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00:00Now, here in London, last night, I moderated the money and macro events with Bloomberg MLive, the team there, of
00:05course.
00:06Two of our panellists are joining us now on the show today, very pleased to say.
00:09Colin Lancaster, global co-head of discretionary macro and fixed income at Schoenfeld,
00:14and Remy Olupitan, head of multi-asset growth and income at Schroder's,
00:19are with us on a day when we can sing volatility, at least in the Asian tech space.
00:24KOSPI is in focus for us.
00:26Again, NASDAQ 100 futures, as I mentioned, cooled lower by a little over 1%.
00:30Remy, I'm going to start with you because there was a comment you made last night at our event that
00:33really stuck with me
00:34as I woke up this morning and checked the price action in Asia.
00:37You said, I think I'm paraphrasing, but you said the KOSPI is too risky, at least it makes you sweat.
00:46And today, I think and I suspect that the KOSPI is making a few investors sweat.
00:50Absolutely.
00:51I mean, the key issue right now that we're facing with the KOSPI is the amount of leverage that's associated
00:57with this rally.
00:58So, the correction today is associated with some of the leverage ETFs where a lot of retail investors have piled
01:04into.
01:05Now, what that means is that equity markets will rise very quickly, but the falls will be just as large.
01:12So, you've got to go in knowing that.
01:15Colin, I was going to say, I'll get you to weigh in.
01:19But for some, this will be a buying opportunity.
01:21I think there's an interesting dynamic at play related to leverage.
01:26I think that being on the macro fixed income side of things, we're accustomed to hearing about balance sheet constraints
01:33more in terms of repo funding and on the fixed income side of the equation.
01:37And I think what's happening because of the concentration and the amount of leverage and levered expressions,
01:44but also just the size of the notionals now with KOSPI up 100% this year is the leverage needs
01:52to maintain these positions are somewhat finite.
01:55And the street needs to find a way to continue to finance some of this activity.
02:00So, I agree.
02:01I think what you're seeing overnight is a bit of a risk management exercise as a result of that and
02:07some prudent profit taking.
02:09And then when we think about tech more broadly and just the rally in stocks this year, Remy,
02:15I do wonder where you think the S&P is going to be ending the year and really how much
02:18that SpaceX IPO is going to give some fuel to this market.
02:23Actually, we're thinking of the IPOs as giving the market maybe a little bit more room to breathe because this
02:31provides liquidity and the market needs to absorb a lot of supply.
02:37So, perhaps that might lead to a bit of a healthy pullback.
02:41Maybe the word healthy might need to be stretched in terms of the magnitude of that pullback, but we're still
02:47very constructive.
02:48If anything, any pullback right now is an opportunity to invest.
02:53And what level on yields then or pace of rise derails the rally?
02:58Yeah, look, I think another bout of a tapered tantrum would certainly do that.
03:04And it's my personal belief that you will see terminal levels continue to rise because of the strength of the
03:11economy, the inflationary pressures overall.
03:16You know, on that point in terms of just bond yields and, you know, look, today is a payrolls day,
03:25so happy payrolls day.
03:26I do think that in some ways the importance of that number today will be overshadowed by, you know, the
03:34new chair's, Warsh's first meeting in two weeks' time, where I think market anticipations will be centered around what he
03:42does in terms of forward guidance, size of balance sheets, you know, some of his early agenda items and how
03:51he begins to shape the Fed.
03:52Yeah, we were just talking about if he scrapped the dot plot. What if he scrapped press conferences?
03:57No, I think that that's a possibility of, you know, what he stands for on the tin is a smaller
04:02balance sheet, which I think will be a very difficult issue.
04:06Lori Logan owns that agenda item at the Fed right now. She's very well respected.
04:11I think that Mr. Warsh is a high IQ, savvy political operator, will understand that he needs to tread lightly
04:19on that issue.
04:20But on the forward guidance side, that is one where he can have more of an impact.
04:25You know, look, prior to Chairman Powell, press conferences only happen quarterly or even less frequently.
04:33So certainly you could see forward guidance by virtue of press conferences, by dot plots, by SEPs being changed now,
04:42which, look, I think that that would add to vol in front end rates markets.
04:46But I think I think that is an area where you could see influence.
04:50Remy, when do higher yields become a problem for the equity market?
04:53At the moment, the equity market can absorb it because we have growth.
04:57So we're looking at things in terms of nominal growth.
05:00But if we start moving towards five percent and above, that is a challenge for these levels of valuations in
05:06the U.S. or D.M.
05:08Do you how convinced are you that the growth story in the U.S. remains sustainable and that the A
05:14.I.
05:14CapEx spend is a significant part of that through 2027?
05:17We think that it's sustainable for at least another 12 months to two years.
05:22I mean, the reality is that financial markets move at a very different pace to the economy.
05:28So it will take a very long time for the productivity gains to emerge in the real world.
05:35Nevertheless, what we are seeing in the U.S. is a very surprisingly stable economy, despite all the external issues
05:43that have been thrown.
05:44And we think that that will continue.
05:46What about the U.K.?
05:47Because Remy, I was curious to note that you like U.K. equities.
05:50Is that just a war trade?
05:52Will you drop it as soon as there's peace in the Middle East?
05:54We like it because it's something else other than A.I. tech.
05:59And we're not as well.
06:00Certainly, the FTSE is not as exposed to the negativity of the Middle East tensions around higher oil prices.
06:08If anything, the FTSE 100 benefits from higher energy prices.
06:12So FTSE right now gives us something different.
06:15Think of it as a barbell strategy.
06:17Own the tech theme because there's definitely more to go.
06:21And try and find something that's a little bit more diversifying.
06:25So that's the equity side.
06:27Colin, you look skeptical.
06:28In terms of the fixed income markets, you know, gilts are the new widowmaker for, you know, people in seats
06:34like mine.
06:35And, look, having traded through Brexit night, I think Makerfield gives me some PTSD of Sunderland and some of the
06:45early voting results.
06:47So, yeah, I think it's a much more complicated issue in rates.
06:52Well, because we saw yields go up on the politics and then down on the economics.
06:57Do you think that we're just waiting for a massive yield spike if Burnham wins that election?
07:01Right.
07:02OK.
07:02When would you step into gilts?
07:04I mean, we're at on the 10 year right now, 489.
07:07We're close to 5 percent on the 10 year.
07:08What level brings you in?
07:09Is it 5.5?
07:10Is it 6?
07:11Yeah, I think there is a temptation.
07:13There will always be buyers stepping in at that 5.5 level to put a benchmark out there.
07:21But, look, I think that there is some scar tissue that's developed, you know, following the March episode where it
07:27was the front end of the U.K. markets,
07:29which kind of really led the pain across macro fixed income.
07:33So I think that there will be more skepticism and there's probably less buying power at the moment in terms
07:39of just, you know, market participants not having the embedded built up P&L to be able to take more
07:47risk in markets like that.
07:49How are you looking at the sovereign debt of places like France?
07:51I mean, they've got elections as well coming up.
07:53We had a guest on a couple of days ago saying they're staying well clear of OATs.
07:57They're starting to cut back on any exposure to OATs on concerns about political risk in France.
08:01I think it's an important issue because over the last 10 years, I think, with the benefit of hindsight, it
08:10was a very benign period because there were a lot of more price insensitive buyers of duration,
08:16meaning central banks, meaning liability driven pensions, meaning Japanese financial institutions.
08:24And for a variety of reasons, those buyers are seemingly withdrawing.
08:29And at the same time, there's more competition for that funding capacity, whether that's hyperscale or issuance, which is also
08:36not as level dependent.
08:41And just Bloomberg put a great piece out yesterday on mortgage hedging.
08:45Mortgage hedging is back now, also competing in that space.
08:49Remy, the other call of yours that stood out to me was that you like gold, even though central banks
08:53are expected to hike.
08:54Is it that you don't think that the hikes are coming?
08:56So it's been tricky for gold over the last couple of weeks, admittedly.
09:00But really, the view for gold is related to that in that we no longer have price insensitive buyers of
09:08bonds, which is making bonds very volatile.
09:11So what is the next asset to own?
09:13We think gold is maybe a lower quality alternative.
09:18And the reason why I'm using lower quality is that it's not a hedge in any form.
09:22But what gold provides is an alternative asset to own when you're thinking about currency debasement, when you're thinking about
09:30volatility,
09:30when you're thinking about the fact that we're moving away from a Fed that may not provide forward guidance.
09:36We're in a new regime, and so it's important to own something else.
09:41Remy, if we come in on Monday morning and there is a deal between Iran and the U.S. that
09:45involves the reopening of the Strait of Hormuz over some time frame, how would you position around that?
09:49Oh, we think that that will be a great opportunity for Europe, even though over the long term we're not
09:54in love with European equities.
09:56But Europe has lagged, and I think a lot of that is due to the concerns around the Strait of
10:03Hormuz and what that means for energy prices, particularly gas prices in Europe.
10:08And so if we hear that on Monday morning, I think, yes, the euro stocks will rally on.
10:12Look, if you were to have a bona fide long term deal, that is clearly a vol dampener, you know,
10:20risk rips, crude gets, you know, is down big.
10:24Like that is a significant easing of financial conditions.
10:29I would say I think on our side of the table, we remain skeptical of that.
10:34We think that probably what is best to expect is more of the skinny deal, which is a bit of
10:40a glorified ceasefire.
10:41So I think it's hard to imagine that that does come into play.
10:45The skinny deal, the muddy deal. We look for a deal.
10:47Colin, thank you very much indeed.
10:49Colin Lancaster, global head, co-head of discretionary macro and fixed income and head of Amir at Schoenfeld.
10:55And Reby, Olipit and head of multi-asset growth and income at Schroder's.
11:00And if you missed last night's money and macro event, terminal users can still access highlights using the function MLiveGo
11:06on the terminal.
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