00:00Nice to have you on the program. So the big picture for markets right now, it does seem as if the end of the shutdown in the States has provided a little bit of positive momentum.
00:09Maybe that's short-lived. Let's see. Is this a driver higher for stocks and for gold, it would seem, that has legs?
00:16Yeah, I mean, I think absolutely. We've seen momentum behind the equity market throughout this year, and this is just another positive driver.
00:23And the main point is growth, right? That's what equities care about.
00:26And what you see is, as you have the U.S. shutdown end, that means you don't get the counterfactual, which is a much worse growth outcome.
00:32And so you can get boosted. I think the other bit of the puzzle is, yes, you'll likely have weaker growth within the quarter affected, but it'll be a V-shaped recovery.
00:41And equities can look through that V-shape into the other side. So it can still be positive.
00:46I think implications in other markets and for the Fed, though, maybe isn't quite as positive.
00:50So we're trying to figure out what the Fed's going to do in December. Should the Bank of England be cutting in December?
00:54I think what we saw this morning from U.K. GDP data would certainly confirm that bias.
01:00GDP data came in below expectations.
01:03You also had labour market report earlier this week that had unemployment rising as wages came down.
01:10And that tells you that the labour market is loosening.
01:12But more importantly for the Bank of England, it confirms what we got from the September inflation release, which was inflation is peaking.
01:19We're getting data since the Bank of England meeting that we had in November that confirms that.
01:23And that should set you up for a December Bank of England cut, certainly.
01:27What do you do with the FX space in this environment when you have these very key contentious issues on both the U.S. and the U.K.?
01:33What does cable do from here, given that we've seen kind of a bout of strength when it comes to the dollar?
01:37Yeah, I think it's a little less clear in cable versus, say, U.K. GILTS, because U.K. GILTS is a clear positive, right?
01:45You have lower growth in inflation.
01:46You have a Bank of England cutting.
01:48That's very positive.
01:49For the pound, it's less clear cut, though, because what you have is a premium that likely needs to be lower than otherwise because inflation is peaked.
01:57And you get this virtuous cycle between yields being lower and debt sustainability costs.
02:03The second point is more along the lines of valuation.
02:06So GILTS have room to rally, but the pound looks more cheap.
02:10So if you look at EuroGBP, for example, on short-term interest rate differentials, that points to a higher pound.
02:16If you think about just the level, EuroGBP heading towards 90, that's a level that we got to during the Liz Trust crisis.
02:22It's a very different economic environment now.
02:25So what I'd say is that looks very, very different.
02:28And then the third final point is just to be able to buy bonds, you don't have to take out a view on something else.
02:35Whereas if you're selling the pound, you have to be buying something else.
02:39And there's not anything really attractive elsewhere.
02:41Because your terminal rate is maybe 3.5%, maybe it's a bit lower, that's still relatively high within your global landscape.
02:48And so that means it's expensive to short.
02:50The carry is positive.
02:51And if you think that risk is going to need a rally, if you think about your G4 currencies, the pound is the most high meta.
02:58So, yes, you can very clearly take a case to be bullish on bonds.
03:01But I think for the pound, it's less clear cut that you should be negative.
03:05OK. Skylar, thank you very much.
03:06Yes, just as you were speaking there, we saw the pound respond negatively initially to the print around GDP.
03:12It dropped.
03:13We watched expectations building around a rate cut from the Bank of England.
03:15But then it's entirely positive now.
03:17It's rallied.
03:18So we will watch that with interest.
03:19Skylar, thank you very much.
03:20Skylar Montgomery-Koning from the MarketsLive team.
03:22Remember, you can get further analysis from all of the analysts on that team, from Skylar, from Mark, from the rest of the gang.
03:28MLIVGo is the function to use on the Bloomberg terminal.
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