00:00Skyler, good morning. It's a new week. It's a really busy week ahead. What are you looking ahead to?
00:04Yeah, I mean, I think the two most important things I'm looking at this week are the Fed and the
00:09Bank of Japan.
00:09And that's because there's a relatively low bar for a policy surprise, particularly for the Fed.
00:15Now, what the market is thinking is that there's around eight basis points of hikes priced in,
00:20which means that regardless of the decision, that pricing has to shift, right?
00:24If you have more in line with economist consensus that they hold at this meeting,
00:28that view is largely based on this idea that, you know,
00:31you haven't seen big inflationary pressures feeding through from oil prices yet.
00:35We had a CPI print that was a bit on the softer side last month.
00:40And that means they have a bit of space now,
00:42whereas the market thinking in terms of pricing that eight basis points is
00:46we want to show inflation-fighting credibility right away from a worse perspective.
00:51So if you do not get that hike, then you're going to see the dollar under pressure,
00:55bonds buoyed, and you get the opposite result if that does come through.
00:59For the Bank of Japan, it's because we've had signals from authorities more so lately
01:04that they could speed up the pace of tightening.
01:08And that pace is very slow right now.
01:10It's every six months.
01:10The last hike was in June.
01:11The next one's expected in December.
01:13And the market's just not believed them because I haven't done that previously.
01:17So if we did get that signal for September, you could see a big move in JGBs.
01:21What else are you watching this week?
01:22There's a lot of tech earnings coming to watch out for.
01:26Tech's all over the place at the moment.
01:27Oil prices all over the place at the moment.
01:29The market feels really uncertain about a lot of things at the moment.
01:32Yeah, I mean, I think with tech earnings, it's always very hard
01:34because we have such a high bar for them.
01:37And yes, they continue to beat them, but the market still struggles with it
01:40in that it wants to see what the forward momentum is.
01:43And there's really a big question now around who will be the winners and losers within AI.
01:47Not all companies can have the massive amount of spending that we've had
01:52go into a high return on investment.
01:54So there's really big questions around that.
01:56We'll get more information through the earnings season.
01:58And this is the heaviest week for both Europe and the U.S.
02:01But I think there's still quite a high bar for those earnings to feed into price momentum.
02:05Let me ask you about FX.
02:07We've got the dollar on the back foot this morning as a result of oil prices on the back foot
02:11and the tensions ebbing at least a little bit in the short term in the Middle East.
02:14What does that tell us about the FX story from here then, Skylar?
02:17Yeah, I mean, it's really, really dominated by what's happening in terms of trade.
02:21And it's actually relatively unusual for terms of trade shocks to feed into FX in such a large way.
02:26If you plot the month-to-date change in FX versus the month-to-date change in terms of trade,
02:31the R-squared is something like 90% for G10.
02:34And there are some really interesting points here in that for Europe, it's not just about oil.
02:38It's also about gas, which, yes, it's come down today, but it's still very, very high.
02:42And that terms of trade deterioration that we saw in March and April, that's still very much present in Europe.
02:48For the dollar, it means that, you know, you're going to get some more weakness today.
02:50But if Europe is under pressure from gas prices still, then, you know, the dollar will still be.
02:55Skylar, thank you very much.
02:56Skylar Montgomery-Koning from our Bloomberg Markets Live team.
