Patrick Bennett on hte Markets (Radio)

a delicate issue. Yeah, I'm not sure. You look very interesting for sure. Look, I'm not convinced it's uh, it's cover for a pause or anything like that. But I think as we can always get into the the end of any period, and we're getting in towards the end of the year now, and and liquidity tends to get a little bit tighter. And we're facing the situation now where you know, we're rates, where rates are going higher, We're starting to see that it's starting to filter down

into the real economy. So I think liquidity, for you know, for all Petus, it is you know, he's getting tight and getting and going to be tighter. Banks credit process is is a little tighter as well. So yeah, look, all these things are not coming together at a at a good time or at a good pace, and it really does present a lot of challenges I think to activity, not just in the US but elsewhere. You heading into three and to the other point, Patrick doesn't matter too

much what Leo Brainard says. We're still waiting to hear from Powell himself as to whether or not there's going to be a pivot. Yeah, look, that's right. Look, the the overwhelming balance of of FMC members has been to

continue to push the Hawkers story. I think if there's one thing with the market has probably got it wrong to date, is is trying to pick this terminal rate, trying to say, well, you know, I think the land here, I think, you know, there's only this much more to go, and you know, over the last week or so they have been trying to find the reason why we might you know, see a pause. I think a pivot is

the wrong description of that. I don't think we don't think the rates will be will be eased anytime in the next twelve or fifteen months. So yes, I you know, powe is is where it's at. He's done very well to to follow what the market has priced in to date. So we're still we're still of the very hawkish camp. If Brainerd's comments gave a little sucker to the markets, um, the comments from Jamie Diamond perhaps a little scarier too many, saying that he could see, under certain conditions the SMP

down another twenty percent. Do you do you see the conditions for that? Well? Yeah, Look, it's a scary one, isn't. And we've had a few people come out and talk about how far we could go down, and we've had these Uh what we'd say is beer market rallies you know last week and most beer markets or the majority of beer markets characterized by sharp retrace just as we saw last week. I think it's too early to say

that the base is in. Uh, you know, we're going to face higher costs of capital for businesses, We're going to face, we could consumer demand of the impact of higher domestic interest rates for for borrowers. You know, so the you know, the earnings prospect look to be look to be challenged. And I think that that means that you know, equity markets overall look to face you know that the proponderance of risks is still to the downside, and it means that the dollar remains strong. Where are

you shorting here? Yeah, absolutely, the dollar remains strong. We like we like shorting the Australian dollar. Australian dollars a high beata um to global activity. It's a high beata to Chinese activity as well, so you know that's one of our favorite trades at the moment. The end has been very weak to date. We think there's a prospect for the end to stay reasonably stable around this level. Stirling looks to be challenged as well. You know, the

fiscal efforts era not not bearing fruit. You're saying that it's still too early to pick an end to and trall bank hawkishness and that they can still surprise. I wanted to ask you our m Live Pulse question though, in terms of when we're looking at the housing markets, inflation, the cost of living crisis, which big economy could I guess stop hiking at first, and which ourset class would be the first to pull out of a slump. Yeah, look, a very good question, thanks to Look. Yeah, we're looking

at household and deadness. We think that's a very important trigger, and we look at places like Australia and Canada which have a high household and deadness, say versus the US or versus New Zealand, so we do expect them to end earlier. We did expect that, we have, in fact expected the aviator hike on near twenty five basis points last week. Uh, you know, we think that they will get to their you know, their peak earlier. We think they've still got some more work to do, you know,

Canada in the same way. We still expect them to hike another fifty basis points next month, but sort of slowing down, and we think that's probably where the the market opportunities are going to come from. And the next the next few months is trying to decipher, trying to determine, you know, what the spread will be, because even though we believe that there's further hiking to be done, it's not going to be just a you know, across the board.

I'm curious whether you think inflation stays with us a lot longer, or whether it's this kind of long and variable lag issue that if the if the hikes they have already done are going to be so dramatically felt that you're not gonna want to buy equities for a whole year because of that rather than inflation. Look, that's right, and I think you know, we we spoke earlier. Equities

have already been under the pump. We think there's probably fear there's probably some more under performance to come from here. The normal lag or the normal considered lag for monetary policy six or nine months until it starts to feed through. Um, you know, services getting a real really hiking higher prices. Now, how often do you do three seventy five basis points in eight Well, I don't know that absolutely. It's a you know, not in not in people's knowledge that are

in the market, in the market now. So look, I think we're getting towards that point, and central bankers are saying that that we're going to get towards the point where we are able to, you know, to pause and see how we go. But that doesn't mean that we're going to stop hiking, and that certainly doesn't mean that we're now pivoting to a point of suger ease. And I think that's perhaps the point where the market is a little bit confused on at the moment, or that

that's where the contention is at the moment. So yea further hikes. But I think this this talk or notion about that we maybe then talk about easy and the middle or second half of next year is way way too early. Well, let's talk about one place where they are easing in China. How much further policy support support you're expecting, and whether or not we see a change in policy after the Party Congress. Yeah, look, I think we'll see. We could see a little bit more easy.

I think they've been fairly measured in there in their steps so far. I don't know whether they're waiting for the you know, for the Congress to announced a great deal more. China's challenge has has been for some number of years to walk this this fine line between trying to reduce debt and trying to trying to reduce leverage and trying to reduce the excess leverage and trying to

keep the economy still still moving along. Well, that's sort of really come to ahead this year with the property sector that was really a born out of the you know, the red line or the red the bright line tests that we had more than eighteen months ago now, I think, and so that's going to be a drag for some time.

So continue to need more stimulus. We think that policy rates perhaps lowered by another ten or fifteen basis points by the first quarter of next year, which is helping to backstop the economy but not really providing a big boost. Do we get a nod to the private sector from Shi Jinping? Well, I think we're going to nod to the to the domestic sector for sure, whether that's you know, the private sector, um. I think when you know, when the private sector has not been doing so well, it's

incumbent on the public sector to step up. So if we are going to see that we're talking about a pivot in that way, you know in China, then it probably means that we're going to see a more moderate outlook for growth for the next two days, three years. Alright, Patrick, always a pleasure. Thanks for coming into a Hong Kong studio. Patrick Bennett is micro strategist at CIBC. With us here on Daybreak Asia