00:00Let's talk about what's happening in Japan today. What message should global bond markets take away from the JGB picture?
00:06Yeah, I mean, I think the path of least resistance is for yields to keep climbing higher.
00:09I mean, I know the currency has been sending mixed signals. It's kind of been detached from what we're seeing in long-term yields.
00:14But if you look globally at the moment, everything is just creeping higher.
00:17So JGB yields creeping higher because of rate hikes.
00:20In France, yields are climbing higher because of the fiscal situation there.
00:24We saw the Bundesbank report on Friday out of Germany. That's added upside to global bond rates.
00:28And then we saw that kind of hawkish hole from the cut from the Bank of England last week, which is all adding upward pressure.
00:35And I think the interesting thing here is the outlier potentially is, you know, what's going on with the Fed.
00:40They're looking to be cutting rates. But as we've seen throughout this cycle so far, rate cuts don't necessarily equal downside in yields.
00:47And I think there's a lot of potential for the U.S. to potentially get swept up in this.
00:51And, you know, I mean, if you take the U.S., for example, as well, one of the main themes in this year has been fiscal largesse.
00:56And I don't think that's something that's necessarily going to be going away.
01:00We're heading into a midterm election year. Republicans aren't polling particularly well.
01:04And, you know, we may see a situation where Trump needs to kind of pull the fiscal levers to try win the electorate over.
01:10You know, we've seen things like tariff checks, for example, be touted.
01:14Yes, we've got the Supreme Court ruling, which could potentially cause some issues.
01:17But the administration is still confident that they're going to be able to enact those.
01:22And as you mentioned in your introduction as well, from an inflation standpoint, one of the main inputs is energy, which is in climbs in energy prices because of Venezuela.
01:30And then if you take things like copper, gold, silver, those metal prices are all climbing higher as well.
01:36So I think globally, the path of these resistance is for you to keep climbing higher.
01:39OK, so that's the global narrative. And then homing in on the U.S., you think curve steepness is what's going to dominate the conversation, will it, in the first quarter?
01:48Yeah, I think we're in a bit of a macro dead spot at the moment.
01:51We're not really going to learn anything for the next few weeks.
01:53It's not until we have the inflation, the labor market reports for December that get released in January.
01:57I don't think we're going to learn anything there.
01:58But I think they'll probably skip in January. We'll probably get a cut in March.
02:02There's potential for another later in the year, which could add some pressure to downs to the front ends of the U.S. yield curve.
02:09But even if it is relatively anchored for the reasons I mentioned, I do think there is potential for back end rates to climb.
02:16And also, I think, you know, certain issues like Fed independence haven't gone away.
02:19I mean, that's been incredibly thematic throughout the year.
02:22But one thing I'm kind of looking at is, OK, if Trump has his person in the chair and they're not able to enact his rate-cutting agenda, what happens then?
02:31You know, the pressure that he put on Powell this year could be even more intense on whoever gets the top job next year.
02:38Let's talk a little bit about kind of how this impacts other markets.
02:42You get higher yields. What do equities do? What are the spillover effects?
02:48So I think, I mean, the obvious way to look at this is the AI trade.
02:51I mean, that's the what, you know, everyone is getting increasingly nervous.
02:54We've seen some of the wobbles of the CapEx plans.
02:56You've seen the likes of Oracle get hit.
02:58And I think, you know, the AI trade is clearly maturing.
03:00But we're getting to that point where investors are wanting to see more returns on their investments.
03:05And if that's, you know, kind of taking place, an example where, you know, rates are rising, those pressures are only going to probably intensify.
03:13And one of the positives for the U.S. equity market we've seen over the past few weeks is we've seen increased participation from small caps.
03:19Well, that's obviously a positive.
03:21But the one thing small caps don't want to see is increasing yields.
03:24So that could potentially, you know, propose some headwinds for the U.S. equity market at the same time.
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