Way in here gina really saying that look The bond market saw this coming Did it is it that the bond market has Been trying to drive the narrative here For Stocks or are you worried about the Delta baron Hey caroline yeah i think that gina does Make a good point i mean if you look at The yield decline And you kind of compare it to the say The airline index that's been going down Too It's sort of in sync with one another so I think what the market has been doing Is indicating that You have this big reopening there's some Some frictions and And bottlenecks in the economy that may Indeed lead to some cooldown at some Point But then you get the story of the delta Variant coming into into Play and the psychology today is more About You know we're not going to go back to a Harsh lockdown that seems to be unlikely But what we are going to see is somewhat More curveback perhaps of activity at Least You know the the attempt thereof to slow Down the spread In addition to hopefully getting more Vaccination pick up so i think the
10-year yield in that sense Is responding to that combination Cooldown and some of the fears of virus Slowing down the economy But i don't think we're back to where we Are last year It looks to me more like what we dealt With reopening last year the first time We also had then a wave coming through During the summer and we saw some Drawdown in the equity marketing Following in the fall what is the sweet Spot On the 10-year yield for being a boost Or not For equities well i think taylor that if You think about the standard yield and It does Signify that we are slowing i guess you You would say the opposite right you Would say well if you're getting a Rising Real yield particularly that that would Indicate the bond market is sort of Regaining The expectation that growth can pick up In the future again in a more Accelerated way I think at this point though it's more About if you're coming off a quarter Of let's say about 15 nominal gdp about That we were And we're going to a 10 nominal gdp it May slow down to 5.
I think that's the trajectory we deal With at the moment that's still Extremely good growth right and that Should I think on the margin continue to Support the equity market It's just that the bond market today is Signaled like you can't stay Forever at 15 nominal gdp it's going to Decelerate I think that's part of the the narrative That plays a role here Ben in your view how much of the equity Market meltdown of the last week or so Is really due to global central banks Starting to guide us In anticipation of normalization of Their balance sheets it does seem rather Coincidental that markets peaked Right as this chatter started to pick up As we started to get more and more Inflation prints that seem surprisingly Strong Is that playing a role in your bind That's a good observation gina because It is coincidental we had the bank of Canada announcing the table we had the Central bank in new zealand also paying Back quantitative easing We get this new guidance from the ecb on Thursday and people are looking at that What that means for for Future asset purchases bank of england Is giving some signals thereof too
So yes there is some of that Anticipation that this excessive Liquidity that we've built over the past Year To control the economy against this Fallout from the pandemic You know is going to recede at some Point it may not be this year but it Could be next year the year following And that's what bond markets do too so That is related but i do think if you Look at the breakdown of the sectors Over the last number of let's say Week to week and a half maybe before it Really is the cyclical reopening stocks That have started to really come off I find it notable that has the airline Index has taken a real beating That also anything in legion hospitality Is following on on the Just right on the heels so i think the Mark is also looking at like What restrictions come into play here in The near term that could curb that that Activity there for the profitability of These companies so it's a bit of a Coincidental Combination here of central bank Anticipation of Tightening of liquidity against you know What we're dealing with on the ground You know The economy going into the next stage Ben how much can an earnings season help
Fight that narrative therefore how much Of a blowout do we need for the Companies To be able to push back at this Narrative of time to sell Yeah i follow gina's analysis always Very closely on that's very good work And it shows indeed this huge base Effect on on the earnings so The blowout is actually in the numbers It's going to happen you see Today again a few companies coming up With really strong earnings You know one of them related to the Second The auto sales right like the Second-hand car market and It just indicates that too we're still In this massive wobble of data From last year from the shutdown that We're working off so The earnings blow out is there i think That probably will be Taken for the moment into into the Background you know as Markets try to work out the psychology Around this virus how it will affect Fear Or not and i think after that you're Going to revisit those earnings because We are not dealing with a deceleration In your nation's strong strong earnings Base overall I'm reading more and more ben as we go
Global it is em Over europe do you agree Well you have to pick and choose there Because to the point of of central banks We've had the em central banks moving Ahead too If you think in latin america for Example so there is indeed an Interesting Yield differential building versus em as A Versus developed markets but i think if You think of em look what's happening in South africa That's not a really good development Against maybe latin america the Situation is stabilized whereas in In asia pacific there's still challenges There so I think you want to be careful how to Phrase that My sense is that europe which was the Really Next reopening a lot of people position On is taking somewhat of a setback here Too The same as we're dealing with now in The united states or in emerging markets
