00:00Does any of that weakness in the oil price set us up for yields to drop?
00:03Because that seems to be what has really substantially changed for equities along with the oil price over recent months.
00:10Can we hope for a lower yield environment or no?
00:13In the very short term, at the front end of curves, if oil prices come down, the market may pair
00:18its expectations for central banks.
00:20But basically our view to the question of could this lead to a durable rally in fixed income is no.
00:25We expect high yields in Europe, in the U.S. Europe, we think it's going to be driven predominantly by
00:32supply dynamics.
00:33U.S. we actually think it's going to be driven predominantly by Fed hikes.
00:37The debate in, say, Europe or in the U.K. has been about, well, you know, we've had this inflation
00:43shock,
00:43but actually the rest of the economy is not so strong, the labor market is not so strong,
00:48and therefore the likelihood of second order effects is much lower.
00:51That's not the situation in the U.S.
00:54On the ECB side of things, I still stand by no case of that, I think it's policy error, right?
00:59So they hike this week, you know, there's a risk that's going to be cutting, you know, towards Q4,
01:03and we've sort of been there before, right?
01:05Because if you just look at the figures, if you look at, you know, where household demand is,
01:08where aggregate demand is, completely different place compared to where the U.S. is, right?
01:12So that's where the new Banque de France governor, you know, coming in,
01:15I think he's going to have a very, very, very strong message about growth.
01:18We were coming pre-war with growth that looked more like 1.3, so there is substantial, right?
01:23And this is the damage that the conflict is doing.
01:25So we definitely are in a situation in which the ECB has to deliver a hike,
01:32but it cannot be too aggressive for this reason, for the reason of growth.
01:36My narrative for the Fed is either they're probably on hold or they hike multiple times.
01:41So I think by the time they get backed in, forced into doing a hike,
01:44that means they are acknowledging they're behind the curve and they'll have to go multiple steps.
01:47So it's a little bit binary on the rates path as well.
01:49Is it better to raise rates then, to kind of stamp that out?
01:52In the States.
01:53In the States and here in Europe.
01:55I get a sense that, particularly in the States, that it's going to be something that's going to have to
01:58happen.
01:59And I think it's going to go against the narrative of the presidency.
02:02The danger of not doing that is you lose control of a growing inflationary situation.
02:06You lose credibility as a sovereign power, and I think that's really important.
02:10And institutional confidence, I think, particularly in the Treasury market,
02:13which is, you know, on the end of a very large budget deficit, I think it's important.
Comments