00:00Japanese yields are higher, US yields have been higher.
00:02How concerned are you about the strength of the yields that we're seeing, the weakness in bonds?
00:07We are getting a real big supply-side shock into inflation
00:12in an economy that's already got very strong demand at inflation.
00:16And I think that people are not fully registering how bad this could be later on this year.
00:21This takes time to filter into core goods.
00:23So exactly as it says, it's more...
00:25I wouldn't say we have to wait as far as 2027, actually.
00:28I'd say later on this year, you could start to see core goods inflation picking up
00:33because of these disruptions.
00:35What else is happening in the United States right now?
00:36And that is an inflation problem that appears to be growing.
00:39Does it keep growing?
00:40What does the Fed do about it?
00:42How big a problem do we have here?
00:43It has been growing.
00:44It's been festering.
00:45I think the Strait of Hormuz exacerbates it.
00:48You're going to have kind of upstream inputs into plastics, the diesel to transport things around.
00:54The feeling we have is that if the Strait of Hormuz continues to be shot by June,
00:59we have the risk that they feel they have to do an insurance hike simply to avoid second-round effect
01:04of energy prices feeding into the economy more broadly.
01:10In terms of physical supply that's coming through from the Strait of Hormuz,
01:13what is the potential air pocket that you could be looking at?
01:16Well, markets tend to price in a known outcome even if they don't know the timing of it.
01:19And that's what we've seen with this Middle Eastern conflict where markets are assuming
01:23it will come to an end at some point.
01:25However, we've been assuming that for six weeks now.
01:27If Strait of Hormuz stays closed for an elongated period of time from here,
01:31it becomes more sticky in terms of inflation data.
01:34That could negatively impact the strong economic growth that we're seeing.
01:38And that'll be where the markets take a breather.
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