Let's get to our guess. Jack McIntyre's portfolio manager at Brandywine Global joining us from Philadelphia. Great to have you with us, Jack. So we have these global tightening expectations on the rise. We were just talking about the A, B, and Z overwhelmingly expected to hike for a fourth month today and that would take their total cash rate hikes
to three basis points over the past twelve months. Is there a risk here though, what we're seeing with global central banks of overtightening and does that mean that a recession is really the only cure to kind of reign in inflation here? Yeah, it's really that's the sixty four million dollar question because we have to find out. Yeah,
you know, inflation has come down. It's great to see commodity prices of oil, but to get us down meaningfully, uh, you know, you're gonna have to see weakness in the labor market the stick your inflation, and that the question is, right, do we need to see a shift towards recession to get that type of inflation lower? And the urban Z is in the same spot as a lot of central banks. You're you're tightening into slowing economies right now. So certainly
you increase the risk of recession. But it's you know, it's fascinating because when you look at the way risk ascids equities are trading, uh, they're not trading as though there have recession concerns. No, absolutely not. So does that kind of mean that we're sort of at perhaps a bear market pause rather than a sustained rally. We're continuing to see, uh, some upside momentum. I guests in in these markets and we're asking as well, do you see temper cent higher next for the SNP five D or
do you go down again? In terms of a bit of a pause. Yeah, I'm still a little bit more cautious right now. I get it. I understand you know, uh, you know, oil, as I mentioned, oil prices are down, consumer confidence things have improved, so equity prices have obviously
rally pretty significantly. But I don't think we're out of the woods yet, because I do still think that the again I'm taking central banks at face value, that breaking the back of inflation is job one, no matter what takes, whether it takes uh you know, pain in the labor market, in the actual economy. So obviously I could be wrong, but I would not be a buyer of equities right at these levels. All right, so you're being a little
bit more cautious. We did see that Bank of America Investors survey uh suggests perhaps that investors are stepping back from their recent record pessimism. But what kind of moves it down next? I mean, we've got the f O m C coming up in September. We've also got checks and hold too later this month. Yeah, and that's uh,
certainly critical. And you obviously have the Minutes tomorrow, although I don't think we're gonna learn a lot because right now, I mean, the Fed is is giving us their roadmap, and that's you know, hit it hard, tighten policy aggressively. And then we also next month you have the maximum sort of pain coming from quantitative tightening as well. So it's really you know, raise rates significantly now. And then the question is not just you know, are they gonna
be cutting next year, but how long are they gonna pause? Uh? And I think the message that we're gonna hear from the Fed is that, hey, that pause might be longer than what the market expects. I wanted to pick up on why you are nervous but underweight the dola here. Yeah, truly, this is and I am nervous because the dollar obviously has been very strong. Um, you know, it's the risk
off currency. Obviously we're in a risk on environment, so the dollars we can But when you take a step back up, you know, there's two reasons why I want to underweight the dollars. First is, you know, the if oil prices continue to lower, commanding prices inflation is peaked to FED might not ultimately have to tighten as much
as what's getting discounted in the market. Uh. However, the flip side, though, if we're wrong and the FED titans and has to tighten more aggressively, the odds of recession increase in the US. So you know, and again I understand it could be a period where you do get some dollar strength, but if you look out, relative growth differentials are gonna be big. And if the US is heading towards the recession, I gotta think the US dollar
is gonna weekend. And and lastly, you've been hearing a lot of pressure from corporate sector about the strength of the dollar, and that typically is associated with the turning point in the dollar. What about the consumer though, and what that's telling us about the real economy. I mean, we're talking about last month Walmart cutting its profit forecast. Now it's got a bit more of an upbeat tone. Yeah, but I'm still in this camp. We're gonna go through
some goods deflation. I don't think there's a lot of pent up demand from the consumer to buy goods. They've been buying goods for the last two years and here and you know the Walmart news. I mean, remember you had upper income earners shifting and increasing their purchases at Walmart. We saw that post GFC, So you know, I'm not sture on the surface that is a net postive for the consumer. Alright, We've been watching a big move in the bond market globally this week, and none so more
than what we've seen in China. And this is very much, I guess, reinforced by that divergence with what you're seeing with basuries as well. China is still very much in a slowdown mode and more stimulus has perhaps needed. But what does that big spike lower in China Tania yields tell you? Yeah, it tells me. Uh, it confirms what the data has been telling me, is that China is struggling.
They're they're they're they're slowing down, uh, seeming precipitously, the credit impulse is going to probably roll over in here. So bigger picture, I view China sort of being a disinflationary impulse for the broader global economy. I wish I owned Chinese bonds. I didn't and don't, but I think as China bonds rally, that's probably gonna be a good environment for some of those higher yielding e M bonds
because as China slows down, could be disinflationary. And you know, if we see lower commanded prices, that's gonna put downward pressure on e M inflation because food and energy is a bigger part of their CPI basket, and that actually could be a net positive form bonds. Yeah, and you say, as well, em equities finally attracting influence. But to quote you as well, not all e M created equally, Which
are you sort of favoring amongst emerging markets. Yeah, So where the biggest dislocation is from an inflation standpoint, and that's more in Latin America. I mean, one of the things that I've been impressed with with the central banks in Latin America's that they've taken their real so inflation adjusted policy rates positive right now, so they've had a big commitment to breaking the back of inflation. Uh. And I think again, I expect to see continuing weakness and
commodity prices because of China slow down. So that could be kind of a situation where those central banks either go on pause before we see in the developer world or start cunning rates. Jack, just finally, let's send it in on a positive note. I mean, what, what is something that you are seeing that is you know, potential upside here because there are a lot of concerns as we've discussed about inflation, about recession, but anything kind of taking your fancy. Uh, it is just the e M assets.
I would tell you that Dave lagged for a long time now. I think the surprise would be that they continue to track capital. They've been under invested, both from a retail and institutional investors standpoint, So I expect them to do well, all right, and lets him as you mentioned in particular, Thank you so much. Jack. Jack McEntire, portfolio manager at brandy one Global, on the line from Philadelphia for US here on Bloomberg Daybreak Asia,