00:00Skylar Montgomery-Koning from our MarketsLive team who is with us this morning.
00:04Skylar, good to have your perspective on the programme.
00:06It feels like we started the week with the BOJ, to some degree we're ending the week with the BOJ as well,
00:10with a Bloomberg scoop that sources are telling Bloomberg that the BOJ is ready to hike on the 18th, 19th of December,
00:18as long as nothing enormous happens between them, which still leaves kind of half a month.
00:21So we will see. But what is your evolving thinking around the BOJ?
00:25Yeah, sure. I mean, I think it's quite funny with the Bank of Japan.
00:27We tend to get the policy surprise before the actual interest rate announcement.
00:31So they like to well telegraph what they're planning to do.
00:34So I think it is very likely that we do get this hike.
00:36There were some questions around when it would come because of the fiscal going on there.
00:41But I think we knew the direction of policy very clearly.
00:44That means it's likely upside for JGB yields.
00:47It adds to kind of a number of reasons why JGBs are relatively unattractive within the kind of DM government bond complex.
00:54And it's not just because they're hiking as the rest of developed markets ease.
00:58But you also look at something like there's this big duration mismatch within the country.
01:02So as you raise policy rates, there's a worry that fiscal capacity gets deteriorated more quickly than elsewhere.
01:10You also have that higher or sorry, a lower ceiling on where the policy rate can go because of that duration mismatch.
01:17And it's lower than other places.
01:18And so you still have a relatively unattractive yield.
01:21And then on top of that, you've got fiscal, which means growth will likely be higher.
01:25That's negative for bonds.
01:26At the same time, you have more issuance.
01:28And the Bank of Japan is reducing holding.
01:30So it just means you're still kind of relatively unattractive.
01:33And it adds to that bias.
01:34OK, can I just dovetail the BOJ and the Fed?
01:38I'm trying to wonder which one provides the biggest surprise.
01:41It feels like the BOJ is kind of taking the Fed's playbook of dropping lots of hints beforehand.
01:48And we've had one through Bloomberg today.
01:50I want to get another one next week just to kind of cement in, as you say, the idea that we are going to see this cut coming.
01:56Do they start signaling the idea as well that there could be more to come?
02:00And that's kind of one again for the big surprise.
02:02That's kind of the ultimate big surprise here.
02:05Is that the big surprise or is the Fed going to provide the big surprise?
02:07What's price for the Fed at the moment?
02:10Kind of the Fed versus BOJ.
02:12Which one should we watch more?
02:14I think definitely the Fed, not only because it has more spillovers to global markets,
02:18but I think we've moved pricing very dovish in the last couple of weeks.
02:23So if you look at something like 25 basis points being pretty much guaranteed in terms of pricing next week,
02:29Kevin Hassett bets rising that he will be the Fed chair, as well as your terminal rate at 3%.
02:34It's harder to get lower than that without significant economic deterioration,
02:38which means those are three factors that could surprise on the hawkish side as you go into this meeting.
02:43So I think that's where you should be watching, especially because you get a new SEP,
02:46so you get new dots, you get new projections.
02:48And I think what will be key, especially because you have a new Fed chair next year,
02:52and we're moving away from this idea that the Fed chair represents the consensus,
02:56is a more divided Federal Reserve.
02:58Yeah. And on the subject of the US, PCE later, very delayed.
03:03Does the market try to look through this number?
03:05I think it's going to largely be ignored because we've already shifted pricing dovish.
03:09This is an old print now.
03:11You're also having expectations that core PCE will come in close to 3%.
03:15That's a very high bar to surprise hawkishly.
03:17And as I said, there's not as much room to surprise on the dovish side.
03:20So likely look through it.
03:22And the big surprise that we're looking for in terms of that hawkish shift
03:26will have to be the Fed next week and commentary there.
03:28OK, Skylar, thank you very much.
03:29OK, let's talk about, you can get more coverage from the NLive team.
03:33And next week's going to be huge.
03:34MLIV go on your Bloomberg terminal.
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