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00:00Let's quickly get in a view from Steve Englander, he's Global Head of G10 Forex Research and
00:06North America Macro Strategy at Standard Chartered Bank.
00:09Steve, great to have you on the show and thank you so much for joining in.
00:14Let's just get your view, let's start with the Jackson Hole comments.
00:18Everything that could have been hoped for and more?
00:23Pretty much, I mean the only thing he didn't say was that he was thinking about 50 but
00:28I think I was implied in some of his comments that if it turns out the unemployment rate
00:36keeps going up and the inflation keeps approaching target, they're far away from neutral in terms
00:43of fed funds.
00:45So at some point they may have to do a 50.
00:48Market thinks that it would be sometime in Q4, we think it's going to be in Q1 but I
00:52think that there's room for that if the forecasts and expectations play out.
00:59Did you say, Steve, that you think the cuts are going to be in Q1 versus the market expected
01:06in Q4?
01:07No, we think they're going to do 3.25s in Q4 and a 50 and a 25 in Q1.
01:16Steve, in that case, how do you expect risk assets to react?
01:21Because for the last year to year and a half, equity markets have been seen buying on anticipation
01:27of that rate cut.
01:28That rate cut will, of course, the first of the rate cuts will come in on the heels of
01:32the US elections.
01:34Do you buy equity, do you buy risk or is it time now to take profits off the table?
01:39Because much of it, I would believe, is already in the price.
01:43There is a lot in the price.
01:45If you look at, say, what the market expects Fed funds to do, that essentially by the middle
01:50of next year, it's going to be down to 3%.
01:53And obviously, the 10-year is trading underneath 3.80s.
01:55So there's a question of how much more there is.
02:00Having said that, I think the Fed is back to being the market's friend.
02:06If they feel that they're going to be close to inflation, they're not going to want it
02:09to go below target again.
02:12They certainly sort of have a sense that they've said explicitly that they think that
02:18the unemployment rate right now is close to neutral.
02:21So they don't think it has to go higher.
02:23If we do see it going higher, they may consider cutting faster and deeper.
02:29So I think for now, the market will like what it sees.
02:34I think the big risks, the negative risks for the market would be either that it looks
02:40like the policy is failing, that the unemployment rate keeps going up even as they cut, and
02:45it's not having an impact, then all sorts of profit warnings would trigger.
02:50Or conversely, if we're all wrong, I mean, and it just turns out that the inflation stalls
02:55at current levels and doesn't go further down, and the Fed really isn't able to follow up
03:03on all the cuts that are now priced in, that would be very negative, I think, for equities.
03:10Of course, you track global markets and, of course, other asset classes as well.
03:16What does this mean for emerging markets like India?
03:20Usually in a lower interest rate setup in the U.S., it's good news for emerging markets
03:25like India and China.
03:28From where we look at it, where there are arguments that Indian markets are expensive,
03:32do you feel that incremental foreign inflows will find their way into Indian equity markets?
03:38Will we turn a lot more attractive now on expectation of the rate cut?
03:42Well, yeah, I mean, look, you know, there was a bit of a carry trade, you know, even
03:50when Fed funds was, you know, or even with Fed funds at 5 percent, the Fed funds goes
03:56down to 3 percent, that carry trade is going to be even more attractive.
04:02And it applies to several emerging market countries where the yield differential with
04:07the U.S. is quite high.
04:09So I think it should be a positive for most of the EM, especially, you know, the parts
04:15of the EM that are, you know, well managed, conservatively managed, have respected central
04:20banks.
04:21I think that the currencies at least should benefit.
04:24Steve, just wondering what you think of the latest sort of, you know, rise in tensions
04:32in what has happened over the weekend with Hezbollah firing into Iran, Iran's preemptive,
04:38sorry, into Israel, Israel's preemptive sort of strikes and the concern that this is only
04:43going to grow bigger.
04:44Now, crude prices have largely ignored the Middle East scenario for some time.
04:51The bigger concern seems to be what the demand will be in China.
04:54But do you see this as a major issue panning out on the horizon that really hasn't been
04:59accounted for?
05:01I think market analysts have a lot of trouble becoming political analysts.
05:07What I can see is that even though oil prices have gone up since the Friday close, you know,
05:13say, West Texas is still, you know, well below 80.
05:17Even Brent is a little bit below 80.
05:20You know, there is concern, but it doesn't seem to be overwhelming concern yet in the
05:25markets.
05:26What I've seen, say, over past episodes of geopolitical tensions is that the markets
05:33tend to be pretty resilient unless the fears, you know, really realize themselves.
05:40And so I think we're still in the resilient stage right now.
05:43Right.
05:44Steve, a couple of areas that you're an expert on, and that's currency markets.
05:50The dollar will, of course, and has been weakening on anticipation of that much expected
05:56rate cut on the 18th of September.
05:59Where do you see the dollar index headed and also the dollar rupee?
06:03How do you see that play out?
06:04I know the Indian rupee versus the dollar is a fairly constrained and limited, you know,
06:09trades in tight range usually.
06:11But what's the verdict on the dollar rupee and the dollar index?
06:15Well, we actually expect the rupee to appreciate.
06:19We think that the current level is quite high and is certainly going to beat the forwards
06:24and beat the forwards nicely.
06:27The dollar overall, you know, we could see some, you know, consolidation, maybe even
06:33a little bit of strengthening temporarily in the fourth quarter.
06:38I don't think it would mean much, but I think that the you know, we've had a big move.
06:42And as you said earlier, there's a lot priced in.
06:46But I think the direction of travel for the dollar is to get weaker.
06:51You know, it may be more in 2025 than in 2024, but the you know, I think it's going to be
06:58a weak dollar year in 2025.
07:01So weaker dollar in 2025.
07:03A quick check on lastly, before we start wrapping up.
07:07What is the world?
07:08I don't know whether you track commodities closely, but it'd be unfair if you do.
07:10And I don't ask you about gold, because that's been the best trade of 2024.
07:14It seems like it.
07:15Even more is to come from what people, what traders and investors are indicating.
07:20Do you track gold?
07:21Do you have a word on gold from year on?
07:24What's the next stop?
07:25You know, gold has a lot going for it now.
07:28Central banks love it as a reserve asset.
07:33Certainly with rates cutting down, you know, coming down, there's, you know, historically,
07:38that's been a positive driver of gold.
07:42And when the dollar weakens, that also helps gold.
07:45So you know, gold is a very good situation.
07:49It's not a bad time to be a gold miner.
07:53All right.
07:54Thank you so much, Steve.
07:55Always a pleasure speaking with you, Steve England, there of Standard Chartered.