John Vail on the Markets (Radio)

right now? Well, the market has been extremely enthusiastic about the FED softening it stands going forward. Any hint of that has been taken very very strongly by the market. So UM, I think now that we're in the blackout period, the FED has only recourse to UHL we say, leaks through the media to explain uh it's view on how markets are reacting. And I think it might have done at least a little bit of that through uh the media today. And and what in particular in the media

struck you. Oh, it's an article by one of your competitors, UM and saying that the the FED is going to keep rates higher for longer you know that when you when you're tighten financial conditions. Though, if that's the objective, any type of rally that you're gonna get in risk assets where their stocks go up, whether the dollar weakens, whether yields continue to drop. I mean, that's only going to create a bit of concern here. I mean I understand that the part of the way in which the

FED works is through the language that they use. I mean, do you feel like they're just gonna play this game of whack a mole any time the market gets a little bit of enthusiasm building that that maybe a pivot is in sight, that the FED has no choice but to deliver a heavy hand and a big remedy. Yes, actually I do. Just like Kathleen's made your scoob at Jackson Hole with whois George? Um, they come out and they make strong statements whenever the market gets over excited,

don't you think, well? Actually, uh? I mean, Estra George is a very frank Yeah that's all right, but straightforward person. You know, she doesn't beat around the bush, and she hasn't been afraid to be hawkish or devish when others weren't. Coming back to the FED and communication. What I find striking, honestly, YouTube is that look at the FED has been saying that so clearly we think Greggs are going to go higher than we thought, and they're gonna stay longer. More

than one has said. It's not going to be like a mountain where you go up and then climb down the other side. It's going to go up and then it's going to be a plateau potentially for the rest of the year. And no matter how many times the FED says that, the markets don't listen, and the history of inflation says you have to keep rates high for a long time when you let it get so far out of control. Right, absolutely right, And the market doesn't I want to listen to that. Fixed income UM asset

managers UM. They tend to be relying on their historical models, I think, and they perhaps have a bias towards their asset class and want things to get better in the bond market. So it might be just wishful thinking. Because the economic data is extremely mixed. I mean, some things look quite strong, some looks though, some look weak. UM, it's very hard to get a picture of what's happening to the economy, right now in the US, I'm just wondering, listen to the listening to the two of your talk,

whether or not when the market becomes enthusiastic. What it's really showing us is that there is still so much liquidity in the system that when you get these moments of reprieve, that you get a swelling in in risk appetite. But I want to pivot a little bit to your neck of the woods, John, because you're being in Tokyo, you're keeping a close eye on the end here. Today we had a powerful rally in the dollar. I get that that's a yield curve story, but the yen has

been on an amazing terror lately. What do you make of this? It does seem correlated with the US bond market and the interest rate. Nominal interest rate differential has been the key determinant of the yen's movement, so it

sort of makes sense from that regard. There's also more talk here in Tokyo about, you know, the Bank of Japan starting to do something I personally don't think they will, but they're at least looking at U easing um in some sort of conceptual way and starting to think about it UM think about thinking about it, I guess you could say um, with some fairly major voices out there saying um, there should be some sort of at least

study of this. And as most of your listeners probably know, the Central Bank Governor um Kuroda, who has been a stalwart easing advocate UM for the last what is it ten years or so um Um is retiring or being um. Yeah, his him is over and so there's a lot of speculation too about who will replace him. And it's probably true that anybody is going to be a little bit, at least a little bit less dubblish than Kuroda, because

he's been very stars. He certainly hasn't uh you know, the one who led the charge of yol curve control and all that. But we've had two great stories this week from our Tokyo team. Uh total Fujioka, for example, interviewed Asaki no Gucci. He's a b o J board member. He's considered to be quite a dove and quote unquote even he said, you can see signs of inflation finally taking hold, although he doesn't think any policy change will come soon. Uh, you know that death seems to me

they are moving closer and I remember um. Mr yen Uh telling me about three years ago that he thought that the pivot would come when Krota's term ends. Do you think that's true? Well, um, I told him too much to Mr end beyond us, but I would listen more to Fujiokasan's articles and Okucci and also he wrote one by Takatoki Ito, who's all who's extremely close to Kroda and I guess is a contender for his replacement.

I hadn't heard of that until Fugiokason mentioned it. But um, yeah, there's definitely, uh, you know, some consideration, um um of some kind of conceptual pivot, but the ramifications of of of a hike in Japan are very very severe. I would agree with that. John, good stuff. Thank you so much for being with us. John Vale of Nico Asset Management joining us here on dB A