Max Lin on the Markets (Radio)

will break fairly soon. It's difficult to predict when, and I think overall the market sort of understands that fundamentally, because the BOJ is not signaling any monetary tightening anytime soon and the FED is on this very steep rate hiking cycle, that the yen should get weaker. The question for the market is where not the Ministry of Finance

will make good on these threats to intervene. So obviously they don't want to test the m OF But I think eventually the carry flows will push yen three one forty, and that the Ministry of Finance will stick to Japan's G twenty commitments and not intervened. So it's just a matter of time of when the market can test that is there a pain point? Is one forty five the the absolute pain point here? Do you think? I'm not

sure if there's actually an absolute pain point. I think if you asked me six months ago or asked the Japanese consumer six months ago that Darren would be at one forty, they will probably tell you absolutely not. So I think the way the Bank of Japan the Ministry of Finance look at it is how quickly doesn't move right? Once we get to one forty, you get to one

forty two. If you know one looms on the horizon three d six months from now, that shouldn't be such a psychological shock given that we're already in the one forty range. It's not just what we're seeing in currency markets, but also in the bond market. On the back of that very hawkish commentary that we had from j. Powell last week benchmark treasury yields up three three, we're also looking at that EUROSA and inflation data to how much I guess for the pain do you see here in

some of these market moves. Well, we do think that the bond market should basically start pricing out or not pricing in any sort of cuts in and that's what Mester and Powell and you know, whole slew of FED speakers are basically arguing for So I think until you start seeing some um of the inversion in the US curve going away, you're probably going to see further sell offs in the bond market and for the dollar stream.

Our Kathleen Hayes was at the Jackson Hole Symposium and she sat down with the head of the Bank of Korea, and I thought it was very telling the fact that he said, you know, in a situation that we're in right now where the FED is being very aggressive and the dollar is strong, that in the case of the b okay, they may have no choice but to raise

interest rates as a way of defending a currency. Are more and more central bankers in asiare going to be confronted with this challenge, I do think so, and I think the currency of altility is probably one reason that pushed Bank Indonesia to high rates unexpectedly last week. Uh, but even currency effects aside, I do think that the direction to travel for all of these economies except for China in emerging markets were basically for higher rates to

combat inflation. The b Okay, obviously cares about what the Fed does and what dollar create is. But the b OKA has been hiking for twelve months now, right. They moved before the Fed. They moved before a central banks because they were more alert about these inflationary effects sooner than others. Well, let's talk about China. It's about five minutes now until we get the PBOC fixed. Do you

think we'll see it stronger for a seventh session? Well, when you say stronger, I think it's important to clarify what stronger means. It's been stronger relative to the estimate, but for the last week or so it's still been weaker than the previous days fixing. So in my view, the PBOC is allowing you on weakness, but it's basically

slowing that process. So for day's fix it should be interesting because the model calculation is only actually twenty one picks higher than previous so there's no real need to adjust as stronger versus the calculation today. If they do choose to do so for a seventh consecutive session, then would probably suggest that six ninety is a short term red line for the CNY fix in my view, though, however,

they're going to match the calculation. We'll see what happens our currency markets in any way reflecting some of the geopolitical risk that we talk about, whether it's US, China, Beijing, Taipei. I mean, are you seeing fun flows that that maybe represent a bit of a haven trade these days? I

think in the short term. Two weeks ago, during Pelosi's visit to Taipei, you did see uh, you know, toose geopolitical headlines driving UH dollar Taiwan and dollar c But now I definitely think the market's kind of refocused away from those headlines and back onto fundamentals. We all know that China is slowing down in terms of the Taiwan market today. You mentioned earlier that Taiwan equities are are

are sharply lower. I think that has a lot to do with the fact that the career export data probably showed a very weak chip shipment. And we all know that China or Taiwan is hugely exposed to semi connector exports, and t SMC has already kind of warned that uh it would be or customers are cutting some orders a mid weaker demand. So obviously I think those are the main headlines for dollar time one. Max Juliette was talking about the PBOC yesterday and the yuan or the moments ago,

I should say, and you want fixing. So now we have indications that China has set a stronger than expected fix for a seventh straight session. Give me your sense to what is operating in the minds of p PBOC officials right now as it relates to the currency. Sure, well, I think overall that there's still kind of keep a longer term eye on c n Y stability, and that's what we saw before the August fifteen MLF rate cut in China, where it's basically range bound between like six

sixty five to six seventy five. So now after these PBOC rate cuts to the MLF and to the LPR, now we've gone from six seventy five to basically six nine.

So I think in the pbocs do maybe they think that's enough for now, but we still recommend investors will hold a long dollar position against the offshore you want, because we think that the uneven growth characterists of China's economy means that at some point either in you know, neit September, mid October, mid November, they could see another UH monetary policy move towards the downside, which should push dollars c n H higher. Those are always difficult to predict.

So overall, I think that even though you have stability now, it's still a good position to hold. And a large part of this is the economy that recovery from COVID. If we continue to see these very strict border controls, and that means Chinese tourists aren't traveling, you're looking at

long dollar against BOT as well. Tell us why sure, Well, before COVID, Chinese tourists basically accounted for of the total tourist arrivals in Thailand, and now that's basically zero because, as you said, COVID zero means there's basically no outbound travel uh from China to Thailand. So even though you're seeing some recovery and other markets for tourists, you know, tours from the US, tours from Europe going back to Thailand, tours from Acon, but you're still going to have this

massive excess capacity for tourism in Thailand. So they're gonna want to keep policy loose. The Bank of Thailand said as much yesterday, and I think that from their perspective, they think a weaker BOT, uh kind of helps usher in those tourism inflow, so we expect the boat to weekend further. I actually initiated a trade idea three weeks ago and now it's at thirty six point six, which

is my target. But based on the BOT comments recently, I do think that there's further outside towards you know, uh, thirty seven, thirty seven point five. We were talking about the yield differential story a short while ago. Is there what is the house few at credit suite on the inflation story? Well, from a strategy perspective, we think that inflation is much stickier than what the market wants to believe, and we think that the FED officials are actually starting

to recognize this now. But there's kind of still this belief in markets that you know, there is a FED put that the FED is targeting the stock market, that the FED is targeting financial markets. And because inflation is so high and so entrenched, it doesn't really sound like the FET is too concerned with a hard landing these days, right.

Ummester basically said as much. You know, if you have a recession, uh in the US, that's not necessarily a reason to to lower rates because the Feed is mostly focused on inflation, and Powell also said, you know there will be some pain for businesses and households in his jackson Hole remarks. So to us, that means that the

Fed understands that inflation is now sticky. It's just a matter of when the market will understand that we have parody for your dollar where we see moves changing from that, If you're going to see the e c B have a seventy five basis point, right, hunk, Sure, well, I think if the e c B does kind of hike uh, seventy five basis points, obviously the market's gonna be debating that after all these you know, hawkish comments by Nagle

and some of the other e c B officials. I think that it's probably not gonna break far below parody in the next two to three weeks. But I think thereafter you still have to focus on the overall hawkers

message of the Fed versus the e CBS. We have to remember that the Fed is still also debating a seventy five versus fifty basis point move at the September fl MC meeting, and the Fed has already hiked many magnitudes more than the ECB has prior to this, and you know, the carry differential and the dollar versus the year is already still quite high and that's not going to reverse uh no matter how hawkish the e c B is. So I do think that overall the year,

dollars should still head lower. On our medium term target for the year end is ninety seven cents max. I can give you twenty seconds for your best trade right now. In the foreign exchange market. I think long dollar scene H is a is a good trade these days because even with this stronger fix, you haven't seen dollar scene H kind of go back below the six eighty four to six five level. It has trouble breaking below six ninety.

So in the event of dollar weakness, in the event of a weak payrolls, miss, I do think that dollar scene H will still be UH stable and that you can still basically collect the upside for the future rate cut six ft nine one at the moment, Maxile and Asia Effects and Rates strategist Credit Switz in our Singapore studio. This is Bloomberg