00:00When do you think we're going to be reacting? Because this is my conundrum with all of this.
00:04All of this is hard to, there's a lot of kind of small bits, and then you don't know what the derivative effects of those small factors are going to be.
00:11Yeah, I mean, I think there's going to be a phased reaction, and we certainly will get a reaction today.
00:16But whether you get a longer term reaction really depends on what we actually get, which we don't know that much.
00:21In terms of what I'm watching, it's three things. It's how much fiscal headroom do you have?
00:26Is there credibility behind the budget, and what are the economic implications?
00:30In terms of the fiscal headroom, it's pretty simple. We got $10 million last time. We want more than that now.
00:36Somewhere closer to $15 million to $20 million would be quite positive, I think, for both the pound and Gilt's through the risk premium.
00:41But what's priced? Is $15 million priced?
00:43I think this is quite a hard thing. I think particularly with the pound, there's a lot of pessimism priced.
00:48So all the talk around the budget so far has been Reeves has this tightrope she has to walk,
00:53where growth is either going to get much worse or she's not going to have fiscal credibility,
00:57and both options are negative for the pound.
00:59I think in reality, markets are forward-looking.
01:02So we've had a re-evaluation already of 2026 growth prospects in the UK,
01:06and that's fouled into negativity in the pound.
01:08Certainly, if you look at your GBP, you can say that there's some kind of risk premium price.
01:13It's very expensive relative to interest rate differentials.
01:16You're also at a level that's kind of comparable with the Liz trust crisis.
01:19And I think we shouldn't be comparing this fiscal scenario to that scenario.
01:24So if we move past this kind of fiscal scarring that I think actually stemmed from the Liz trust crisis
01:29and just hasn't gone away, and we move past the uncertainty,
01:32then you can certainly get a relief rally in the pound.
01:34Yeah. I mean, it's a nice risk on day to do anything, isn't it?
01:38I mean, due to things that have nothing to do with the UK, due to expectations of a Fed rate cut, Skylar.
01:43How has your thinking around a rate cut been shifting based on the weakness in the data that we've seen in the United States?
01:50Yeah. I mean, we haven't actually gotten that much substantial in the last week,
01:53and it's been funny how we've had this big turn,
01:56because I think you should probably take more signal from Powell than from the Fed figures that we've had in the last week
02:02that have shifted things more dovishly.
02:04And I haven't seen anything super concrete in the data that makes me think that a December cut is absolutely certain.
02:10So I think because we've now moved to the other end of the scale,
02:13the risk is very much that you don't get that cut,
02:17or that cut doesn't become as certain as you get more data coming in,
02:23as you get closer to the event, as we enter the blackout period and people are more uncertain.
02:28And maybe the surprise comes on the actual December meeting.
02:32But I think we're still going to be in this choppy environment,
02:35and it's not necessarily a straight line where dovish vets mean that the equity market goes up.
02:40Skylar, very quickly, I'm putting you on the spot here.
02:43And just talking about how jittery these markets are, whether it comes to the UK or to the Fed,
02:48we're talking about this 15 billion figure, 15 billion pound figure.
02:52If the market comes in or if the budget comes in less than 15,
02:56how violent is the bond market reaction?
02:58And is that contagious to the rest of the world?
03:00Yeah, I mean, it's interesting because what you've seen is that government bond correlations have actually come down
03:05as you've had deep lives of oxygen, more realization, and risk premium elsewhere.
03:09But I think certainly there is a feed through.
03:11And the feed through is more to those countries that are kind of fiscal misbehavior.
03:15So it's your Japan, it's your France.
03:18That's where you can see more of that tailwind because people think about risk premium again,
03:21and they go, well, maybe I need to price it here.
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