Surveillance: BOE May Need to Ease Again in 2017, Maher Says

of course on the Bloomberg. You want to bring in Dirk Mater Now he is, as I said, head of Epic Strategy of hs BC. Give us the backdrop here to this BIOE decision. First of all, again the BOE leaving that key interest rate unchanged. We've seen that some

strengthening in sterling here over the last a few weeks. Yeah, we have, and uh, in part, I guess it has been an echo of that that shift in the b O We you know, post Brexit voter it was meant to be run for the hills um and then we suddenly saw the data coming through better than expected and and the language changed at the last couple of meetings. So as you say, we arrived at today's meeting, expecting absolutely what we got, which is to say nothing at all.

I'm not to be honest, I'm not really sure it matters that much for sterling generally what the bank thing is doing, and the sterling is a political currency is It's not a interest rate story. It's not a fed and the doll and these kind of bits and pieces. Sterling is a political story. I think it completely disregards today.

The market cares more about what what Mr Hammond has to say, perhaps about fiscal policy potentially, though you know, we had the autumn statement and he, I guess he he kind of put a bit of a wet blanket on the idea that, you know, this this new Prime ministership would deliver fiscal easing. He all he really said is we're not going to tighten quite so aggressively. So I mean that could have been a very sterling positive angle, as we're seeing in the US the idea of a

fiscal surge is very currency positive. But in the UK they just don't have the money to do it. Maybe the US doesn't but they're gonna do it anyway. But in the UK they've decided they don't have enough money to do it, so, you know, fiscal policy pretty neutral over there. Let's talk a bit about what we saw yesterday from from the Federal Reserve. Going into the meeting. I think you thought there'd be indications on the dot plot of two rate rises in two thousand seventeen, as

many economists did. How surprised were you by the change to the dots? Yeah? Generally surprised. Um, you know, it's a what's interesting today? And you started by saying in the US raise race start. I don't think oh did they because it was like what that wasn't what we were talking about yesterday. We were talking about the dots all day U. So yeah, that was that was a surprise. And look they when you do a revision like that, you know the market impact is going to have. And

that's what they played to. It's triangulation. Thursday, We're gonna do that here in a moment, David, time for a pro conversation. What the pros do, folks when something moves is they try to triangulate. It's no different than you know, you're in boy Scouts or Girl Scouts and you're out in the field with a compass and you go, why am I doing this. You know, John Tucker, where you're did you do this is before GPS? You know that?

You know I was out in the bow of the Nina, the pint of the sander where one of those so darmy er. Here's what I did. When we get Carney's moved. I look at sterling sterling dollar, I look at euro dollar and I look at euro sterling and they're not correlated. They scream week euro. Why am I going to get a one oh three print on euro dollar off of what Carney says? You're getting the one oh three on euro dollar off the fact that we've just broken that

support level. I really think this is a stop lost story rather than a reaction it's getting and a yeah on the usual. I mean to be honest, I just think this is like when you go to your doctor and he hasn't a clue what's wrong, so he says a stress related, when astrologist says it's positioning related. It's pretty much the equivalent. Where is the stress going to be within those three currency pairs? How does our audience monitor or heaven forbid, David even spaculate on what's going

to happen between sterling, euro dollar in eurosterling. I think that price action we've seen this morning on euro dollar that will be the dominant element of that triangle. Um So what it points to is for now people are going to be exploring the downside and euro dollar they're gonna be looking for some downside less so on euro sterling. I mean you're you're acting right? Is that that that triangle? Normally it's kind of a nice relationship and Sterling is

kind of the middle guy on your conversation exactly. But now at that break of of the March low, it opens up an entirely new conversation on euro dollar. David Garrow one of one oh four thirteen interday Low weakness one oh four zero five on euro dollar getting some headlines now with the economic outlook that it companied that statement from the Bank of England near term global outlook improved. Risks have elevated here this this remains the story will

be the story you're going into two thousand seventeen. Yeah, I mean risks elevated. I love when a center bank tells us uncertainties high. I mean uncertainties always high. When have you ever had a certain outlook? So, but this is what they're coping with. But what's interesting is they're putting a positive spin on the global outlook, whereas what I would argue, we don't know what the global outlook is.

We don't know what Trump's gonna give us, we don't know what the China response might be to a protectionist angle. There's a lot of moving parts out there, and so I still think the Bank of England, if although they won't say it, maybe overtly, they're still kind of thinking we might need to ease again in twenty seventeen, I still think that's the direction of travel. There a line from your most recent note you said that the FED is a cyclical driver here in the US dollar is

more preoccupied with political drivers for now. Explain that a little bit. Yeah, So, if you think in terms of tradition how you approach the dollar, used to just just always look at the FED data, depend and FED so that

was all about the economic cycle. The US election changed the dollar into a political beast because suddenly we came fixated on the politics of US, and I think yesterday's moved by the FED really reflected an acknowledgement that that the U s economic outlook is, if not partly, but I would say quite dominantly a political story now, and they have to take account of that in their forecasting, and they've done it to an extent in the It's

not so much in GDP. They hardly revised GDP. It doesn't doesn't suggest their factoring in a big fiscal steaments. Imagine when if we do get a fiscal stiaminus, they have to revise their GDP forecast again, they have to revise their doults again, you know. So we're only they're only beginning that process. But the financial markets as ever ahead of the central Bank anticipating that process, and that's why we've had a strong dollar. That doesn't make the

dollar an outlier. Right when you look at currency Perris, it seems like politics is what's driving most absolutely, I mean, and well, I guess we got used to it in emerging markets for a long time. We got used to it in Sterling post the Brexit vote. But now the dollars coming around give us some levels of where not that we unravel or we find instability. But in the HSBC grind every day, what's the trip point on dollar? Yet,

what's the trip point on euro? What's the trip point on Malaysian ring something obscure, like I mean even Mexican pay so weekends out here. Yeah, I think um on Doliana doesn't feel quite so scary, doesn't because we've we've been up, let's around the twenty five and this kind of number before, so we've got so you're comfortable going to two week Yet I think it's it's conceivable without it being destabilizing, which I think is your your your question.

But the first Secretary Treasury Monution's gonna have a strong dollar policy. Where's the trip point on this house of cards? I think the trip point comes for the Fed, not for the Treasury. You know, we've seen let's say Bullpark at ten percent moves and moving them. But let's say Bullpark ten ten percent move on the FEDS reckoning that somewhere between sixty basis points of tightening. So I think that the pain point is already coming through, like they

already coming through. But you're a dollar. Obviously, people are going to talk about parody as being the weird level that we need to be cognizant of. I don't think we'll get there, to be honest, even with the momentum this morning. But that's going to be the conversation. I mean, David grew very quickly here. I don't want to monopolize, but we got off the election, and the worst case this is worst case, folks, humor me. Six percent move in the Bloomberg Dollar index, which is good math, but

it's a six percent move. It's not a ten percent, right move. Yet, we haven't talked about oil yet. This morning, I'm seeing a brent here barrel. That upward momentum still there. To what extent is that driving currencies right now? Energy It's been a big story for ruble, for example, Canadian dollar. I mean you have to pick and choose. I mean, posts US election. As of yesterday, at least before the FED, the ruble was the best performing currency in the world.

That's oil um or maybe it's a little bit of Trump like putin the um, you know, but Canadian dollar was the third best. So it's it's definitely a big part of the story. Of course, we've had the good news. Now they're gonna cut production. Now you have to see do they match what they've said they're going to do with what they actually do, you know, And so I have to have to follow that. But certainly good news

for now and good news for those currencies go. I've been talking about a theme of overcome by events, and I'm bringing this up with great respect for the President elect because in a time of certitude and a methodology of certainitude, sometime parachuting in we are overcome by events. Der Mayor in London outside the South Hotel? Hotel is that wonderful statue of a worthy of the Crimean War where they were overcome by events? What's the event you're

watching now within the financial system? I mean we can know, oh, Italian banks, or we can go President elect Trump Bologny. What's the thing that you want to observe into two thousand seventeen and monitor. Well, I wouldn't say Bologne, because I do actually think the thing we're gonna have to work out as Trump. I mean, we're still still struggling with that constantly. The market at the moment is assuming we get all the nice bits, we don't get any of the ugly bits. And I think that's a huge

leap of faith that's been taken. Um. So you know, we look, we should have a little bit more cloudy and of Q one, But do you know, I really hate forecasting. Currency forecasters don't like forecasting generally. When it's just economics you gotta worry about. But when you've got to try and work out what's going non in politics,

it becomes a whole lot messier. And that's but that's happening across the board now and currency, So Bologna or not, I think we do come back to just trying to figure Trump out and see what we're going to get in terms of actual policy, not promises. Comparing that in mind, I imagine you're watching their redmen be very closely. Yeah, I mean, look, this strong dollar complicates things. You know,

it does complicate things for the Chinese authorities. They I think they would prefer that the dollar were not this strong. We saw overnight, you know, the fixing pushing higher again on dollar m and b um. And you're coming to January, and January is this seasonal part of the year where you have the biggest pressure on the balance of payments in China. There's Chinese demand for foreign currency tends to be peaking around this time, and the and the current account,

the trade side tends to deterierate. So this is awkward timing and you just raise that flag. Do we do we start next year as we started this one, worried

about worried about currencies and worried about em currencies. What does the US What the US policymakers want to see the Chinese currency doing at this point in terms of weakness, If they're prisible, they I think they should suggest that they don't see it do very much because the reman bey is is a vital anchor in terms of a stable remby is a vital anker in terms of just global financial markets. If if that currency d anchors, then then you've got a whole other whirlwind of issues to

cope with. So if they're sensible, I think they'd prefer to see a stable I think obviously, if you're going to call China currency manipulator going down that path of trade, you know, wars, etcetera, then you want to see your reman be strengthened. But I mean, at the end of the day, the dollar is the one of the strengthening reman bees not doing very much. So that's that's the

conundrum for them. I guess at the moment, ahead of the meeting yesterday, the FED meeting yesterday, we we speculated on the degree to which Danny Yellen would comment on the possibility of a big fiscal stimulus of tax reform. What did you make of what she did say yesterday. She wasn't completely silent on the matter. She did address the fact that some members of the committee were concerned about it. What does that tell you about the thinking

of policy makers at the federal's roof right now? Yeah, I honestly thought that was interesting because they have had at least the option at the Fed to say, we're going to be reactive in the context of fiscal policy. We don't know what we're going to get, so let's see what we get and then we can adjust. We're not in a rush to hike anyway, so we can afford to be patient. But as you say, what she introduced yesterday was just this concept that we have to anticipate,

you know, what the impact might be of politics. You know, the currency market, the bond market has said, look, politics is the driver here, and now the Fed yesterday is just taking the first few steps down that road. So it was a significant departure and one they didn't need to do, so they've chosen to do it. So I

think that, as I say, significant. What are the lessons you've learned here in the wake of what we've seen that with the U S election, obviously the Brexit photo as well, and then the Italian referendum, we saw so little market reaction, at least comparatively. What does that tell you as we head to the next elections in France and the Netherlands across Europe. Well, one takeaway is the the euro it's just so bored with European politics, you know,

it's um. We We've just had so much stuff to digest. I think that the the sensitivity. In fact, I think we're just completely desensitized to political turmoil. Um And so we had this kind of sell the rumor by the fact in euro And I think we're going to get to the Dutch elections in March, we're gonna get to the French election, You're gonna get the general elections, and we'll talk about and we'll spend endless hours negotiating it.

But I suspect at the end of the day, yours not breaking up the political discount, however big it is that's in the currency, it's going to disappear. It will be done by the end of next year. Critically with the one of four five breaking down a euro down to a two thousand three weakness. Is it a different debate at a point nine five euro, I would suggest it is. I mean the dialogue changes. Yeah, it does.

And you know, the if we were worrying about European political risk, when you had a little bit of breathing space above parity, then you can kind of say, okay, fine, we can we can see a few big figures lower it doesn't really matter. But if political risk in Europe is the thing that drives us to parody or drags us to parody, then it becomes much more of an issue, just just from a market psychology perspective, congrat relations to mayor and making all of us lean forward with a

one ten call on Sterling out in the distance. But nevertheless, he maintains that even with what we've seen, you can it's a funny quirk of this incoming administration that so much of a spectacle is rested on Trump Tower, just a few blocks from here, and there's a camera trained on the elevators therein and last week we saw one Admiral James strid Us at Trump Tower meeting with the President elect He is now at the dean of the Fletcher School of Law and Diplomacy at Tufts University reportedly

was in the running to become a Secretary of State. And it's great to have you on the show, as always, admirals to read us. Great to be with you, guys. How's it going today? Great? Give us a sense here. I'll let you let you decide what you want to share from that meeting. But I imagine that one of the things you guys discussed you in the president elect is what he is looking for in a Secretary of State? What are the parameters he's looking for? Who does he

want to have in that job? What kind of person? I think he's looking for someone with a global perspective, who has experience on a world stage, as someone who has a broad circle of friends and colleagues in the world, and someone with whom he has a strong personal chemistry. When when you look at Rex Taylorson, the former now former ex Nonmobile executive, whom he's picked for that job, give us a sense of how he meets those those bars. I don't know if you've met him before, but what

do you make of the pick? I have met him and I think he meets those bars quite well. He has uh an enormous global set of connections. He's run a huge, complex organization. He's someone that is instantly likable. Uh. There's very little to criticize. The only thing that I think is out there, and it's a legitimate concern given the way the wind is owing at the moment, is

his evidently extraordinarily close relationship with Vladimir Putin. I think that's going to be a subject of considerable scrutiny on the hill. I'll probably watch football or soccer on Sky TV as well. David Gurrow. Very quickly, twentieth century Fox formalizes UH their purchase of Sky TV. The rest of Sky TV. The value is eleven point seven billion. That's a calculation, but it gets you out to a twelve billion sterling transaction. That gets me up to I don't

know what that is. I'm doing the math quickly. I'm gonna say it's a fourteen billion dollar transactions. Track here owner of about thirty nine percent of that That company already something that he's that he's wanted to to acquire anmial strad as you mentioned that Russia connection, and we look forward to to these hearings, to to hearing more

about that. What does it tell you and what did your meeting with Donald Trump tell you about the degree to which Russia foreign policy toward and involving Russia is going to be a priority for this administration. Well, I think it's got to be a priority for a couple of reasons. First of all, we have three enormous contations in progress with Russia. One is Putin's support for Vladimir a correction, his support for Assad in Syria. Uh, someone who's just butchering the city of Aleppo only the most

recent of his war crimes. Secondly, the annexation of Crime, and thirdly, and most obviously, the cyber hack into the U S electoral process. So Russia really de facto is at the top of the agenda as we go into this new administration. Ed. Well, I've I've read a couple of articles on the uproar over the number of generals within the new cabinet. We need a Stevidia's dissertation. Now, is there a difference between a Marine general and an army general or a Navy admiral? Are they all the

same rank? Etcetera? Um? All the ones. We're talking about our four star admirals or generals. Uh. The difference between them is in the specialty within the armed forces. So the Army four star general command soldiers on battlefields on land. The marine is kind of amphibious. He can be out at sea with his marines, or he can take his

marines ashore. Also four star officer, a Navy admiral is in command of naval at sea forces, aircraft, terriers, cruisers, and can also command that amphibious force as it closes on the beach. Are they going to bring to Mr Trump a humility about certitude? He is a guy who's certain of what he's doing. Are they going to bring the humility of their military experience? I think they will, Tom. What they will bring is an appreciation of the fog of war, which can be extended to the fog of

foreign relations. It's hard. This is complicated stuff, and to think you're gonna just cut through it like another through butter is a mistake. Moments ago, Richard Greenfield, one of the class acts of security analysts analysis at bt I G on viacom, we mentioned TV David, why bring this up? Viacom may never be great again? Reducing price target, but expectations are simply too low. This is classic Rich Greenfield.

Our upgrade of Viacom to buy on June six was undoubtedly a mistake, as it was driven by our conviction that Viacom and CBS would merge, so they adjust, but they do maintain their by wrating just because it's been beat to death. There's not enough of that. A guy like Greenfield is really just out front. Dennis Garment does the same thing. He talks about the disasters as much

as the successes. We'd expect that from Adimals Trevitas as well, joining US James Travitis at Fletcher School, Tough University, UM Admiral I'm sure there's a point is a young Navy type amidshipman. I don't know what the right phrases. Where there's somebody who's certain that they're certain, that they're certain, and they're sat down by a chief petty officer, says young lad out of Annapolis. This the certitude emanating from the Trump transition team is remarkable. Everybody is certain that

there's certain. How do you deal with that? How within government are we going to deal with the ebbing away from certitude? To war, a more towards a more measured

and balanced approach. Well, first of all the world will accomplish that in its own way, and they'll be enormous vectors that push in on UH people's ideas of what exactly ought to happen, and that will come like a freight train at this administration on January twentieth, starting with North Korea, cyber Russia, a number of other things in the foreign policy sphere alone. Secondly, Tom, you bring in people who can be that chief Petty Officer, Tom Keane.

You know someone who's been around, who has experienced, and you listen to him, and so I am encouraged when I see pics like General Jim Maddis, General John Kelly, both of whom I know extremely well, and who who will be that that Dutch uncle to whoever. They will back down to nobody, and they seek They neither have fear nor do they seek favor within This is a military phrase, overcome by events, isn't it? And you're the

pro we're the amateurs. We read our military history. There's O B E. If you were sitting with the President elect right now, what is the O B E? You would lecture him on, I'd probably start with Syria, which has been overcome by tragic events, and at this point we're not gonna be able to put Humpty Dumpty back together again in Syria. We're gonna have to I think partition Syria, and that means probably cutting a deal with

the Russians, uh, taking ices out. I think that's firmly what has to occur that will give a base to a more moderate Syria out in the west and the north. But the idea that we're gonna be able to put Syria back together as a coherent say, that's overcome by events.

As I hear your praise General Madis and General Kelly, and I think back to a conversation we had, I think before the before those picks were named, certainly, in which you you expressed some concern here about changing the law that says that somebody has to be out of a uniform for seven years before taking a position like the ones they are in fact taking. Have you come around to the idea, what what what concern remains about doing what Donald Trump here has proposed doing. I still

have that concern in the broad scheme of things. In other words, I don't think for the Department of Defense, not for the other cabinet jobs, but for the Department of Defense. It's generally not a good idea to put a recently retired military in there, because you dilute the idea of civilian control of the military. However, I think General Jim Madis is an exception to that rule. A because he is who he is. He's very firm, he's

very smart, he's very uh. He will stand in the wind that blows in that job, and I think there'll be a lot of wind blowing. And then secondly, because I think President Trump needs somebody like him and experienced hand that as Tom was saying, kind of that chief petty officer who can say, hey, we really got to do it this way, Mr President. For those two reasons, I support Jim Mattis as a one time exception in the blur Admiral I saw today some think tank etcetera.

Taking aerial shots of coral atolls? Is that the right word in the South China Sea and gaming that there's military and I'm sorry, Damal and had the blush of Cuba of fifty years ago to it. How do we approach our intelligence within the South China sea. And how

does the good Navy show the flag in a constructive way. Well, first, in terms of intelligence, tom As you're well aware, a great deal is now collected from satellites and we can position those so we can position satellite in a geosynchronious orbit, which means it just parks over one point on the Earth. Secondly, we can use unmanned vehicles UM air air unmanned vehicles and undersea unmanned vehicles. Uh. Those can be very surreptuous and they can operate from the decks of our ships.

And that's really the third thing we can do is move our ships through that region collecting electronic intelligence. So we have a great deal of capability. We need to show the flag because here's the key point, tom, these are international waters. This is the high Seas, and we cannot seed that to China and simply let them treat the South China see as though we're their own personal lake.

It is not. I think of all the times we've spoken with you and you've cautioned about the risks of cybersecurity going forward, here the risks of big hacks, and we certainly read the report in New York Times. A couple of days ago detailing how the d n C was was hacked by Russia, according to the New York Times and the documents that they've seen there. I wonder if from your conversations with the President, like you think

he's taking that seriously enough. He doesn't seem to be backing to move by some lawmakers to investigate this fully. And what does that say to you about his willingness to see this is the great threat that it is. I think these are two separate strands of a of a combination that comes together so on cyber security. I think he is taking it very seriously, broadly speaking, not attaching a national label to it, but looking at China, North Korea, Iran, Russia, hackers, cyber crime, that basket, I

think he's taking very seriously. UM. I think he's making a mistake to walk away from an investigation of the Russian piece of this, because it's so so much a

dagger pointed at the heart of American democracy. And I think ultimately there will be a several investigations, certainly a congressional one, UM, and I think the executive branch would do well to participate in that and follow it wherever the facts lead us, I should Uh, I mean I I it was an astaging story, I thought, and like you, I I think the Congress is going to can to need to take it more and more seriously. Here, Uh're

going forward here? What what's your advice to rex Dealers and somebody who is not accustomed to dealing with government in the way that he will be dealing accustomed to all the bureaucracy he's going to have to navigate here. What's the piece of advice you'd give him as he as he potentially enters that. Well, let's let's remember the exn is a big bureaucracy and he's navigated it quite successfully, So I suspect he'll he'll easily adapt himself to the

culture of the State Department. But my advice to him would be to get the most professional, experienced, career diplomat he possibly can, someone who's been an ambassador at least three times, and make him the deputy, someone like Bill Burns, Ambassador Bill Burns, Ambassador Nick Burns. Uh, there are a group of real old hands at the State Department, because what he will need advice on is how to use this new bureaucracy that he's inherited um effectively around the world.

He'll need someone from the inside to do that. He didn't mentioned John Bolton. There h John Bolton I think has experienced, but he hasn't been a three time career foreign service kind of person. But he has been an ambassador and that's a plus. Are you teaching this semester? Are you taking the Navy sabbatically? Tom? I always teach, and Uh I try to particularly focus in on leadership, teaching us. What's your number one message here? Given what

we're witnessing in New York. I think that great leaders in the twenty one century have to do three things. They have to be innovators. That's what distinguishes a leader from a follower innovation. Secondly, they have to be great communicators and understand how to use all the elements of communication. And number three, and most importantly, they have to be collaborators. They have to build teams, they have to work with

allies and partners. It's that third piece that I'm particularly hoping we'll see the administration season ed will have a huge holiday Sison. Mr Vitas of Tufts University has given us terrific for active Maybe we'll see him outside the Trump Tower, David Garl Remote. You can go over there and remote with camp Travides Cam. I like that very good. Who you put your trust in matters. Investors have put their trust in independent registered investment advisors to the two

and of four trillion dollars. Why they see their roles to serve, not sell. That's why Charles Schwab is committed to the success over seven thousand independent financial advisors who passionately dedicate themselves to helping people achieve their financial goals. Learn more and find your independent advisor dot com. We spoke with Peter Whoper of Deutsche Bank. Two big figures on year ago. That's how much things have moved an

x number of days, so we need a readjustment. Alan Ruskin joins us for Mr Hooper's shop over at Deutsche Bank. Alan dr Hooper brought up and he's in the economic area Macrow econom is hugely esteemed, widely considered on many shortlists for fed UH service. If you will, Alan Ruskin, he brought up Dominique Constant, who's worried about financial instability. And the problem is both Peter Hooper and Dominique Constant turned to you and they go Okay, Alan, Now what

in foreign exchange help us this morning with this? Alan Ruskin? I mean you're a one oh five, we get a one oh three print. I mean we're back on the parody watch, aren't we. We're definitely in the parody watch. Tom.

I think the important thing to consider when you look at the euro dollar and also the dollar index in general and a broadest sense, is that we are training a very wide range for a while, and you know, we're seeing one oh five to one fifteen is the you're a dollar range of a pretty much eighteen months or so, and so you know, breaking that level is a big deal, but it's not all that strong in relation to where we were eighteen months ago. I'll go

with that. And a lot of people have said that the danger here is, you know, and you can only learn this, folks by enjoying losing money. Is only Ellen Ruskin and I have done is you begin to extrapolate, and that gets you into trouble. Are you extrapolating this morning? Well? I think what you're seeing is a pretty strong trending market. So if you mean by extrapolation trending, then yes, I would be, you know, thinking that we could go quite

a bit further. Typically when you have arrangers of say, for example, you're a dollar one or five to one fifteen, when you break that, if that range is particularly well established, you'll move back down by another say ten big figures really, so that brings it to focus cents. And that's our your end forecast for two thousand and seventeen, which is coming up rather quickly. Now, okay, we've made some news this morning. That's good, very quick. I know David wants

to jump in. Is this a real rate us versus them analysis? Or to capital flows kick in to get you two weaker euro point nine five? Well, look, you've got a big diversion story, you know, diversions with a capital d occurring. If you look at US interest rates in relation to pretty much all the G ten, you're spiraling out on a nominal basis and to real real basis as well. But it particularly normal interest rates spread basis to um if not multis then multi decade higher.

So you've got a huge move on the go here from a rate spread standpoint, that's driving this. When you look at this move in the ear, what can you attribute it to the Fed principal? In other ways, what

accounts for the breakout that we've seen. Yeah, I think it's primarily the FED, but I think you have to also consider that the euro side is not terribly attractive either, So you know, the market is looking at the on the euro side saying, okay, so we maybe got some sort of ECB elongated taper, but we're not going to hear from them for a long time now that we've got December's ECB meeting out the way, and in the meantime, you've probably got you know, four major elections at least

three major elections coming up in Europe with all the political and certainties that that entails. So, you know, nothing terribly constructive on the euro side as well. How much our economic fundamentals reflected in what we're seeing right now? I think of industrial production out yesterday in the US and and in Europe as well. Are we seeing that

reflected in the prose of view right now? Well, I think we're still trading really the promise of Donald Trump as much as the realities in terms of the economic data. I mean, the economic data that you're seeing in terms of acceleration, A lot of that is really sentiment data. You've seen the fully fed today, for example, of the six month outlook is extremely constructive. Um, you know, that's that's a sentiment indicator, the consumer confidence data, that's that's

sentiment numbers. Really. But in general, probably before the Trump phenomena, you were seeing some acceleration from a low point in growth around the middle of this year, and you know into the third quarter you're seeing some acceleration. And I think related to the idea that financial conditions, which are tightened very early in the year, we're no longer tightening, and therefore we're being more helpful for the US economy, help us with Sterling. When we look at that is Brexit.

Is the whole Brexit process now fully priced in? Do you think No? I don't think so. I think you know, what we've seen is the UK economy has been pretty resilient. If the UK economy does see some meaningful downtown in the first half of next year, then um, you know, all bets off again. You know again, I think sterling will weekend. I think what's interesting on the Sterling side is it's not just a Brexit story. If you actually

look again at the interest rate spread side. Um, I think people don't realize, but Fed funds is not traded above the UK base rates by more than a hundred basis points for the better part of thirty plus years. So we are moving into terrain on a rate spread basis that we haven't seen on a really a multi decade basis. When you look ahead to two and seventeen, is the focus here on the euro? Principal are you?

Are you looking at Redmond? What are the court of the what are the currency apearance that you're most most closely watching here as we had it to two seventeen. Well, you know, I'm I'm looking at pretty much everything really right now. I think we're focusing obviously on the Euro and the end they have been the principal vehicles that people have been expressing their long dollar view on UM.

But I think from a risk perspective, we're clearly looking at dollar China in particular and seeing how that trade and whether it becomes disruptive. But that I noticed Philippine Paso today printing fifty, which is sort of like down ten thousand folks for Philippine Peel. And I don't mean that in a snarky way. It's like a huge, huge deal. Can our listeners monitor what we're doing by looking at the e M dynamics or should we really just focus

on euro in Yen. Definitely look at them. Dynamics and e M dynamics are quite complex because you know, you've got the stronger dollars story in general, we've got FED tightening, you've got US long term interest rates backing up. None of that's very good for EM. E M is normally high beata, so normally trades badly in that environment. But against that, you have the prospect of US fiscal easing, you have the possibilities of stronger US growth, you have

got some acceleration in global growth. So it's actually I think providing some protection from the e M side. I want to come back and talk about this Ellen, but very very simply, here is this a weekend where you blow up your Excel spreadsheet? Did you do? Is this sort of like a tipping point into the new year? Not quite? I think, you know, I think you know, we could. It's to some extent, one could see some

of this happening. It's come a little bit quicker than anticipated, so you know, maybe we're bringing forward events I think, rather than its sort of really blowing up the screen like that idea. But we are strong with Ellen, Ruskin and Deutsche Bank with decades of experience with synthesizing foreign exchange dynamics into any and all else. It's going on right now to the dynamic that we're seeing. You just said, we're pulling forward movements anticipated six months, a year, even

eighteen months out. Is that what the Fed is doing? Is there trying to get out front and pull forward the discussion? I don't think so. I think if you judge what Janet Yellen was saying, I think she was being very cautious and suggesting that the shift in the dots, for example, was tiny. But unfortunately these pesky little dots really even small movements, really mean quite a lot. So, um, you know, I think it's the market that's jumping ahead and taking uh you know, small tiplets from the feed

and and and really running with it. When you look at the potential for protectionists and more protectionism here in the US, what are the currency piers that's going to affect the most? In other words, if if we see stronger shall we call it trade policy, if we see new tariffs, what's that going to affect? Well, I think you're going to see a different impact on developed market current incies and G four currencies in particular relative to

the emerging markets world and commodity currencies. In the initial instance, I think if the market really smells that protectionism is real, then I think they're going to see a reshuffling in terms of fat expectations, which is actually, you know, going to be negative for the dollar versus the G four currencies, But protectionism and you know, it's impact on trade and commodity prices, etcetera, will be seen as negative for the

emerging market currencies as well. So I think you're going to get this dichotomy really between you know, what's going on where the G four currencies, for example, the euro in particularly yen why actually do fine in that environment, but um, you're going to see the E M currencies suffer. How cop doesn't Do you think that the FED is

of that happening? A We struck yesterday the degree to which Jena Yellen mentioned the fact that some of her colleagues were aware of the fact that there is this ongoing conversation about new economic stimulus or tax reform, but the argument about protectionism about what that could mean for the economy didn't seem to come up. Yeah, you know, I think, you know, it's a discussion that no one really wants to vocalize on too much. Again, it's being

very preemptive, you know. I was saying earlier that the markets trading the promise of fiscal stimulus to some extent. You know, this is also conjecture in terms of where trade policy goes. And I think there's a perception that ultimately, you know, we will have a fairly rational outcome to this, and that um somewhat free trade will still prevail. It's Thursday, Monday seems ages ago out. On Monday I framed a

Deutsche Bank optimism on the economy. Your colleague Peter Hooper adamant that we see a better reflation and higher yields from where we are now, which on Monday was a two fifty. I believe right now we're up seven basis points at one point to sixty, up ten basis points this morning. If there's three vectors, one is higher yields, one is stability from this new jump condition, and one as we migrate back to a lower yield environment. Can you dovetail with Peter Hooper's optimism or do you take

a more nuanced, a different tack than Dr Hooper. Now I would run with the optimistic view to some extent, So I think that there are a few different elements. One, in the short term, I think you're really seeing the market taking of you that animal spirits. The more constructive views that you're seeing in terms of sentiment and confidence will prevail as far as the short term economic outlooks concerned.

And then they are kind of projecting forward from that and saying okay, and then we're going to get a stimulus, and that probably hits towards the end of two thousand and seventeen and and into two thousand and eighteen, and that stimulus really becomes part of the growth story. So that's a growth story. We normalize, everybody mints money off

Ellen Ruskin's picks, Then what does cheer yelling do? As was one of the questions yesterday in the press conference, with the balance sheet, she more than anyone, will have the luxury of reducing the balance sheet. Do you guys, when you all get together, do you believe she will affect a balance sheet reduction? I think it's going to be extremely difficult Tom in this environment where bond heels

are backing up. The last thing this market needs really is, you know, a backup in heels that relates to a balance sheet adjustment. So I think she put it perfectly in a sense that she said, they look, they want to normalize rates to and let that be the lead element in terms of policy tightening rather than the balance sheet, because at some point in time they might actually have to cut rates, and it's a whole lot better cutting interest rates if you have a downturn and somehow expanding

or re expanding the balance sheet. I'm gonna ask you just close here by asking about little more about about China and what you expect there in terms of the currency in the new year. Uh And and maybe if if you think the IMF is having any regrets here about including it in that in special basket in light of what we've seen with the currency here in these

last few months. Yeah, I think you know, we've had a forecast for a while now of dollar China reaching seven point four at the end of two thousand and seventeen. That still seems reasonable. It's based on the idea that the dollar will be stronger. It's based on the idea that the Chinese currency remains very sensitive to US interest rates. That's something that's sometimes underestimated, and it works with the idea that China still is the resources effectively to martial

a fairly subdued depreciation rather than an acceleration resources. I asked this question earlier today, what is the quality of reserves When the media spouts reserve statistics, are those accurate numbers or is a general statement there is the reserve bucket smaller country to country. Yeah, I think in terms of China's the market certainly has speculated that the China's ward book is fairly large, so that net reserves are

actually maybe smaller than the headline number. Um. You know, that's as I said, is you know, just a speculation that's out there in the marketplace. It's it's a very common view, mind you. Um, so let's see. Um, you know, I think there's a view that if China's reserves go down by anything approaching say a hundred billion a month, again, then we've got some problems here that it just shows that there's a very significant capital outflow acceleration. Very valuable,

Alan Ruskin, thank you so much. With deutche Bank a great updated Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm out on Twitter at Tom Keene. David Gura is at David Gura. Before the podcast, you can always catch us worldwide on Bloomberg Radio. Who you Put your trust in matters. Investors have put their trust and independent registered investment advisors to the two and four

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