Markets, Currencies, And The Dollar (Podcast)

what exactly is Twitter going to look like? And then we get the earnings well, I mean massive emphasis on the monetization this time around. H Yeah, and you've gotta wonder whether it really matters if it's just going to be a private company tomorrow. But there's other companies pretty that we'd like to talk to. We're gonna get into it now with Lauren Gilbert. She is the CEO of

wealth Wise Discussing. She's going to discuss how markets are going to react to all of these massive, massive earnings. You know, as our analysts like to remind us, Twitter is just a small company compared to Apple, All and Amazon and some of the big numbers we have had, Lorien, thank you so much for joining us. When you look at the risks that these big big companies Apple, Amazon, Facebook, the they're just so big when you look at them

compared to the rest of the market. So when you're looking at the next set of earnings, what are the biggest risks to you to not just these companies, but the broader markets at large. Right, Well, this is a big week for earnings with technology and focus and understanding where are these companies heading and get some guidance from these companies, and so you know what we're looking at. We want to hear from Apple, what are what do

they see with the consumer. Apple has been very good at predicting consumer behavior um predicting how the consumer will be able to spend, and we want to hear if new products are going to be focused on more affordable products or if the consumer they expect will still be

strong with some of the products that are more expensive. Well, so glad you mentioned that consumer behavior beacon, because I remember when the markets were trading, the entire market would rally or tank on these Apple store closures, which was essentially this idea of uh kind of Apple companies and these services that they provide for iPhone repairs, that foot traffic essentially being almost a proxy for mobility data, which

is interesting to me. And speaking of that mobility data, we're getting uh, not so great mobility data from China and this idea that COVID lockdowns in China will have ripple effects around the world. How worried shure investors being about that. Well, that's a great point. That's another thing

that we want to hear from companies like Apple. How are the lockdowns impacting them as far as um product completion as well as shipping, so all of those things are very important and how is that going to affect these companies going forward? So when we do look at risk the risks, there are many risks to look at. Um however, if so far in earning season, companies continue to be profitable, so, you know, looking to see how the companies are able to pass along price increases to

consumers and who are those price setters. And I think that's a very important thing for investors to look at when they're deciding which companies to invest in. You know, I'm really curious here about what the limit is. One person we spoke to is the CEO of Chippotle, for example, where prices have increased. They're seeing avocado prices, paper prices, all these prices rising, but he's not quite willing to

raise prices more. And so when you look at the next couple of months, how much inslation can consumers really take and how much our company is going to have to start eating the costs well, and that is the big question. And and Chippotle has done a great job of continuing to raise prices and maintain profit margins. But to your point, how far can they go and how

far will the consumers allow these companies to go? So I think now is when you start seeing us some consumers just saying In fact, a recent poll that came out said of Americans, we're looking to decrease their expenses because of their concerns of inflation, because of the cost of goods rising, right, And we're also looking for the consumers to be shifting from good spending to services spending.

And so we do see there. I think there's going to be some weakness there on durables as consumers then shift over to services and hopefully do some shifting, you know, like we're seeing in travel. Yeah, And I got to ask here. I mean, we've we've seen all of these really just downside moves, a lot of stocks just tanking across the board. Where are the dip buyers? Where are

the what the dip buyers? Dip buyers? You would think if it sells off long enough, someone would say, well, that's that's a state, right right, right, Well, we've got some cash on the sidelines for that very purpose, and we don't see capitulation yet, So I think the dip buyers are looking for capitulation, which I don't think we've seen yet, So I still see some more downside pressure. I think for any big bank or asset manager, the question is what's the low what's the downside? How do

you know? And and frankly it's a question for anyone who's looking to buy a stock, So how how low can it go from here? SMP for example, Well, we've already seen a correction, so we're in correction territory. And the big question when you're in a correction is are you heading into a recession? Because if we are heading into a recession, there could be quite a bit more downside pressure. However, when we look at a lot of the data, including employment, numbers which continue to be very strong,

and the demand for employers to hire more people. When we look at that, we still see the economy being strong. When we look at p m I manufacturing numbers still very strong. So you know, I think we will see some capitulation. Hard to know exactly where that bottom is going to be, but we're probably pretty close before we

start seeing some more rallies. Well, Laureen Gilbert found to see a Wealthwise Financial Services joining us right here in our interactive broker studio, making the track all the way from Dallas, Texas. Let's stick with the market perspective. Because we talked about G ten currencies with John Authors, we've got to talk about the e M side of things. There are so many countries out there who who have a whole other set of issues that the average American

probably can't even fathom. No better person to break it all down with then Damien sass Our, chief EM fixed income strategist at Bloomberg Intelligence. We just like to call him the master of e M over here. But we're so good, so good, so good, and and decided to come into the office today, which we extra appreciate. Damian. Let's start with these Chinese lockdowns, how seriously should we be taking them? We need to be taking them seriously.

I mean, if you look at the mobility data which everybody is talking about Shanghai and Ningbao, poor congestion is still egregious. And you know, basically if you just look at peak traffic in in Shanghai, it's running at lower than on a year over year basis. If you look at the two major airports in Shanghai, I think capacities running up below ten percent. So certainly the lockdowns are having an impact. But really the story in China isn't China.

It's the Japanese yen and the fact that we have seen this depreciation of the end and how that's spilling over into the broader Asian block. I mean, that is really why you see China u on now it's six sixty three. Just to put things in perspective, that is a thirty big figure move this month alone. We haven't seen something like that since, so I think that's got

a lot of people's attentions. And certainly the Korean juan and some mothers are are are are are depreciating as well, so you know, it's got a broader impact on Asia and that's spilling over into the broader young pop U m complex. Do we get a seven handle on the Uan? What do you think? I think that's definitely possible. I mean we were there just a few years back, right during the during you know, the Trump and the trade war. But I think you know, for me, it's it's it's

it's about the near term. And if you look at the offshore on shore China Uan basis, we're now running it close to four hundred pips. That's like on three three and a half standard deviations above the five year average. So that just shows the stress. Let's be clear, the ento you on has a two percent band on either side, so it's kind of managed by the government. It's not allowed to move as freely as the offshore you on.

And so this offshore you on is starting to really depreciate aggressively, which is you know, a sign of capital flight. So this is why they put me in Cretty together. It's the one to punch. She gives you the Macara, the trading strategy, so you know, the carry trade. Can you explain how this is playing out on Wall Street? And really what Critty has kept on outlining here truly

is a historic moment for markets. Yeah, there are there are really three primary factors when you're looking at investing in currencies, right, There's there's carry what you mentioned, there's value, and there's trend. But the carry element of it has been very, very volatile. So anybody who has been investing in carry trades the the e M currency volatility has made it very very prohibitive to take advantage of that strategy. And it's still look am currency volatility is still relatively high.

I mean, it's not high relative to fixed income equity, but it's certainly high relative to d MS. But d M f X is now starting to take up higher as well, so that may actually make the carry trade look a little bit a little bit more attractive. And certainly we have resource rich high carry currencies in Latin America like Brazil, Chile, Colombia even which which stand out, I mean you know that as being perhaps a good place to park your money and basically watch the paint dry.

If if the volatility fits. Translation here, the people who have made a lot of money in the first three months of the year are about to make a lot more money trading currencies in the next two months of the year. But you know these do have devastating consequences. Let's let's be clear for many emerging markets. Damon, Yeah no, I mean, look, you know you can't ignore the currency impacted for for years and years now, I mean better

part of the last decade. If you're a fixed income investor, I mean talking not just emerging market fixed income, developed market fixed income, you know you really didn't care so much about about the currency impact because currency vall was was was suppressed, it was low, and you're carrying so

well with bonds rallying. Now yields your fall a rising and bond prices are falling and currency fall is high, So you know you need to I mean, if you're fixed income investor, you've got to be an f X investor, you've gotta look at the currency impact on your returns, and it's it's growing in terms of the active contribution to total returns. So I mean, yeah, you know, to your point, you really have to have a strategy about how you're looking at currencies. I mean, I've heard a

lot of people talking about care. If you're a Japanese yet investor, it still makes sense to to carry in US treasuries on a hedge basis and all this crazy stuff. Look, a lot of that's going by the wayside because the cost of funding across borders is going up incrementally as we speak, and so I think it makes a lot of those strategies a little bit more challenging and a little bit more difficult to hold onto. Those interest rate differentials are really messing with I think almost every other

every country in the world right now. As Michael mckeep pointed out, the Federal Reserve really can't do anything about it right there. This Their job is to focus on the American economy, but we have to talk about as Chanelie pointed out, the consequences for the e M space, the food consequence. I really want to point out record high food prices, especially when it comes to the bread basket Egypt is something Tom Keane does not stop talking

about um. But there's other places as well that are really going to be feeling the pinch of the food spot. The food prices in addition to perhaps some other fears. I am F Managing Director Crystallina gorgeva In at the I'M of Spring Meetings underscoring the possibility of sovereign debt crises in emerging markets? What is the likelihood of that? So you're hitting on the nerve here, where will inflation

peak and how far will growth decline? Effectively, monetary tightening is colliding with a it's it's colliding with the cost of living crisis, specifically an emerging market. So you're right to focus on you know, the Egypts, the Pakistans and Nigeria's who are most at risk. I mean, the UN International Food Price Index is something is up, something in the order of seventy May. But let's talk about the countries who are net food exporters, the ones that are

supposed to benefit. I think that's what isn't really being talked about as much. So those countries Brazil, Chile, Thailand are probably less at risk than some of the others. And I think that's an interesting point that not a lot of people are looking at the net food exporters and how quite frankly, a lot of their currencies have outperformed in amidst the crisis. I have a perhaps fun slash not fun question. I know it's a dumb question. I'm gonna ask you to you anyway, we have to

talk about Russia. We we've talked about everything else, we got to talk about Russia. It's pretty clear that if Russia ever perhaps rejoins uh the previous stage that it was, and it might take years before before it does that even in the best of circumstances. Does that mean the no brainer trade here is to just buy CDs is on Russian debt. No, I would not go near that.

And and look, I mean it's not as a no brainer trade because really the credit the fal Simat market isn't open to retail investors or really to your average investor. It's more of an institutional headers market. But I think, you know, just if we're focusing on Russia, we gotta look to next week. May fourth is a key day. That's when the grace period ends for the six hundred and fifty million odd that Russia has paid its creditors roubles, which would constitute a default in the eyes of the

raiding agency. So this could be again, you know, the first, uh really the first of fault we've seen on external debt from Russia in I mean since the early ten nine hundreds. But I think what's also interesting is soon thereafter we've got victory Day and that's when Russia prances.

It's military out there, they parade, they in the streets, and a lot of people are thinking that May nine, that they're gonna want to deliver something to the Russian populace, a victory of some sort, something in Ukraine that you can hang your hat on. I think the one thing, um you know about the Russia Ukraine War that's kind of getting interesting here is you know, Ukraine's got a lot of external debt outstanding. They've got GDP warrants and whatnot.

And if you're now the belief that Ukraine, whether or not they come out of this, you know, in whatever form they come out of this, the positive goodwill and the sentiment behind them, they're gonna have enough in the kitty that these bonds are starting to look very very attractive from a from a from an investor standpoint. And so I think that's an interesting point amidst all of it, is that you know, Ukraine, there is a place for

Ukraine debt and people's portfolios. It's gotten absolutely coabered. You look at CDs in Ukraine. I mean, it's just as bad as Russia. But I would if I were I guess a betting man, I'd probably rather put my money in Ukraine CDs. Uh. Well, you know, looking for spreads to tighten rather relative to Russia. Yeah, that's less controversial of a trade to Yeah. Right, you can answer to

your fiduciaries a whole hell of a lot more easily. Well, let's stick with the Russia theme here and talk about the ruble, because there are plenty of headlines that we're bringing this back to our worldwide audience here. European buyers, some of them paying in rubles, seving, some of them refusing to pay in rubles and getting their gas flows halted. Poland, Bulgaria come to mind. Is this potentially the start of a broader move by Russia to block those flows, that's

the question. And how much of it is actually helping the ruble? Well, let's put a date on it. May fifteen. That's when the European gays to gas payments come do, right, And that's when we're gonna get real color and clarity on how that's handled, specifically by the CE three, the Eastern European block like Poland, Romania, Czech Republican, Hungary. I mean, look, if you look at the Hungarian Fiens that currency has gotten.

I mean, they just had two high rates again and it's still not doing anything to stem the bleeding on on the foreign So I mean, you know, if you look at some of these countries, now, let's just be clear, Poland has definitively pivoted away from Russia, and you know, we're obviously providing all sorts of arms to Ukraine and very supportive. Hungry not so much, and so Hungry can't

get out of its own way, it seems. And it seems like a lot of these countries that are kind of like Serbia for example, that are kind of signing with Russia, are really getting penalized in the capital markets because of it. And I don't see that changing anytime soon. So that's certainly something that you know, a lot of investors are taking advantage of and that we're monitoring very closely. Tabian sass Hour as brilliant as promised chief em Fixed

Income Strategies over Bloomberg Intelligence. We thank you so much. I literally think in the span of I'm just looking at the clock here, ten minutes, we literally went around the world, right, so the world with you, pretty and it is most fun to do it. With Damien, who somehow knows everything about every detail of every bond being traded in the world. And it's really I don't know how well you know, guys. He comes in with his piece of paper and I've got no it's with yellow

highlights on highlights ribbles. Let me tell you one time, Shinnali, I caught him in the TV set and he's about to throw this piece of paper and the recycling and I said, no, I want that, and I still have it. Actually, the other day Damien pulled up his screen, shared it with me and went through all the different Russian bonds. If only audience was as lucky as we are to

get inside access to Damien's mind. We know you are a very busy man, Damien, so we will let you go, release you of us picking your brains, which will not stop anytime. Then. I think the strongest move here is going to be in the currency market. Extremely strong dollar, a one thirty on dollar. Yet who better to break it all down with than Christina Quino, our team leader, really the head of our coverage for FX and rates based out of London. Christine, thank you so much for

joining us. How much lower can the Japanese yen fall. How much weaker can it get? Well? Pretty I think people now are starting to look at one thirty five versus the US dollar as the next level to watch. But you know, we really looking at a twenty year history of of Japan's history of interventions, which there have been several I think was the past trigger for end weakness that convinced policymakers to jump in and strengthen the currency. So that's definitely going to be a key level to

watch as well. But certainly it seems like there's a lot of upper momentums here, probably a lot more end weakness to come. I mean, we're also saying weakness in the euro here, right one oh five and one. It's gonna comes down to the same story, these interest rate differentials, an inflationary environment, a hawkish federal reserve. A lot of people are calling for parody on the euro dollar. How long will it take to get us there? And what

happens when you get parody? Well, cratty, you know, we already have a number of forecasters saying that parody is going to come in a matter of months, so potentially by the summer months here in the Northern Hemisphere and what that actually means in terms of hitting that level

is it's quite a significant level. Of course, it's it's something that we haven't seen in years and years over here in in Europe and potentially a very very big implications depending on whether you're an exporting company in Germany or whether you're an energy importing economy elsewhere in the year Zone. You know, because again the level of your exchange it really determines how much pricing power, or rather how much purchasing power you have internationally. And so if

you're an exporter, good for you. If you are someone who's buying up for instance, energy or supplies or anything that kind of counts as intermediate goods, then your costs are probably going to be a lot higher. Well, Christina and Kane, now I mean I think you hit it right on the head ahead of our FS and rate coverage. Coming out of the heart of the currency exchanges in London. We also have John Authors. I want to pose the same questions we pose to Mike to John John Authors

of Bloomer Opinion. Thank you again for joining us UM. One of the things we have to discuss here to you specifically is the currency which is not in the end, not in these e M currencies down the pound, but in the Euro. For our listeners who don't know this, John Authors has written several books on the European crisis of the last decade. And I'm curious about the parody question. We're looking at one or four on euro dollars. Is parody realistic? Yes, Its just though it is at the

moment very startled to be able to say that. But the current trajectory, it's quite difficult to see how that gets interrupted. It requires the e c B to be, you know, to change its approach in a way that could be very damaging for its credibility to make quite a strong u turn. If if we're not going to see the dollar continue to continue to strengthen, if we do continue to see the dollars continue to see the dollar strengthening, what ramifications does that have globally, especially for

emerging markets, which would be very negatively tilted towards the scenario. Yes, um, I do think it's fair to say that emerging markets are less vulnerable to a strong dollar than they have been in the past because they tend, with some exceptions, to be less dependent on dollar denominated debt. That being said, plainly, this is still an alarming situation, particularly if you are not a commodity bought backed currency. So for example, the

Korean one has come under under pressure recently. UM. It has fascinating, fascinating impact on China, which is now allowing its currency to weaken in a very swift way. But this can't be seen as some kind of an attempt to get ahead of the game as it was twenty

years ago in an artificially weak currency. And then the yen is altogether extraordinary if you truly a historic moment on Dolian, and that has the important implications for China because obviously China cares about its relative competitiveness compared to compared to the end, and the Chinese currency started to turn down once it had reached the level at which to the yen, which it reversed course back in twif causing you know, minor crisis. Elaborate on that a little bit.

What levels does China have, especially because we're thinking about this in the context also of the China lockdowns in China, UM, how do we think about the ability of the country to control its currency. Here well, it continues to control capital in a much greater way than anyone else. It's it's an odd hybrid currency where it is um subject to market winds, market forces, but it's also subject to the whims of the of the leadership. So there is

some there is some possibility there you can continue. You could continue to see, um, the China actually abandon its hopes for fiding up the light word the real estate sector, for for for moving away from any risk of a of a Lehman style incidents in China. You could see them just decide, Okay, we're going to we're going to print money again. We're going to let the credits figots

open again. Very intriguingly, despite everything kind of really hasn't done that this time around, or anything like the extent it's had with all its previous growth slowdowns over the last twenties. So I guess that's one main thing they could do which would make a lot of people very happy. Money. What does this all mean in the context of reserves. You know, when we started, when when Russia's war in Ukraine had started, there was a large conversation about the

dollar being the reserve currency of the world. And now with the dollar strengthening as it is, you know, does it still pose questions about the meaning of the dollar for for countries around the world. Yes, one of the really interesting suggestions Creaty could tell you. I'm also very interested in the Britain Woods agreement, which finally ended fifty years ago. I think it makes it makes it appearance almost every other sense. I'm Indian, and so it's pretty

So we understand the meaning of gold. Well, you do have the monetary global politics behind Russia saying they're going to back the ruble with gold as an attempt to make them established themselves as some kind of a plausible, um applausible second alternative currency and asking for payment in rubles. Because this was actually a move made way back when

Nixon had pulled out of Breton Woods. They were no longer the dollar was no longer backed by gold, but they extracting an agreement that from OPEC that oil transactions would be denominated in dollars, which meant that you did have some kind of an oil standard to replace the gold standard. Um, if you try to bring that under challenge, that's a big deal. So yes, you you the risk here, and China is the pivot on this. Russia's obviously committed

to its confrontational course. China has to decide if it's prepared to throw in its lot into more of an Eastern Asian block and rather than continue to steadily tensively become more a part of the Western bloc. John, this is a conversation that's not just hitting the b o J or the p BOC for that matter. This is a truly global conversation in terms of gtawn currency. Sweden, for example, Essential Bank of Sweden, the Reichs Bank hiking their rates today a really big u turn when it

comes to montery global policy. I think no one said it better than one of our guests on Bloomberg Surveillance this morning, when then he was a currency strategist on Brown Brothers Harriman. He said, yeah, he said, the ricks Bank delivered a rate hike, and when they're more hawkish

than you, that's saying something. So I think when it comes to a lot of these kind of more devish governments or or central banks, the b o J, the p b o C, is there anything that they can really do currency intervention aside to kind of stop this falling knife. I'm supposed to be able to have a good answer to that, I'm saying it's in the case of in the case in the case of most of them,

it's that they can they can, they can tighten. In the case of Japan, where you still have much lower inflation, I guess it is plausible for them to continue on their their current course. In the case of the e c B, it's very much more painful because obviously they really do have an inflation problem. But in the you know, the inheritance from the crisis. You know, it's almost a decade since drug he said, whatever it takes, so it's it's it's a long way back, but you can still

see its effect. The peripheral European countries still have very high unemployment by by the standards of of the West. Um, it's what they what they can do is tighten uh and that's by strengthening the Euro. Would reduce inflation that way as well, but they really don't want to because their economy is in a more palless state than than the States. I suspect that the CP has no choice but to to tighten, but I wouldn't more aggressively than

they're currently suggesting. I think that's the way. Christine Legard seems to be going last week and everything that's happened since would intensify the pressure for her to do so. But it's there are no good solutions for the CP at this point. I mean, I have to ask when it comes to I mean, let's tie all of these things together, right. We have currency weakness on the one hand, you have recession odds really hitting I think Europe the

hardest of all three regions. I mean, just recently when you look at the market narrative questions about a growth not slow down, but like a complete stop to growth has really taken over these markets. This idea that if you have COVID lockdowns can hinue in China, Americans for example, will not get the physical goods. At the same time that American purchasing power is actually increasing. So I mean there's a lot going on here, John, And I mean I wish we could have an hour or so with you,

because I mean a podcast even would be handy. But yeah, I mean, I mean it, this, this really is fascinating. I mean, we're gonna stick with you or we're actually going to bring you back for Nope, We're gonna stick with you. A lot going on here, A lot of balls to be juggling for our listeners. We are waiting a press conference from President Biden to discuss his latest American assistance for Ukraine to stick with us as we kind of balance everything going on in the market with

everything going on with the geopolitics as well. But John, quickly, if I can post to you, how do you square this? Are these growth fears in the market really worth considering? I I would have said no with greater confidence before the GDP number came out this morning, which did genuinely surprised me. Um, A lot of this is about timing. There's going to be another recession at some point. All of economic history tells you that periodically economy is slowed down.

The question is how quickly it comes and whether the market has got ahead of itself in thinking that the economic logic is going to play out so that we actually have a recession this year, which I don't think is is very likely. The amount of the amount of consumer strength, particularly here in there in the US, makes it hard to to make that assertion. That said, it does look as though, um, the economy is already feeling

some of the effects. Who are just talking about that that inflation is beginning to destroy demand, that that there have been the issues caused that that the renewed supply

chain problems have had an effect. Um. The one big possibility that, trying to be positive, I'd like to this is this is something Dari Perkins at TS Lombard but which which was that if the economy flows a little quicker and a little earlier, it becomes more possible to get out of this without engineering a really serious recession. You could become more like a mid cycle slowdown or a very shallow recession. Allab I'm wondering about the recessionary

impacts that we might see here. I mean the fact that this might have really serious ramifications for inequality moving forward. Have you thought about what this could mean in terms of, you know, coming out of pandemic where already the rich got richer, the poor got poorer, and they're facing inflation where you can't pay for food. So what would a recession then due to that backdrop, it's we're now getting into areas it's really painful even to even the councidence.

One thing that has been positive about the last twelve months is that inequality has actually dampened somewhat because there's been greater earning power and greater negotiating power for people on low wages, so that there has been some sign of reducing inequality. That is, ultimately what is really poisoning society at the moment. I think it's why we're why. Ultimately, it's why the debate is polarized and as unpleasant as

it is. Um, if you look at where the recession is moving at this point, or sorry, where the economy is moving at this point, Um, it's possible that you get a move in an egalitarian direction because asset prices take the hit, um, rather than therefore therefore that the rich feel it more than the poor. But but, but, but there's no denying your opening opening point. We've just been through COVID. If we're going to if people's patients is going to be tried by another recession this quickly

with inflation this time, that's that's a very concerning. Look. That's that's not easy for any society to deal with. John Arthur's of Bloomberg Opinion, everybody, I mean, a real treat to have. He can talk about anything, We can throw anything at him. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three. Put

on fal Swoeney. I'm on Twitter at p T. Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio