So much to talk about here,
a lot of news flows stateside,
but I think we're really marching towards the end of
the quarter with rate cut expectations running high.
Bill, your cut call is particularly high.
Do you really think the Fed can cut 100 basis
points this year?
Yeah. Hi, Don. It's very nice to be with you.
I I think it's higher than the market consensus right
now.
But as we've seen recently,
this consensus can move by quite a big margin from
one week to the next.
And I think by the time we get to the
start of the cutting cycle and central banks,
especially the Fed, have sufficient confidence that the inflation outlook
is benign enough for them to be cutting,
I don't think 4 cuts this calendar year will look
that excessive.
I think it will look very reasonable by that.
But they're in no rush to cut rates,
right? And that the data has still been running hot.
So what is it specifically that makes you say they
will need to cut by 100 basis points,
particularly after the commentary that we've seen in the last
24 hours.
You're going to have to change your call at the
bill.
That's right there. There's no rush right now.
But you have to keep in mind that the start
of year data are always particularly noisy.
And in the recent meeting what could have easily happened
was either these move,
either these dots moving significantly,
all the language coming during the press conference by Jay
Powell being sufficiently more hawkish.
Instead what we got was unchanged medium dot for this
year and Jay Powell telling us you know start of
year data are particularly noisy,
there's seasonality in them, but we're looking at the trend
and we generally like what we see.
So between now and the June meeting things can can
move quite a bit.
So I don't think our call will change.
I think the consensus will,
OK, let's watch that space.
At the same time, Bill,
we see central banks in Europe like the SMB front
running the Fed here and cutting rates.
What do you think this means broadly for the ECB
and other major European central banks here,
particularly if you're calling for 100 basis point cut for
the Fed,
how is the ECB likely to respond?
So I think the ECB will mirror that amount of
cutting during this year and to be honest they have
every reason to be doing it.
The inflation outlook is more benign in your area than
the US and the growth out turn has been much
worse.
We've basically seen no growth for a good year,
year and a half by now.
I I would be a little bit careful and extrapolating
too much from what the SNP has been doing because
you know,
inflation is good, 1% here,
much, much more contained than elsewhere.
But still when you get AG 10 central bank,
be confident enough that they're cutting already at the March
meeting.
Maybe it's giving you a sign about where things are
going.
They might not go there that fast,
but between now and June,
I certainly expect the ECB to be moving that way
as well.
OK, Fascinating. And this is a 2 prong question here,
Bill, because we're rapidly running out of time.
But first of all, we're on yen intervention watch in
Japan right now.
We've seen just verbal intervention and jawboning.
Will we see actual FX arbitration taking place?
And then the second question is as we close out
the first quarter,
what's the investment strategy that you're taking into Q2 and
why?
So the answer on the yen is that we cannot
know this for sure,
but it doesn't look quite likely.
We know the Japanese authorities are sensitive or an additional
depreciation and we know that the Central Bank will give
that leeway to the Ministry of Finance to sort of
intervene on the FX market before they come back and
do additional rate hikes that they will be doing in
a gradual way.
So no certificate here, but I think a pretty high
likelihood.
The, the question about investment strategies,
I guess it takes us to a different conversation here.
In the current environment, we do think you still have
some gains to make by investing in bonds that offer
you pretty attractive yields.
But these yields are unlikely to be there forever.
As we said before, rates will be cut during the
second-half of the year.
So an additional you know,
overweight exposure on fixed income assets,
especially on good quality sovereign or corporate debt looks like
a good strategy.
Otherwise we have our equity exposure pretty close to benchmark.
We've had a very good track and we've enjoyed it
and given the yield advantage and the growth advantage that
the US offers versus its peers,
I think an extra exposure to the US dollar against
other cheap and currencies looks favourable in this context.