Clearest Plays Are EM Gains as USD Falls: 3-Minute MLIV

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00:00Mark, let's find out what's top of mind for you. We're working towards a Fed meeting,

00:04of course. Mark, it seemed pretty peaceful with that still on the horizon. But you're

00:08spotting some dollar softness that you're putting down to the to the Myron story. Are

00:12we back to talking about steepness and dollar softness on the back of that then?

00:18We very much are talking about that. I think one of the problems going into this week's

00:22Fed meeting, which is what everyone is eyeing, is that the trades have already played out.

00:27We've pre-priced this Fed very aggressively, both from the bond side and the stock side.

00:33I think the narrative is now clear. And it's that, you know, with the administration pressure,

00:40with the appointment of Stephen Moran, with the with the fact that they're trying to fire Cook,

00:44that we're going to get more dovish monetary policy than orthodox economics would suggest.

00:50And that's a narrative likely to run. So, you know, but markets are already pricing that in

00:55via a sharp collapse in yields and through very bullish stock market, which makes the risk reward

01:01of playing it further post the Fed much more difficult. No reason to go against it. But there's

01:07a risk of that kind of little buy the room or sell the fact event. The one thing that's probably got

01:10a little bit more sustainability is dollar weakness. That's the one trade that's had very little kind

01:15of correction all year. It's been a very safe trade to play. And whatever the administration is

01:19doing, it's undermining U.S. institutional credibility. And that is bad for the dollar.

01:25Mark, what are your thoughts on emerging markets? And that sounds like a pretty,

01:29I guess, the scenario you laid out sounds like a pretty decent trajectory for emerging markets

01:35to outperform. Is that is that your case?

01:39Absolutely. So the dynamic is we're getting easy monetary policy. We're getting a bullish environment

01:44for stocks. Basically, what the Fed is doing, what the administration is forcing the Fed to do

01:48is to juice markets in the short term to create longer term risks. But they're still being juiced

01:52in the short term, which is why you don't want to fight it. And we're also getting an easing of

01:57the dollar, which is an easing of financial conditions for the rest of the world. It is a great

02:00environment for emerging markets. We're seeing that dynamic play out. Emerging markets have been

02:03doing wonderfully all year. They've been outperforming in the U.S. And I expect that to be a theme to

02:07continue. And really important to emphasize, this is not just about China outperformance, which has

02:11happened. It's about globally and generally. There's a little bit more de-syncratic stories, but many

02:15countries around the world are really outperforming the U.S. Mark, if the White House is successful in

02:21its takeover of the FOMC, are we going to see more creative ways of managing the long end of

02:27the curve? I think absolutely. I know that some administration officials have previously been

02:36very critical of things like QE and suggested that there shouldn't be such interventions. But,

02:42you know, they've also made more clear that they want long end yields lower. And they've also kind

02:48of shown a sympathy with the idea that the ends justify the means. So I expect that next year,

02:54topics like yield curve control, maybe even QE, may come back onto the radar in a very serious way.

03:00So I think that's why the yield curve will be very hard to play. I think they'll try to get 10-year

03:04yields lower. 30-year yields may still go higher, though.