00:00Paul, very good to have you on the programme. So we're waiting for this deadline that equates to 1am in
00:05the morning Wednesday for London-based viewers, earlier of course, later for the Asian-based viewers.
00:14What is the market's mood, do you think, as we head towards yet another deadline from President Trump?
00:21Yeah, yet another deadline is about right. Good morning, Anna. So we heard it on the big television earlier from
00:27the Singapore Foreign Affairs Minister saying,
00:30I really don't think that the market is priced for a worst-case scenario at this moment, and I think
00:34that investors would echo that sentiment,
00:37partly because the risk is that a deal could be done, and then the market rapidly starts to look like
00:43it's in a slightly better position,
00:44and people don't want to be humongously short and carry the risk of that snapback, partly because what is a
00:50worst-case scenario at this point in any case?
00:52You know, if we're doing that sort of, you know, make things worse in order to make them better afterwards
00:59kind of repeated sort of tactic that we've seen from Donald Trump,
01:03then maybe, again, you know, the worst-case scenario isn't necessarily what the market needs to price in.
01:08What we do see, though, is things like overnight FX implied volatility, not at extreme levels by any case,
01:15and so that tells you that although the market is very respectful of what could happen after the deadline,
01:20it doesn't really know what to expect and what that will do to markets either.
01:24So on balance, it sounds like you think we're positioned for taco.
01:29Well, I wouldn't use that phrase necessarily, given the severity of the situation,
01:34but I think that the market is looking out for the risk of some kind of a peace deal or
01:40treaty at some point.
01:41I obviously think, you know, if you survey financial markets, or at least if you survey the physical world more,
01:48Guy,
01:48actually, for the fact that we're into the sixth week of this conflict, really the impact on the real world
01:54has been relatively limited, I would say.
01:56Yes, emerging markets, for example, are working four-day weeks in some places.
02:01We've had some airports, grounding aircraft, and those kinds of things,
02:05but really sort of the overall impact has been pretty regionalized and hasn't been widespread.
02:12I think, you know, if things were to actually stop working altogether,
02:16if we ran out of fuel at the pumps, those kinds of things,
02:20then you would start to see the market much more rapidly pricing in a much worse-case scenario for the
02:25global economy.
02:27Yes, and whether we run out of things or just pay more for them, Paul,
02:30will have a real impact on the macro conversations we'll be having.
02:33With that in mind, we're looking ahead to inflation data out of the States later on this week.
02:39Is that going to cut through? I mean, it fits with the market narrative.
02:42It's what we're nervous about, inflation and, of course, growth.
02:47Yeah, exactly, and it's going to confirm our worst fears based on what analysts are forecasting
02:51with expectations that we'll see a month-on-month 1% inflation rate in the U.S.
02:57You know, this is the thing that all of the policymakers around the world are having to contend with right
03:01now.
03:01Do they look through the risk of what could be a temporary inflationary shock from oil prices,
03:06or do they react to it now and try and stifle the potential outbreak of inflation?
03:13You see different central banks moving in different ways.
03:15That's moving exchange rates and influencing bonds short-term, long-term, and the shape of those yield curves.
03:21So really interesting for traders to be watching.
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