Tim Moe on the Markets (Audio)

We're We're not. I mean it's it was certainly disappointed by the by the pm MY number that came out, which forty nine. That was lower than in the expectation. I would know there's a bit of a buffering that the non manufacturing pm I, the service of pm I reduced a bit also, but it's still comfortably about fifty. So there's a bit of a bit of a buffer in the numbers. But that doesn't gloss over the fact

that that that the activity levels are weak. We still think that when the full July data said it comes out, uh, and that was printed sometime over the next over the next two weeks, that um, you know the picture will still be one of a sequential recovery from the depths of the of the second quarter, and that really is our sort of core construct for China equities, which is that we expect to see sequential, rebounded economic activity, although

as as mentioned, there's some some concern there about that UM number two, the equity market has discounted a lot of concern, particularly given the soft performance in July. We gave back a lot of the very strong second quarter out performance UH and and strong absolute performance UM and overall investor position is still quite light UM. So we still think that there are good reasons I think that

China equities can continue to make some progress into the Congress. UH. Clearly there will be all eyes on the extent to which policy support even be forthcoming, And I think where what the market is concerned about right now? And Tim, were you surprised that we kind of had a lack of detail in terms of new stimulus policies announced last week. Yeah, in a word, yes, and I think to unpact that

a little bit further. That I think with the authorities and policy makers are trying to do is walk a fairly narrow line between providing adequate support and and appropriate support for an economy which clearly needs it, but not committing the same mistakes that they did over ten years ago post the gold financial crisis when they overstimulated and then got into the huge debt build up which they're still dealing with. So uh that that's a pretty narrow

path to walk. And uh, you know, like I think the short term tactical risk is that they maybe air too much in the side of being conservative and not providing enough support for the economy because at the end of the day, growth is you know, it's critical, particularly want to avoid credit success. One most important thing is and sure the comedy used to grow. Timm chief Asia Pacific equity strategist at Goldman SACS, also joining us from Singapore to discuss your views on some of the other

countries that were watching in the Asia Pacific. Doug mentioned that your call here is a chance of recession in Australia over the next twelve months and thirty to thirty in New Zealand. I was just in Australia a few weeks ago. I could agree with you with your amount of spending. I saw and every single restaurant and cafe absolutely packed. Why do you think that these countries will avoid a recession? Is it the fact that there's just

very strong household balance sheets here. Well, the key point, and this was articulated in relief just this morning by one of our Australian economists, is that if you look at the factors which have tended to contribute to software economic growth in EGO Australia or New Zealand, um, and they tend to include things like what's going on elsewhere obviously in the United States where we've had some week week numbers, in Europe, but also at variety of domestic

indicators including equity prices and also various other activity measures. Uh, you can construct very statistical models which which would quantify the probability of recession. And the point of report this morning was that, you know, we put all that stuff into the models that we've constructed that suggests that there's about chance of recession of the next twelve months in Australia.

Now we are at haste to point out that this is just sort of a rough guide lo the the strict rule, but it just suggests that there's a number of indicators that we need to need to we need to monitor. Not to be clear, our base case deep expectation is not that we will have recession, but we just highlighting the fact that you know this, this comfluence

of events suggest that those risks have indeed increased. So we seem to be in agreement that the global growth is going to have a meaningful slowdown, whether it's in Europe, parts of Asia, or Europe or the US. But I'm wondering Tim whether or not you think there is a greater probability now that we're going to have a potential FED pivot sometime, let's say in the next six months. Well,

that's clearly what the market is expecting. If you look at the full pricing of FED funds, and what you'll see is that the market and we buy UH and we as well, are looking at a fifty basis point hike in September and then two finals point hikes in

November and in December. Where there's a variant, however, is that we think that the FED will likely stay at roughly is sort of the three point three rate for some time, where the market is actually pricing in between two and three cuts over the next twelve months to the end of three UM That seems to us to be overly optimistic or overly sort of confident about about FED cutting, or maybe from the equity market perspective, I think the cognitive dissidence that we would identify is that

if the markets indeed correct in its pricing of the FED starting to cut immuniquely, then the earnings growth numbers, for example for the SNP look over optimistic, you know, when you can't sort of have you know, pretty decent earnings growth, while at the same time, the fed's cutting, which would like could be catalyzed by a much weaker economy than than those sort of earnings UH forecasts would will be relying on that in terms, suggests that the

market might be getting little bit over optimistic about uh, you know, the sort sweet spot here in terms of easy FED but still you know, still good good earnings growth. Tim final quick word on career. We saw exports extend gains in July. You are market weight on South Korea. That's correct, we market weight, but but really sort of h you know, you know, itching to be more constructive,

I realized you don't have too much time now. But the high level story is that Korea is clearly sort of the most globally sensitive cyclic group economy and equity market in the region, and so you want to be a little bit careful about being overly constructive as the global comedy looks like it's low down. There's all the recent evidence and what we've just been talking about would

suggest that. Being said, the market looks very expensive. It's trading very much towards low end of its historical range, both in absolute terms and also relative to the rest of the region. Um, and we've got a couple of other cattles that could be coming up. So we want to be turning more construction, but just needs a bit early to do so. All right, thank you so much, as a West tim O, Chief Asia Pacific equity strategist at Goldman Sex on the line for us from Singapore,