00:00Sean, it's been a pretty wild week, to say the least.
00:04Adding on from what was already really crazy moves the prior week,
00:09do you think markets in Asia, in the US, are we done de-risking yet?
00:17It's quite possible that we are, actually.
00:20I mean, the very good thing about the global economy
00:23was that it was actually growing above trend from about third quarter last year.
00:27And actually, a lot of that wasn't related to AI at all.
00:31I think virtually all of the OECD economies were showing positive year-on-year growth.
00:37So there was a lot of momentum coming into the US-Israel attack on Iran.
00:44I think the difficulty is that the markets were perhaps too benign over the whole inflation story.
00:50Our theme was that we were going to get some form of inflation shock
00:54as the global economy grew above trend.
00:56And I think what we're going to do now is actually experience that inflation shock much, much quicker.
01:02So I would expect central banks to desist from raising rates
01:07and the curve in the US and elsewhere to steepen again.
01:11And I think at some point, that rise in long-term yields will choke off the rally
01:17until we've seen a much clearer picture of what's happening in Iran.
01:23Which sectors then are going to be most exposed if we're talking about the underpricing of an inflation shock?
01:29What are we seeing in consumers and how that's going to affect consumer discretionary, for example?
01:36Well, unfortunately, you're right.
01:38I mean, the biggest loser out of the higher energy prices is the global consumer.
01:44There's not really one that's going to actually benefit from this.
01:47And there's a lot of second-round effects from not only just the higher transport costs,
01:51but the higher input costs as well.
01:53So consumer discretion is going to be a very, very poor area to be in,
01:59notably those bigger ticket items like autos.
02:02And even for the consumer staples, a defensive area,
02:05these stocks will probably face quite a strong margin squeeze.
02:12Ironically, parts of the other equity markets will tend to do reasonably well.
02:16As I said, the financials will have a steeper yield curve.
02:19You've got energy and material prices holding up very well.
02:23And if you look through the utility space as well,
02:26we've been in this period of high electricity prices,
02:29and that's going to remain very, very sticky.
02:31So you could end up with a bifurcated economies and bifurcated equity markets,
02:36the consumer doing very poorly,
02:38but other areas of the global economy holding up well.
02:41And tech to date has actually not done too badly either.
02:45That's ongoing demand for high-end chips and also for the flash and DRAM
02:52has also been extremely useful for economies like Taiwan and Korea
02:56to offset the terms of trade shock that they've had from higher LNG and oil prices.
03:02.
03:03.
03:03.
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