00:00Let's talk a little bit about what it's saying in Japan, Mark. Your take on it, is it an overreaction?
00:04Equity's up very, very sharply. Decent move in the yen, decent move in JGBs.
00:10I think it's the correct reaction. I think it's an appropriate reaction.
00:14Not necessarily an overreaction, but this isn't the start of sustainable trends.
00:18So we've got a likely new prime minister who is much more in favour of kind of fiscal expansion.
00:25And certainly to get that kind of coalition, that's what she's going to probably have to offer out there.
00:31What I think is probably a little bit more debatable is the narrative that this pushes back the BOJ rate hike cycle significantly.
00:39I'm not sure it's the case. On the campaign trail, she made very clear that she wasn't going to interfere in the BOJ's monetary policy.
00:46That's up to them to decide. And I think that she'll probably have to stick to that line to get that coalition of support from the opposition parties.
00:52So what that means is we probably do get more fiscal stimulus in Japan.
00:55That means it's positive for equities, as we've seen.
00:57And we probably get the BOJ not hiking October.
01:01In my mind, that was already up for debate anyway.
01:04But they probably will hike in December. So it's just a little bit delayed.
01:07So that's meant some yen weakness.
01:09But I think ultimately the yen probably stabilises pretty soon because we're going to get fresh inflows into the equity market there.
01:15And I think we will see greater steepness in the curve.
01:18And at some point that might bring some inflows back into the JGB market.
01:21But that is where we probably got the global theme coming in here, that the long-end yields in Japan have surged higher.
01:27Given what's also happening in the French news flow, this is kind of returning.
01:31And, of course, in Treasuries, with ISM prices paid, we've gone back to a global theme of long-end bond yields rising.
01:37It was only a temporary relief in that story.
01:39Well, with that backdrop in mind, Mark, are you still a fan of seeing more dollar weakness as we head into the fourth quarter?
01:49Or is this something that could perhaps tempt your view that that might be abating?
01:52So, first of all, I very much believe in the longer-term dollar depreciation trend.
02:00I think it's an expensive currency that the world is overexposed to.
02:05And some of its long-term advantages are being eroded.
02:07However, short-term, I'm not particularly bearish the dollar.
02:10You know, if I was forced to make a short-term trade, I'd actually be more biased for dollar strength for a bit of a bounce right now.
02:17I think that some of the factors around dollar weakness are very long-term, and people are over-positioned for them in the short-term.
02:23And I think there could be a bit of a short squeeze.
02:25And maybe prompted by this dollar-yen, it's kind of helping that narrative that we get a bit of a dollar bounce here.
02:29So, short-term, fourth quarter, you know, I think dollar can probably do okay.
02:33I'm waiting for a new catalyst to get bearish the dollar again.
02:36But the long-term trend is very clear.
02:39What about the read-across globally from these Japanese moves, Mark?
02:43We were warned, I think it was by Goldman Sachs, that you could see two to three basis points higher in Germany, US, UK bonds from the JGB moves higher at the very long end.
02:55Are you surprised by what we've seen in terms of the read-across so far this morning?
03:01It's definitely been quite punchy, but I expect that this is going to be a global theme.
03:05I think that story is back in the kind of focus this week.
03:09So, we've got not just the Japan story, which is a valid reason for long-end yields to go higher.
03:12We've got a 30-year auction.
03:14I think it's tomorrow.
03:15Better check that, but I think so.
03:16We've got the French election situation.
03:18GILTS have got some structural problems.
03:19And as I said, prices paid in the US.
03:21There's an inflation concern there, even if we're not getting data.
Be the first to comment