Let's get to our guest, John Woods Asia Pacific CIO at credit Sweez Well, John, it appears that we have something like three to six months of pain coming up if your long risk assets. But after that there will be some opportunities. And we've got a couple of big catalysts that would be looming, the FED perhaps hinting that job done, and maybe a change in the COVID policy in China, which one happens first. Gosh, that's a that's a complex, um and well judged question. It's a brilliant,
brilliant question. My my senses, actually, we are quite some way from any sense of FED pivot, given the message which reverberated from Jackson Hole just a few days ago. My senses, the FED will not even consider easing at least until we see inflation at or very close to that two target or two to three percent target, and not only hitting that target but remaining there consistently up
for a number of months. So I think one of the reasons why the markets so aggressively sold off Friday was the fact that we are what eight nine currently in terms of headline cp A c p I. I can't imagine us getting down to that sort of two percent area at least for six to nine months. Regarding zero COVID, well, um, I think that's an event for a post the Party Congress, which is scheduled. I believe
for October. I suspect that there will be a number of months before that's re calibrated UM and repackaged, possibly something for the new year three. So on balance, I suspected zero COVID rather than UM any sense of a pivot by the FED, and just getting back to the impact of what we're expecting from the FED on risk assets. If you've seen September the second worst month on average for the SMP fix over the past two decades, how
much fur the pain a we're expecting next month? Well, I think it was noteworthy that in his short, sharp shock, which was that eight minutes speech, FED Chairman Powell made
zero reference whatsoever to financial conditions and financial markets. That says to me that both the economy and the market is likely to endure a substantial amount of pain um in uh in as an inflation is engineered lower and by the way, one of the reasons Credit Swiss unusually moved its a tactical allocation to underweight equities for the first time in a very long time, in anticipation of a deceleration in economic growth, a compression in margins, and frankly,
a higher ability of recession. I did say three to six months of pain, and it seems like you're saying it could be more. Well. Absolutely, it's really a function of inflation and how enduring and how sticky that is likely to be. Investors will want to get out in front. Right At some point, they'll be looking perhaps beyond the recession. Yes, I guess they will be looking for opportunities and cheapened valuations.
We're not there yet. We're not anywhere close, I think, to these sort of levels which would be attractive, by which I mean sort of to threat two or sorry, one or two standard deviations below a ten or even fifteen year mean. Brian. We're not there yet, and I suspect it will take some time for that to happen. You touch quickly on China's COVID zero, but just quickly. How weaker these pms expected to be when we get
them in about twenty minutes. Well, I don't think they're going to be substantially weaker, although I think they are going to tick lower. I mean, one of the big problems we have with China right now is the hesitancy both of the central government and provincial governments to aggressively roll out the stimulus that has already been announced. And until that actually happens, until US provincial governments in particular step up and aggressively invest, well, then I suspect PMS
and particularly for PM eyes will remain under pressure. I just wanted to get your thoughts though on the PBOC setting that stronger than expected, you unfixed for a sixth day, getting more aggressive in pushing back against this weekly one. Well, I think the p BOC is between a rock and
hard place right now. You have obviously the FED signaling an intention to raise rates, perhaps more aggressively than originally anticipated, and yet you have the p BOC at the same time seeking to ease rates to support underlying economic conditions. And of course the Fed constrains the p BOC's ability to do that, and the only way really to offset that is through the currency. So we've seen a substantial amount of volatility uh remnant b both on shore and offshore.
I suspect that will continue. The PBOC will seek to smooth as much as it can the underlying trend of remnin B, but in our view it's likely to weaken further. We're calling for around six point nine in the next three months or so, but frankly, I wouldn't be at all surprised if we get a little more volatility in the interim period. So many Asian currencies have weakened even more so the comparative advantage is not really that big
for China. Um I mentioned QT because I am not quite sure how to measure it, So I'm hoping to get some expertise from you out you know how much QT is priced into the markets, and and what is the best way to measure it? Well, I mean, I think it's certainly the case that Jackson Hole and interest rates have captured the attention of the market, but absolutely
underlying that we have the endure risk of QT. And of course, the Federal Reserve this week is set to raise that double uh that program from some sixty billion to a month to some thirty thirty five billion, So there's a substantial increase in the runoff of treasuries being held, the extent to which it influences market pricing, market behavior again it's less certain, but certainly I think it speaks
to um the draining of liquidity from the market. The type of support that previously existed to both the economy and particularly equity markets, I suspect is likely to diminish, and again just speaks to a more challenging set of circumstances in the next three to six months, and and and probably and confirms those investors which are seeking to manage and reduce risk in such an environment. John I mentioned the weakness that you're seeing in crude headed for
its longest declining streak in more than two years. Have we started to see a little bit of the tightness in the crude markets though crude market ease um certainly, and I think purely from the fundamentals perspective, we will anticipate lower oil prices in the weeks and months to come. I mean, it doesn't help that on the supply side there seems to be a reluctance to cut production amongst certain OPEC members, and that was the message communicated in
the last few days. But my senses, as we reprice growth at the global level, actually underlying premium for crude will will diminish and we would anticipate further downward pressure on prices. John, how big of a story is the reshoring of key manufacturing back home for a lot of A lot of countries, particularly United States, have made the most noise, but others will likely do so as well. And and how much of an impact on China Is there going to be a massive medium to long term impact?
I would suspect over the near term less so, it takes decades to set up UM and establish the infrastructure for a supply chain UM and unwinding it over the near term is very, very difficult. Is it a net positive, Well, I mean it's a it's a net positive for the reshore that the country is benefiting from that reshoring. I'm less convinced it's a it's a positive for countries like China. But again, it speaks to the end of globalization, and
it speaks to a rise in multipolar world. It speaks to the geopolitical divisions that are now impacting the political, sorry the economic outlook for our global economy, and again I don't see that changing anytime soon. So over the medium term, absolutely countries in and around the United States, for example, Mexico, Canada will all be major beneficiaries of reassuring and something similar comparably in the EU as well.
John always a pleasure. John Woods joining us in Hong Kong, Asia, Pacific ce IO at Credit Swiss