00:00Do you see any reason not to lean further into energy names?
00:03It's almost the safe haven sector right now.
00:06If you look at our flow data, our holdings and figures,
00:08what's interesting is some asymmetry coming through.
00:10We've been tracking sort of how this gentle recovery has been taking place across sectors,
00:15be it semis, even consumer staples and all of that.
00:19But what's happened is even though you've seen a bit of a risk recovery across all themes,
00:24energy hasn't come down.
00:25So there's no rotation, let's say, out of energy and into some of the sectors
00:29which have actually suffered, people are staying there.
00:32And I think this means they want that defensive hedge for oil prices
00:35for many, many months to come at least.
00:36Right, so for many months.
00:38And so tie that expectation for energy stocks
00:40to what your wider expectations are for European stocks then.
00:44Well, for Europe, I think right now it's all about financial conditions and the supply shock.
00:49And to be frank, heading into Thursday,
00:52the last thing that the ECB should be thinking about, I think, is tightening rates.
00:56So I think the stock market heading into that decision
00:59needs to be very cautious in terms of their outlook.
01:02And I've seen a bit of a pullback in terms of their language,
01:04I think, amongst some of the hawkish members of the governing council.
01:07You don't lean into a demand contraction.
01:10So I think from the earnings outlook, both on the private side and also for corporate investment,
01:15of course, they need to get the input side in place.
01:18But they need to know that X energy, X supply, that financing, what the ECB does,
01:23that is not an additional constraint.
01:25And to be frank, that's what I'm worried about heading into Thursday.
01:27You're worried that essentially the ECB makes a policy mistake by hiking rates
01:31because of that single mandate on price stability.
01:34That's a constraint for them.
01:35Absolutely.
01:36And again, going back to our flow data, what's interesting is you've seen about 50,
01:4075 basis points being priced in a couple of weeks ago.
01:42Well, more so for the BOE and ECB.
01:45OK, fair enough.
01:45But then we also saw that divergence in terms of cable flow and euro-dollar flow.
01:51Clients were hedging euro-dollar again, not too keen on European exposure, but they were
01:56buying back sterling.
01:57So you had this rare instance where the more aggressive central bank expectations become,
02:02the more detrimental it was actually for the currency.
02:05Normally, currencies don't behave like that.
02:07So I think that was the market or rather the equity market and certain parts of asset allocators
02:12hedging their equity flows also telling the ECB this may not be the right approach.
Comments