00:00Starting with the yen, as I have alluded to in the intro right there,
00:05the levels that it is at now, we've reported multiple interventions.
00:09What really is the line in the sand for more of these interventions to happen?
00:15This is not the first time we've seen something like this happen
00:18when the yen crossed over, for example, the 150 mark against the dollar.
00:25Yeah, well, thank you for having me.
00:27When it comes to the level of the yen that prompts intervention,
00:31it's not really a level.
00:32It's more unilateral moves that will cause those interventions.
00:37The authorities want to limit the carry trades,
00:41and carry trades are very much a function of volatility.
00:44Low vol equals more carry trade.
00:47So those interventions, you can see them as a way to inject volatility
00:52and deter carry trade.
00:53And that's all what they can really do in the short term.
00:58And so, Matthew, I was also taking a look at some of your wider research,
01:02and you point out that the cushion supporting risk assets generally
01:05is still in place for the time being, but it's starting to fade.
01:09So under that argument that you point out,
01:12what risk assets are most prone to losing out?
01:18Well, for the time being, the picture does remain quite positive in terms of liquidity.
01:25There is plenty.
01:27But at the margin, if we do see deterioration in carry trades
01:32because authorities are purposefully injecting some volatility in the market,
01:37we could see especially spread product suffering a little bit at the margin
01:42since they are the main beneficiary of carry trade.
01:46So you're talking about high-yield bonds in the United States,
01:50investment-grade bonds, and so forth.
01:52But generally speaking, even this injection of volatility in the market
01:59is still quite minor compared to the amount of balance sheet space that still exists
02:07on the private sector, the amount of liquidity that still exists on the private
02:11sector balance sheet, and therefore the ability of those agents to take on risk
02:16and continue to bring the price of risk assets higher right now.
02:22And it's going to take much more action in the yen, for example, to end this.
02:30Okay, let's shift a little bit to the United States and the U.S. dollar.
02:34Its dominance so far, I would say, is still intact.
02:38You argue that we could see shifts away from the U.S. dollar.
02:41How soon do you think we will be living in a world
02:44where the U.S. dollar is not the dominant global currency?
02:48And who's set to benefit the most from that?
02:50Is it Europe? Is it China? Is it someone else?
02:56Well, the reality is that the U.S. dollar is set to remain the dominant currency
03:03for many decades here.
03:05However, there is subtlety in this situation
03:09because the extent of the domination of the dollar in global capital market
03:15is exceptional and has been exceptional for the last 20 years.
03:18So what we are seeing here is more a deterioration at the margin.
03:22Namely, we expect currencies like the euro,
03:27but also the smaller currencies like the Australian dollar,
03:33the Canadian dollar, the Singaporean dollar, the Korean one,
03:37to be a beneficiary of a desire of authorities
03:40to diversify away from the dollar.
03:43But the dollar will still dominate in this context.
03:47Okay, and Matthew, let's talk a little bit about geopolitics,
03:50but also I'll bring in the Fed into the question.
03:52If the next market catalyst is not the Fed,
03:56but it's geopolitical tensions or trade tensions
03:59that are stemming out of whether it's the U.S., China or other regions,
04:03what is the one trade or a particular trade or hedge
04:07that you would want to have in place today
04:09to avoid those tensions from disrupting?
04:15Well, it really depends a little bit of the nature
04:18of the shock that we are talking about.
04:20When it comes to what's taking place in the Middle East,
04:24the hedge still remains and will be for a long time oil prices.
04:29However, when it comes to the trade tensions
04:32and those kinds of development,
04:35actually what we are seeing with the policy backdrop
04:38in the currency policy backdrop that is evolving in Japan,
04:43the pressure on the Bank of Japan that is growing right now,
04:47at current level of valuation and again given the chances now
04:52that the Bank of Japan could change its stack,
04:54the yen could regain some of its shine as a safe asset
04:58that benefits in this context.
05:00Finally, I would add that gold is increasingly attractive once again.
05:06Structurally, it benefits from the diversification away from the dollar.
05:11And we, at BCA, anticipate a peak in real rates in the United States,
05:19which itself will be quite positive for gold prices.
05:24So gold as a geopolitical edge is starting to regain some of its shine.
05:28And we'll be right back in place.
05:30So gold is the highest level of the Gettinburgh,
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