Surveillance: Debt Ceiling Concerns with Stealey

have you with us in the building. I wanted to start here because I think this is really important in the United States. Ask about the debt ceiling and people shake their heads and they're like, not this again. Is anyone asking about that? When you go around and see clients in London and UK across Europe, are they asking about it? To be completely honest, No, not not really. Maybe there's the the odd person is starting to think

about it. But I get the sense there's a case if we've been here, we've seen the movie, there will be a bit of twoing and throwing, but the reality is at the end of the day there will be some resolve around it. Do you think they should care? Um? Not yet. I think ultimately you need to get you need to wait until we get into the stage where actually there is going to be a material impact that's going to be later over the course of this year. I always look at the bill market to see there's

any spikes in certain certain maturities. We're not seeing yet that yet, so the market's not really particularly focusing on it. And I feel that we've had over the last few years. This isn't the first time we've had these these conversations. There's a lot about there's a lot of other things going on in the world before we get to probably worrying about the Well the Ottoman test of that is, if the debt ceiling hits the fan, do we buy the ten year treasury? The answer in years gone bias yes.

Do you see the answer changing probably even more so now just because actually you've got some yield on the ten uere treasury. We were happy to buy the ten year treasury back in twenty eleven when there wasn't much yield on on the ten year and at this time there is, so I definitely think that will be the case. In the flight to quality, will will favor those those bonds, you know where there hasn't been any yield and hasn't

been for several decades is Japan. I know it's a massive focus for a lot of people here in London for you as well, looking at fixed income. There was a meeting back in December. We had the meetings minutes and it suggested that the government official they're actually requested a recess suspended the meeting. What do you think is going on at the b O J and do you

think the government is happy with it? I think the reality is when you look at where inflation is in Japan, it's not what we've seen in the US, it's not what we've seen in Europe, but it's it's going up and at the moment, their policy looks at odds with with what's happening. The reality though, is they don't want to cause untowards volatility in the market. I'm not I don't want to liken what's happening in Japan to me what happen in the UK a few months ago, But

they don't want to see that level of volatility. So I think what we've learned from the Bank of Japan over the last couple of months or so is that I think we're going to get there, but they're going to do it on their own terms. They obviously widened the band when the market wasn't expecting it. The market was hoping for something last week they didn't, And they're actually doing these facilities at the moment to try to

keep financial stability. We're going to get there, it's inevitable, I think, but they also want to do on their own terms. The two words I want to talk about normal and market. Those two words I could with Jeremy Stretch in the last couple of hours of c ib C and he said, Japan's the next one to normalize, And I said, what's normal? I've got no idea what's normal in Japan when they've been doing this now for decades. The other world I want to talk about with you

as well is the word market. Is there a market, a sufficient market with private demand both domestically and internationally for Japanese debt for when this bo j backs away? Does it exist? Is there any sign of the one actually being there right now? Um, that's going to be a challenge because obviously the Bank of Japan own a huge, huge piece of the market, particularly in the in the shorter dated ten years and in where they've obviously been

looking to control control yields. So I think that's an open, open debate. Obviously we're going to see the market repriced to where to where it should should do. But the reality is there is a huge amount of securities owned by by the bank repriced too. If we don't know

if there's a market that actually what you get. What you can do is if you track the tenure j GB yield and put it on top of the ten year treasury year and you see treasury yields move higher over the course last year, the tenure j GB suddenly hit hit the upper bound. If you before then there was a pretty good relationship. So if you reach continue to track that, you're talking somewhere seventy seventy five basis points. Given where the tenure treasury is, that probably seems as

a as a good started point. As I said, inflation in Japan isn't what it was in the U S and Europe, but it's going up. We've got, you know, wage negotiations coming up in April. I think they're going to have to let that go. So don't find the fair used to be the phrase I know they've been reflected on that. Should I fight the b J I think the interesting thing is, as I said, they want to do on their own terms. So there at the moment they're trying to push some of the shorts out

of out of the market. If you've got a long term view, I think you can hold that and actually yields will be higher over the medium medium term. What kind of number are you thinking about on the yields, I think only five base points on the tenure. I think then they go beyond that kind of number. Though. In Japan, I'm looking at the things right now that are taking place across fixed income and with central banks. You're talking about the b O J backing away from

the YELD curve control. These eb is doing QT. They've got officials running out all over the place. Sound fifty basis points? Fifty basis points? I think the bank agrees pushed back a little bit in that world. Is that bullish your bearest for fixed income at a time where I've got pretty much everyone is fixed incomes saying buy bonds, all these things taking place Japan, the e C b QT all over the place, is that bearish your bullish fixed income? It depends what part of the fixed income

market you're talking about. Because the US, where people are looking to buy bonds, has seen the bigger repricing. We've got more evidence over the last week or so that we are having a slow down retail sales. We're gonna have the FED who want to slow down from their pace, the European Central Bank, the Bank of Japan, they're behind the FED. We've only just got too neutral in Europe. Is as you said, what is neutral in Japan? Maybe we'll find out got no idea, So they need to

do a little bit more. And I actually think Europe is particularly interesting at the moment because we were in a world where they were hiking rates to deal with inflation. Now inflation is coming or likely to come off because what's happening in energy prices that should be good for the economy. Growth is supposed We're supposed to be be in recession in Europe at the moment, and we're not. So are The e C began and maybe have to go

slower but further as they tried to battle this. So I definitely thin there's a dynamic between wanting to own US fixed income and then being a little bit more cautious and some of the other markets around the world. I wanted to squeeze this in because I asked this question earlier, I'm going to ask it a week. Does the ECP hype more than the FEDE Yes, it seems to be the takeaway at the moment and stably this was fantastic. It's good to see it from JP Morgan

Asset Management. Right now, Alfia dor Walla joins us with Rock Creek Group. They are an exceptionally thoughtful group with real hydrocarbon focus and also with an E. M. Bent. We're thrilled she could join us this morning. If what is cash right now? Is cash an asset? You know? Last year cash was definitely an asset. We were overweight cash and it helped our portfolios. This year we are starting to put a little bit of money to work

incrementally within fixed income more than anything else. UM a little bit too early to be really chasing fixed in cup. We think that at some point we're gonna want to start extending duration, so fixed income is a big focus today. What do you do with the energy is the only survivor of an ugly two thousand twenty two You people have got terrific natural gas history. How do you how do you frame that or how do you bet on

that out three years? Yeah? And you know, Lisa, you mentioned two of our main themes, will the energy shock from the war in Europe continue to be contained or do we see part two this year? You know, we saw winter warmth, We've started seeing European subsidies, We've seen the US tapping into the Strategic Patrol reserve support containment.

And then we see China on the other hand. You know, demand for oil is going to increase as China reopens, and so we're kind of looking at all of these factors and saying, is the second half of the year going to be a little bit like we were seeing some of the tensions in the last year. So let's put those two ideas together. You were saying it's not time to lean into duration, but you're waiting too, and the cuential for the energy crisis to rear its head.

What are you waiting for? We've seen a rally already, so yields are already almost a percentage point off the recent highs for the tenure. What are you waiting for to say it is time? Yeah, and it's a continuous conversation as markets are moving, But we've seen a disconnect right between market expectations and the fed's hawk is announcements. The tenure seems to be stuck a little bit around three and a half percent because markets think that the FED is going to have to pit it and reduce rates.

We think that the tenure could retrace it around four percent at some point early this year, and then that's going to signal a good opportunity to slowly start buying duration again. We're looking for good entry points to start extending duration in our fixtingcome portfolios, but we don't want to chase anything because we do think that we're still a long way off from the FED really signaling any

sort of even pause. What's interesting to me is the idea of a four percent ten year yield and the implication for equities that previously sold off when yields went up. But if we have an environment where pausitive, where it's a positive look at the economy at could potentially happen with growth, is it also couldn't be positive for equities in the short run. You know, I think equities are gonna be maybe potentially a tale of two halves this year.

You know, we think kind of middling for the next six months, but I think you're gonna have to pick your spots. You have to remember the SNP is still trading around eighteen times, whereas Europe's trading around twelve and a half and e M in certain countries even lower. So it could be a valuation story of the half of the Here Lifia with you and our Sanny, let's just talk about the Vogue again. I believe it was a vogue twelve months ago, twenty four months ago, thirty

six months ago. You get the theme e M in international are back. Is this time different? You know, it feels like a little bit of a consensus trade because you're starting to hear people really talk about it more and again. You can't generalize yet. I mean China to Brazil to India. These are completely different factors, completely different time horizons you have to have. But as an institutional investor, you have to be in emerging markets a to some extent.

You have to get China right because that is the still the biggest determinant in a NIM portfolio. Alifa, thank you so much. Olivia Dorwalla with Rock Creek Group there on the allocation mystery, what we're gonna do right now? You speak to someone who invented it. I really can't

say this enough. I'm gonna go back to the shot gun aw of point figure charts of eighteen eighty and through the early part of last century, and then in the nineteen forties there was dropped upon us someone who said, you can plot a stock and you can draw lines of support in resistance. His name was John Maggie. One of his great disciples was Relf and compora to say he's a chartered market technician. Co Farnder barely describes his

contribution to looking back at what Price tells us about forward? Ralph, honored to have you with us today. I want you to discuss the modern idiocy over catharsis. We need Catharsis to make a bottom in the equity market. Have you observed catharsis that drags us out of this bear market? Absolutely? Tom, Thank you for that kind introduction. I have to have I have to stress Octobert. Tom, the Dow had an intra day price wing of fifteen hundred and two points.

No one's talking about it. In technical parlance, that's called a key reversal day when the low of the day and the high of the day precede the previous days high low, and that to me was a major turning point. And since that October low to the December thirteenth high, that DALLA is up about the S and P s up about eighteen. So there's been a nice recovery and since then the market has been consolidating. I think we're

making a bottom long term in this bowl market. Well, if the study of technical analysis, with great respect for Dow theory and the rest of it, was done of a time of non derivative instruments, we now live in a world of E t f s, of massive indexation, and all to the formulas of support and resistance that you helped invent, do they work in this time where the New York Stock Exchange really isn't the New York Stock Exchange we knew. Yes, I appreciate that question, Tom,

But remember what technical analysis is all about. It is following the laws of supply and demand bias versus sellers, and that has never changed. The emotion of investors has never changed, fear and greed. It is all manifest and what we follow. So if you believe in price, which I do, that's I don't own and indicator an own price, and I follow the trend of price. Buyers push him up, sell us push them down. It's that simple ralph on the spectrum of risk versus fear of a risk, appetite

versus taking all your tips off the table, where are we? Um? For me, I've taken I've become a little I've become very aggressive coming out of that October thirteenth low, and I think since then, if you look at foreign markets like Europe, and you look at emerging markets, they have been leading the US market. So UM, I think it's broadening out. So I'd say, put chips on the table, play the game. What makes you feel like this has

staying power? Like this is the early stages of something more sustained versus a head fake ahead of something that a lot of people say as an a very byproduct of monetary policy. Good question. Um, Remember I was talking about October thirteen low and rallied in two much to December thirteenth high, and that since December thirteenth we've had

a pullback. The doll was dropped about uh six percent the so I think the SMP had an eight percent decline and those levels right there, we are looking at that would be a thirty two thousand, five eighty one on the Dow and three thousand, seven sixty four on the SMP. Those are very short term support levels. That's where the buy and she could be in. I I keep my eye closely on that on a short term basis,

and I think we're holding up well. Well. I want to get back to the arch issue of the day, which is the failure of the American retirement system because people are in and out and in and out of the market. We're at one of those moments right now. We're millions of people are literally saying, how do I

summon the cur to get back into the market. And I'm gonna go to the to the crew that you and I are weaned on in Large Mountain, New York, Mike Burke, Chartcraft, Mr. Cohen's work, and of course Earl Blumenthal. They knew when to have the courage to get into the market. How do you get into the market like you did in nine Uh, when you say get into the market, you mean participating and trading. I'm in cash and I need to go long. How do I get

back into the market if I'm scared stiff? Well again, I I again being a technician, I think you gotta look at levels, and I think in the days ahead, literally excuse me, in the in the very short term, the next couple of weeks, just watch because we're in the early seasons right now, and we've still got a lot of dialogue about whether it's a recession and not a recession um and you've got the war in Ukraine.

If we can hold above that October low, which I think we will, that to me would be the final test. So the next couple of weeks volatility we hold above those loans, I think, looking out towards the second half of this year, I think we're going to be in pretty good cheap never enough time Ralph and Compourer, they're on technical analysis. Just honored to have him on with us.

I'm happy to say here in London I can catch up with Jeremy Stretch, the head of Detail FEC Strategy at C I B C. Jeremy great to catch up with anybody. Good to see it from page to the ft this morning for all to see. Europe can avoid recession? The Eurozone can avoid recession? Can the Eurozone avoid recession? Well?

Suddenly the movie music has materially changed because of the retreat that we've seen in European gas prices, and of course we've also seen that Chinese reopening narrative which is providing a slightly more constructive backdrop for the German exports sector. So the combination of these two factors does suggest that Europe might and Germany and the leadership of that might

just avoid that negative GDP print. And that's obviously one of the one of the catholics which has really been driving this euro recovery narrative, alongside the presumption that the ECB is seemingly much more hawkers than the defeat. And it's a relative story, isn't it stagnation versus recession? Now we need to talk about stagnation versus expansion and recovery.

It's a big difference between the form and the latter. No, indeed, indeed there is so in a sense, I think what we had is that obviously, going through the third quarter last year, we had an enormous degree of negativity pricing or baked into the sort of the Eurozone recovery narrative, because of course we were talking about the potential of gas rationing. Now here we are at this stage in

the in the in the winter period. Now it is remarkably cold here in London as we know at the moment, but the actual winter itself has been relatively mild thus far. And if you look at European gas short storage levels, it's they're running around twenty above the sort of levels you would have expected normally at this time of the winter.

So that eases the burden in terms of the re refilling of those gas storage tanks through the course of this summer, and US we've seen Germany opening its liquefied natural gas UH ports in terms of William's Harving for example. So the ability for Germany to get those en ergy capabilities or or flows from the US in particular has helped to alleviate some of those recession risks far enough, coal as well over in Germany well, which is which is which is an interesting one. So in the sense

that's one of the legacy issues. So that's why it was as fascinating to see, you know, the great of Thumberg narrative being put alongside at the World Economic Forum in Davos. You mentioned the CP is a question for you three, does the e c V hype more than

the Fed this year. Yes, I think it does. I think we're very much in this steady and significant policy narrative the you know, the sort of paraphrase Madame Legarde and throw Margaret Thatcher into it's the ladies not for turning in terms of the interest rate story from the narrative that we saw from last week. So it seems likely to go along with the comments and class not over the weekend that we're going to see at least two fifty bases where most in the from the CD

the next two meetings. Do they go beyond that in

terms of into the spring? Possibly? Yes. So that I think does suggest that the c B is gonna be a little more hawkers than the Fed, because if we're if the market is right, and obviously markets attending to be, you know, very aggressive in terms of calling for a moderation in terms of policy timing for the Fed, then that does suggest that the c is gonna be more hawk kid Joseph salk Jen this morning, writing in London for sock Jen, saying, a spoonful of optimism house the

dollar go down. You want to play that against the yen, against the euro? How do you want to play that story? Well, well, I think that I think the yen is is an obvious and in an interesting one because again we've we've seen a degree of policy uncertainty really written large after that adjustment in term of your curve control back in December.

Now those minutes from the meeting there have been really so overnight suggests that a lot of the b o J members were worried about the communication aspects of that change. But I think it was it was always going to be the case, you know, to expect a degree of policy normalization from the bo J this year, but more so after Corona leaves office, because of course he's only got one more meeting to go. So I think, you know, I think there is some substantive scope for yet appreciation.

So we you know, we'd be looking for runs up to maybe one one, one thirty two in the nearer term to provide better levels to start short looking from a return back to one twenty. The words we use matter. You said normalization and Japan in the first same sentence. So we've had several decades now see a rates in Japan. What's normal? Well, that's true. I mean I've been in the market for some considerable time and you know Japan

and Japanese minetary policy has been generally the same. They but always attaining for this aiming for this two percent inflation target, which invariably they've missed other than and sporadic and exceptional circumstances. We're seeing now normalization that I think is a process of moving away from that negative interest rate policy. So I think that's going to be the

dynamic that we're going to see. So if we start to seeing Japan moving away from those negative rates, that has enormous implications for fund flows because of course Japan being that major exporter of capital, exporter of credit in terms of looking for those higher yields. If there is a degree of dislocation in terms of those fun flows and that exiting from Japan, that I think that has

in more normous implications. So as we look for treasury j UB spreads to continue to compress, that provides that to a momentum for Dolly and to move. Love talked to me about their limits, about how far they B I J can go, how far they can pull back from their your curve control. I was thinking about the ECB in Europe in the last year, and if you told me they were going to deliver what they have delivered.

On top of throwing in QUTEI as well. I would have had real doubts about what could or couldn't happen to the bond market. I would have expected the periphery to face a real, real difficulty. I know spreads are wider, I know yields are out over the last twelve months or so, but not to the extent that I would have said, have you been surprised by that? What does that inform you about how far the BOJ might go?

You're absolutely right, because if you think about what we've seen from the c B, you would have thought that B two B bund spreads would have been pushing to fifty basis points or higher and starting to really create some degree of fragmentation risk. So, in a sense, I think you know that we have seen a degree of relative calm, if you like, in terms of the movements that we've seen in terms of monitory policy. And I think that's going to be interesting in terms of Japan.

So can they tolerate you know, long air yields, you know ten year olds moving up on one percent? I think they probably can if we get a more normalized yield curve in Japan. So I think you know there is this scope for an adjustment. I'm not suggesting that you know the bo J is going to be suddenly

adopting a very aggressive place of balance sheet constriction. I think it's more about removing or easing those consideration terms of your curve control, removing that negative rate dynamic, and then encouraging some of those fun flows to remain on shore. I think that's the sort of the dynamic, rather necessarily going for a complete sea change, even with the confines of a new administration. Let's finish on the FED. The

dove's got the last word, Governor Waller. I would have called him a dove last year, but certainly endorsed the twenty five basis quite moved this year. Are we done after that? I think we're then getting to a situation where we are literally right at the end game, and I think the data will then determine that. So I think we are still very much focusing on employment and earnings.

I think those are the t that you know, the obvious benchmarks, and then of course looking within the CPI print to see how things like those rent dynamics play out. So I think we are very very close to the end game here. But I think the the other issue that we were still take take issue with from the market perspective is that degree of cuts, you know, that

rate cutting, that's price into the market. Were very close to the end of the hiking cycle where we don't necessariything we should be pricing in cuts from the second half of the final question, Marcus have to grapple with ever changing probabilities and price them accordingly. Who's got more chance here the Federal's Earth get into five or Tottenham getting the top four finish this year in the league.

We'll considering my son as a massive Arsenal fan. Then I really really cannot, I really cannot answer anything in the affirmative in relation to Tottenham. There we go, Jemmy Stretcher, CRV Sanks very much. Let's see you may Thanks for having us. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten AMI Eastern.

I'm Bloomberg Radio and Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance Podcast on Apple, podty, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom keene In. This is Bloomberg m