We're joining us now right here in Sydney. We've got Nick Sean Maker is a senior investment consultant and portfolio manager at Evidentia Group, to talk about a number of things. And Nick, I just want to start with central banks if I can. We just heard from Morgan Stanley. They're saying markets haven't for the priced and what's coming from the Fed. But two was the year of tightening. What's going to be particularly with four new voting members on
the FED. Yeah, Look, it's it's really interesting if you see where the market is anticipating the terminal right to be, it's about four point eight percent, and then for rates to rate cuts to come later in the year, and we know the FED is expecting rates to go above five and stay there for the rest of the year. So look, a lot of that's going to depend on the shape of the recession. Um. The shape of the recession will largely be determined by inflation, and inflation now
is going to be driven by core services. So you know, we still do have a very very tight labor market in the US UM and we need to see a better balance labor markets. So if we don't see the deflationary forces and the base effects of inflation. Seeing numbers come down, market will be in the first half of the year, you know, the FED is going to have
to to move more aggressively. So you know, there certainly is a case to see that the FED dot plots look realistic, but there's also obviously reasons at the market thinks that perhaps the recessions worse than what the FED make expect. You can see that by the terminal rate pricing and the inversion of the yield curve. So it's you know, yeah, we've seen we've seen r it's coming. I mean, we've seen inflation coming down a little bit. I'm not sure if the read of changes is enough
to impress you. But when you look at it, I mean, are you enough encouraged by this to get long or do you think there's just more time, that more wider that has to go under the bridge. I think there's more water that has to come under the bridge. It's great to see two consecutive months where core inflation has been below expectations. I mean the risk out there to the risks out there is obviously the longer inflations around,
the more you have inflation expectations. Having a risk becoming unhinged and that going through the wages like we saw in the seventies um and there still is the million dollar question of you know, some of these exogenous supply issues that have contributed to inflation, COVID zero, Russia and Ukraine. You know, will commodities be weaponized next year. So it's just a very very very fluid environment and it's just all about watching the data for now in terms of
supply issues. I'll give you exhibit A China and it's bumby exit out of COVID zero settings. What are you anticipating this ride is going to be like in the next few months. Look, it's it's uncertain. I mean, you know we've seen China flagging this or market participants forecasting and enter COVID zero for so long. You know, there is a risk that the population at some stage with COVID cases rising, kind of self insured and kind of
lockdown themselves even if the country is opening up. I think another interesting thing to watch around what happens with China is what does it do to inflation. So you could expect, if you know, all other things being equally saw, how the rest of the world equity markets behaved when
economies were open. But then if you do have um China reopening, commodity prices go up initially probably have a non inflationary boost growth, but then does it also cause problems for the fat if it contributes to inflation throughout throughout next year? Um So lot we watch. We had problems, or at least investors took issue with policy coming out of China, and now it seems like we've got a
kind of two chains of command. There's a there's a more moderate one that kind of is holding sway at the moment, and there's the really strict side that we've seen in the past. And I don't know if you're listening. Before the type of the hour, I did a meter review and there's an analysis piece in the Nick Asian review that says that you know, people are confused. You've got Premily Ka chiang uh dictating some matters, and then the number two, the incoming Lee Chang, both of their
hands on the tillers. So I guess as an investor you're faced with that difficulty as well. Yeah. Absolutely, I mean, so there's the power at the moment emphasizing common prosperity and regulation and that is a risk for markets as well as it has been for the last two years. I mean that there is also more progressive people in China that don't want to be perceived as an enemy of the West. But you know how that plays out
through time. It is hard to see, but you can see now people take into the streets and protesting, and that in itself can cause China to be more nationally stick and all kinds of geopolitical conclusions or ramifications could result from that, as we see all around the world. We've heard again today from the PBOC, recently repeating it's vow to support the property sector backing him and a maintaining liquidity in the financial system. The work conference over
the weekend stressing the importance of the Internet. Both of these parts of the economy took a bit of a beating over the past twelve months. Because the time to take a look now is the flora look. I think there's a few things around that. You know, despite having the best monthly return in Chinese equities in November for I think about twenty years, they're still at a discount verse to the rest of the world, So that warrants some attention. Um if we're now in the first transition
of the US dollar peaking. Well, that tends to be a green light for e MS sets, whether it's equities or born so again that warrants some attention. You just have to be extremely extremely selective. On the other side of that, you can see many parallels to China to Japan in the nineties with aging demographics and a very over levied property sector. So it's it's again just a
very fluid backdrop like most things. At the moment, it's a big day today for the United States and and for Ukraine, with Vladimir Zelinski giving an address to the Congress and meeting with the President. I'm just curious for the night. You know, the President talked about seeking a just piece in the war. Does it feel like there's any end in sight to this? No, and it'd be interesting to know what they what they mean by peace in that context. But there doesn't seem to be an endgame.
It doesn't seem to be an endgame that I can see there. I think when we see NATO, Ukraine and America, let's say winning or making grounds in Russia, you know, there still is orbit very low probability to the risk that Russia then comes back with obviously, you know if they're desperate new killer, So I mean, you almost don't want to see things getting better. It's a bit of
a catch twenty two. So I don't know what the endgame there is, but you know you can see the world moving to the bricks in some case of Saudi Arabia and so on, so you know that this this hegemon of the US is certainly being confronted. All right, Nick seon Maker, senior investment consultant, Ample follow your manager at Evidentia Group. Thanks so much for joining us.