00:00Julia so the fear as you say is that the higher price environment for oil could be sticking
00:06around for longer. We're already talking about that deficit of a billion barrels for the global
00:11energy markets. Estimates are for that to take maybe three to four months to resolve. Could
00:17the scenario really work worsen from here do you think. Hi good morning. Thanks for having
00:24me on the show. So you know I caught one of the phrase that you use earlier which I thought
00:28was really good to describe what the ceasefire feels like that's kicking the can down the
00:34road. I think that you know with that with the ceasefire which is very ambiguous really
00:39in terms of its actual implications. But I think it allows the market to really at least
00:45you know continue to rely on inventory drawdowns even as you said it's it's actually been a
00:50very rapid pace of inventory drawdown. But there's still quite a bit I think that country can
00:55rely on strategic reserve public stock. They can look forward to the day when you know maybe
01:02some degree of normalization and additional oil supply can start to kick in. So this period
01:09of of calm really I think is what the ceasefire brings. By the same time we do have to be
01:14aware
01:15that the longer this lasts the more inventory drawdown happens the more that needs to be rebuilt and the
01:21more traffic gets congested the longer it takes to clear it and to normalize it. And I think that
01:29underlies this and ease that we have we feel about the state of oil price because we feel that while
01:36the
01:36near term spike risk is somewhat taken off the table because the risk of further dramatic military escalation is reduced.
01:44The medium term three to six month outlook for oil prices. I think there's a you know still net in
01:50net
01:51we see more upset risk to oil prices from here. And our you know probably base case for the next
01:56three to six months
01:57is that oil sticks around at 90 to 100 dollars which means that you know some degree of gradual demand
02:03destruction
02:04will have to happen. Some degree of reorientation from a growth inflation perspective. Some policy making dilemma.
02:11All of that I think will still have to come through. And that I think is different for each country's
02:17depending
02:17on how well supplied you are with oil. But I think that some degree of difficult trade off eventually will
02:23have
02:23to be made. You know for the U.S. market maybe it's an inflation risk and how the Fed interpret
02:29that for the Asian
02:30market is more you know the possibility or that you know the investors perceive of actual oil inflation or even
02:40shortages
02:40impacting industries of manufacturing. So I think the degree of trade off is different. But we do think
02:45that it's something that's going to be a more pertinent issue for market in the next three months as
02:52we start to work through the real implication of what's happening with with oil shipment.
03:00Because at the moment there's so much confidence behind AI tech names right and you're saying there's going
03:06to be catch up for some of the laggard software even hyperscalers. But if you take a look at the
03:11sort of K shaped
03:12recovery if you will is there a risk that that's going to converge as some of the energy risks also
03:19start
03:19impacting the tech sector. Well I think it's a good question. I think that you know what really matters for
03:28each
03:28economy. You know it's not it's not really you know the same for the U.S. economy. I think because
03:35their oil self-sufficient
03:36largely in oil the main macro issue that they deal with is primarily inflation and how the Fed the next
03:45up the new Fed chair
03:46will communicate around that. And because the U.S. economy is oil sufficient which is different from 1970s is different
03:54from you know the last 20 years. That maybe the market can look through you know even even in through
04:02this scenario where they can deliver some degree of rate cut. We are not entirely confident that we'll get
04:08two big two two cuts this year but some degree of rate cut or containment of very high expectation is
04:14possible.
04:15Whereas if you switch to economies in Asia where you know we are largely oil importers
04:22and the substitution of alternative energy sources choices are quite limited for the near term. At
04:28least in the long term there's more choices but in the near term it's limited. So there's more difficult
04:32trade-off and investors have to entertain this idea that maybe there's a possibility of a risk that
04:38that the oil shortage could actually come through in some sectors. The stress will start to emerge or the
04:43energy price inflation become a bigger point of pain for manufacturing. So I think that it's different for
04:49different economies. Yeah. We're actually already seeing that for the Japanese economy right. We are
04:55seeing the pass through when it comes to those inflation concerns with the CPI numbers that we got
05:00today. How are Asian central banks supposed to contend with this. We have the BOJ decision next week and
05:06where are the pain points that you expect from different assets across the region.
05:13Yeah. So it's a difficult balancing game always. I think we have an oil price shock as you do at
05:22the
05:22moment. You know our our view is that for the near term policymakers will gravitate towards supporting
05:29growth which means that they had to let the currency weaken to some degree. You can you can frame it
05:35differently by looking at how much of the dollar you know the Asian currency is really driven by dollar
05:40rather than their domestic currency the other side of the pair. So I think some degree of depreciation
05:45is necessary to offset the pain because we are largely exporting economies here in North Asia and
05:51some but you know if this drags on some degree of policy intervention is like is needed. Some degree of
05:58hawkishness needs to come through to really contain market expectations. So the longer this drags on the
06:04more higher the possibility that some degree of rate hike expectation needs to be rebuilt into the market which
06:09could be a I think an issue for Asian market for Japan as well. I do you know to circle
06:18back to an
06:18earlier point. I do think that you know we are seeing a secular recovery in AI thematic and that is
06:24something that gives us a bit of comfort because we have seen this thematic stalling for the last six
06:28months really only select names outperforming the overall thematic. But broadly investors are so
06:35worried about capex monetization all these things. But I think that the war at least you know accelerated
06:41the drawdown and actually brings forward some degree the recovery of AI thematic. So I think
06:46there's some resilience particularly for the tech sector here. But broadly I do think that rate hike is
06:52underappreciated risk.
06:54you
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