually a move made way back when
24:14
Speaker 1: Nixon had pulled out of Breton Woods. They were no
24:17
Speaker 1: longer the dollar was no longer backed by gold, but
24:21
Speaker 1: they extracting an agreement that from OPEC that oil transactions
24:25
Speaker 1: would be denominated in dollars, which meant that you did
24:28
Speaker 1: have some kind of an oil standard to replace the
24:31
Speaker 1: gold standard. Um, if you try to bring that under challenge,
24:35
Speaker 1: that's a big deal. So yes, you you the risk here,
24:41
Speaker 1: and China is the pivot on this. Russia's obviously committed
24:45
Speaker 1: to its confrontational course. China has to decide if it's
24:50
Speaker 1: prepared to throw in its lot into more of an
24:53
Speaker 1: Eastern Asian block and rather than continue to steadily tensively
25:02
Speaker 1: become more a part of the Western bloc. John, this
25:06
Speaker 1: is a conversation that's not just hitting the b o
25:08
Speaker 1: J or the p BOC for that matter. This is
25:11
Speaker 1: a truly global conversation in terms of gtawn currency. Sweden,
25:15
Speaker 1: for example, Essential Bank of Sweden, the Reichs Bank hiking
25:19
Speaker 1: their rates today a really big u turn when it
25:21
Speaker 1: comes to montery global policy. I think no one said
25:24
Speaker 1: it better than one of our guests on Bloomberg Surveillance
25:27
Speaker 1: this morning, when then he was a currency strategist on
25:30
Speaker 1: Brown Brothers Harriman. He said, yeah, he said, the ricks
25:33
Speaker 1: Bank delivered a rate hike, and when they're more hawkish
25:37
Speaker 1: than you, that's saying something. So I think when it
25:39
Speaker 1: comes to a lot of these kind of more devish
25:43
Speaker 1: governments or or central banks, the b o J, the
25:46
Speaker 1: p b o C, is there anything that they can
25:49
Speaker 1: really do currency intervention aside to kind of stop this
25:53
Speaker 1: falling knife. I'm supposed to be able to have a
25:58
Speaker 1: good answer to that, I'm saying it's in the case
26:02
Speaker 1: of in the case in the case of most of them,
26:07
Speaker 1: it's that they can they can, they can tighten. In
26:10
Speaker 1: the case of Japan, where you still have much lower inflation,
26:17
Speaker 1: I guess it is plausible for them to continue on
26:21
Speaker 1: their their current course. In the case of the e
26:26
Speaker 1: c B, it's very much more painful because obviously they
26:30
Speaker 1: really do have an inflation problem. But in the you know,
26:35
Speaker 1: the inheritance from the crisis. You know, it's almost a
26:38
Speaker 1: decade since drug he said, whatever it takes, so it's
26:42
Speaker 1: it's it's a long way back, but you can still
26:45
Speaker 1: see its effect. The peripheral European countries still have very
26:49
Speaker 1: high unemployment by by the standards of of the West. Um,
26:55
Speaker 1: it's what they what they can do is tighten uh
27:01
Speaker 1: and that's by strengthening the Euro. Would reduce inflation that
27:05
Speaker 1: way as well, but they really don't want to because
27:10
Speaker 1: their economy is in a more palless state than than
27:13
Speaker 1: the States. I suspect that the CP has no choice
27:17
Speaker 1: but to to tighten, but I wouldn't more aggressively than
27:21
Speaker 1: they're currently suggesting. I think that's the way. Christine Legard
27:25
Speaker 1: seems to be going last week and everything that's happened
27:28
Speaker 1: since would intensify the pressure for her to do so.
27:31
Speaker 1: But it's there are no good solutions for the CP
27:34
Speaker 1: at this point. I mean, I have to ask when
27:36
Speaker 1: it comes to I mean, let's tie all of these
27:39
Speaker 1: things together, right. We have currency weakness on the one hand,
27:41
Speaker 1: you have recession odds really hitting I think Europe the
27:44
Speaker 1: hardest of all three regions. I mean, just recently when
27:49
Speaker 1: you look at the market narrative questions about a growth
27:52
Speaker 1: not slow down, but like a complete stop to growth
27:55
Speaker 1: has really taken over these markets. This idea that if
27:58
Speaker 1: you have COVID lockdowns can hinue in China, Americans for example,
28:02
Speaker 1: will not get the physical goods. At the same time
28:05
Speaker 1: that American purchasing power is actually increasing. So I mean
28:09
Speaker 1: there's a lot going on here, John, And I mean
28:13
Speaker 1: I wish we could have an hour or so with you,
28:16
Speaker 1: because I mean a podcast even would be handy. But yeah,
28:23
Speaker 1: I mean, I mean it, this, this really is fascinating.
28:26
Speaker 1: I mean, we're gonna stick with you or we're actually
28:29
Speaker 1: going to bring you back for Nope, We're gonna stick
28:31
Speaker 1: with you. A lot going on here, A lot of
28:33
Speaker 1: balls to be juggling for our listeners. We are waiting
28:36
Speaker 1: a press conference from President Biden to discuss his latest
28:39
Speaker 1: American assistance for Ukraine to stick with us as we
28:43
Speaker 1: kind of balance everything going on in the market with
28:45
Speaker 1: everything going on with the geopolitics as well. But John, quickly,
28:50
Speaker 1: if I can post to you, how do you square this?
28:53
Speaker 1: Are these growth fears in the market really worth considering?
28:59
Speaker 1: I I would have said no with greater confidence before
29:05
Speaker 1: the GDP number came out this morning, which did genuinely
29:11
Speaker 1: surprised me. Um, A lot of this is about timing.
29:16
Speaker 1: There's going to be another recession at some point. All
29:18
Speaker 1: of economic history tells you that periodically economy is slowed down.
29:23
Speaker 1: The question is how quickly it comes and whether the
29:27
Speaker 1: market has got ahead of itself in thinking that the
29:32
Speaker 1: economic logic is going to play out so that we
29:34
Speaker 1: actually have a recession this year, which I don't think
29:38
Speaker 1: is is very likely. The amount of the amount of
29:41
Speaker 1: consumer strength, particularly here in there in the US, makes
29:44
Speaker 1: it hard to to make that assertion. That said, it
29:49
Speaker 1: does look as though, um, the economy is already feeling
29:56
Speaker 1: some of the effects. Who are just talking about that
30:00
Speaker 1: that inflation is beginning to destroy demand, that that there
30:04
Speaker 1: have been the issues caused that that the renewed supply
30:08
Speaker 1: chain problems have had an effect. Um. The one big
30:14
Speaker 1: possibility that, trying to be positive, I'd like to this
30:19
Speaker 1: is this is something Dari Perkins at TS Lombard but
30:22
Speaker 1: which which was that if the economy flows a little
30:27
Speaker 1: quicker and a little earlier, it becomes more possible to
30:34
Speaker 1: get out of this without engineering a really serious recession.
30:39
Speaker 1: You could become more like a mid cycle slowdown or
30:43
Speaker 1: a very shallow recession. Allab I'm wondering about the recessionary
30:52
Speaker 1: impacts that we might see here. I mean the fact
30:55
Speaker 1: that this might have really serious ramifications for inequality moving forward.
31:00
Speaker 1: Have you thought about what this could mean in terms of,
31:03
Speaker 1: you know, coming out of pandemic where already the rich
31:05
Speaker 1: got richer, the poor got poorer, and they're facing inflation
31:08
Speaker 1: where you can't pay for food. So what would a
31:11
Speaker 1: recession then due to that backdrop, it's we're now getting
31:17
Speaker 1: into areas it's really painful even to even the councidence.
31:22
Speaker 1: One thing that has been positive about the last twelve
31:24
Speaker 1: months is that inequality has actually dampened somewhat because there's
31:33
Speaker 1: been greater earning power and greater negotiating power for people
31:38
Speaker 1: on low wages, so that there has been some sign
31:42
Speaker 1: of reducing inequality. That is, ultimately what is really poisoning
31:50
Speaker 1: society at the moment. I think it's why we're why. Ultimately,
31:53
Speaker 1: it's why the debate is polarized and as unpleasant as
31:59
Speaker 1: it is. Um, if you look at where the recession
32:05
Speaker 1: is moving at this point, or sorry, where the economy
32:07
Speaker 1: is moving at this point, Um, it's possible that you
32:13
Speaker 1: get a move in an egalitarian direction because asset prices
32:18
Speaker 1: take the hit, um, rather than therefore therefore that the
32:25
Speaker 1: rich feel it more than the poor. But but, but,
32:29
Speaker 1: but there's no denying your opening opening point. We've just
32:33
Speaker 1: been through COVID. If we're going to if people's patients
32:37
Speaker 1: is going to be tried by another recession this quickly
32:43
Speaker 1: with inflation this time, that's that's a very concerning. Look.
32:47
Speaker 1: That's that's not easy for any society to deal with.
32:50
Speaker 1: John Arthur's of Bloomberg Opinion, everybody, I mean, a real
32:53
Speaker 1: treat to have. He can talk about anything, We can
32:56
Speaker 1: throw anything at him. Thanks for listening to the Bloomberg
33:01
Speaker 1: Markets podcast. You can subscribe and listen to interviews of
33:05
Speaker 1: Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller.
33:10
Speaker 1: I'm on Twitter at Matt Miller nineteen seventy three. Put
33:14
Speaker 1: on fal Swoeney. I'm on Twitter at p T. Sweeney.
33:16
Speaker 1: Before the podcast, you can always catch us worldwide at
33:19
Speaker 1: Bloomberg Radio