It's been a rough couple of days when You look at the markets stocks bonds These extreme sell-offs a lot of these Flows going into the dollar i'm curious Where the the labor question really Falls into it what are investors Reacting to here is it the 75 basis Points is it the payroll's number is the Labor participation rate your take Cready thanks for having me on um and Happy mother's day to all of the mothers Out there including mine and my wives Um you know i think in terms of what the Market is reacting to really is the Future and what's coming up next week is Probably more important than the labor Market report that's the cpi inflation Report We've had a couple of You know inflation reports here i'm Thinking about the pce numbers that We've gotten over the past two months And they have been more reasonable Reports than what we had over the four Months prior to that Chair powell did reference that so i Think ultimately it's it comes down to Inflation creedy and next week's report Is going to be very key to markets going Forward What do you think that number's going to Look like matt Well guy we we we think it's it's going To be a good number i mean ultimately
Uh the the trends in underlying Inflation in the us are strong Particularly with the housing market uh In the last segment i i saw you talk About home builders you know that Component of inflation we expect to Continue to be quite strong so Underlying inflation should hold up guy But it's really about all of the other Factors that had been boosting inflation Towards the end of last year early this Year that's really where the rubber is Going to meet the road Matt i'm curious about the currency Picture here if you are starting to see A lot of these investors hop out of Stocks hop out of bonds and go to cash Is the dollar here a no-brainer trade Well i mean ultimately the the dollar is Rallying on a combination of factors as It usually Will move to one of course is you know The policy divergence that we see being Put into place by the fed Against the bank of japan against the Ecb Uh against the pboc in china You also have growth elements that favor The dollar currently Those include certainly strong growth in The the u.s economy the labor market Report this morning a hat tip to that Idea but then when you move overseas you Know you do see weakness in china
There's concerns about uh the zero covid Policy approach in the marketplace um And then of course there are concerns About what's happening in europe so the Growth Expectation channel also has been Favoring the dollar of late Matt do you think we're still under Pricing the fed how far does the fed Need to go here um You've got kashkari on the on the tape Now talking about the fact that we Basically uh need to deliver on the Forward guidance that has been laid out By chair powell Where do you think ultimately this takes Us how how high do rates in the united States need to get In order to deliver the demand Destruction that the fed needs to see Well guy i mean that's that's a problem That's multivariate um if i just look at The u.s economy I think the fed could very easily get Back to where it was in 2018 without Really causing much demand destruction Uh morgan stanley economists led by Ellen zentner uh are looking for the fed To go higher than that and i think that Seems completely appropriate at this Stage in the game but when you broaden The lens and you look outside of the United states that's where the the Waters get more muddy uh and i think
Ultimately the us you know the us Economy does operate more on an island Than other parts of the world but you Know as we make our way deeper into this Year and we get to see what exactly Transpires with china what's happening In europe uh then i think we'll be in a Much better place to to know you know Does the fed have to go into restrictive Policy territory or not and i think Theme holds for the fed Matt i feel like you hit on this really Key point that the us does kind of Operate on this island it's interesting That you talk about the recession Chances because it almost feels like the Consensus here is that recession isn't In the cards for the united states Unless the fed does something Out of the ordinary But europe china even the export picture That comes out of there the inflationary Picture particularly out of europe is Concerning recession is on the table For those two economies and i'm curious How much of that can actually drag the United states down as opposed to the Other way around Well credit that's exactly why we have To pay very close attention to financial Markets because the transmission channel Typically from outside the us into the U.s you're right i mean exports and uh You know global trade that's a key
Component of the transmission mechanism But financial markets are also a key Contributor to that transmission into The u.s economy so if the equity market Continues to trade on the weak side Which is what our chief us equity Strategist mike wilson is looking for You know then that could have an impact On the u.s economy much earlier than any Traditional economic analysis would Suggest Matt let's just talk about some other Central banks chris brings up what's Happening here in europe bank of england Yesterday the bank of england signaled The recession and hike rates How many more rate hikes do you think The bank of england is going to have to Deliver we've got inflation heading for Double digits that's emerging market Territory the bank then expects that Inflation picture to absolutely collapse As demand gets crushed In order for the bank to deliver on its Mandate in order for it to do the right Thing for the uk economy what are you Guys now thinking what are you what do You expect to happen and how are you Going to be how should one position Around that story Well guy if the message from the bank of England sounded confused i i mean i Think it just reflects what most Investors are thinking these days people
Are very confused Now in terms of what we're expecting we Do see Another hike but but we are but after That we don't really see much from the Bank of england because we do have Growth coming down quite quite Substantially so when you look at morgan Stanley economics and their forecasts For the bank of england policy a bank Rate in this case uh you know we're way Below where the market is currently Priced so one of the key recommendations That we are out with after the bank of England meeting Is for investors to be in yield curve Steepening exposure so uh to be long to Your guilt versus short tenure guilds Looking for that particular part of the Curve to steepen up that's a key Message from us in the wake of that Meeting guy
