Video Transcription:
EU Stimulus Could Be A Game-Changer - Feat. Financial Journalists Ash Bennington and Roger Hirst
It's Wednesday May 27 2020 just after market closed in London this is the real vision daily briefing I'm ash Bennington from New York joined shortly by Roger Hurst from the United Kingdom but first here's Nick Correa with the latest market news thanks ash in recent days as the world moves toward reopening and recovery efforts the EU and Japan have both proposed new stimulus packages to continue to support their ailing economies this morning ECB president Christine Lagarde announced that the euro zone's output is set to contract between eight and 12 percent Lagarde said that quote will have a better sense in a few days as we publish our numbers in early June but it's likely we will be in between the medium and severe scenarios and quote see ministro de una para la la presidenta from delay and prego also today before the European Parliament in Brussels the European Commission's president Ursula von der Leyen proposed a stimulus package of 750 billion euros or 824 billion dollars for all members by issuing bonds in capital markets she stated that quote this is Europe's moment our willingness to act must live up to the challenges we are all facing and quote the unique challenge that the EU faces is that the hardest-hit countries are also the weakest financially specifically Italy Spain and Greece these proposals put forth by the EU will require the cooperation of all 27 member states and creating programs to assist EU countries who are in dire need of help will strengthen the bond of the bloc's economic union while many member states including Germany and France believe this is a necessary effort others such as the Netherlands Denmark Austria and Sweden already are showing resistance as they will want to avoid the consequential risk of having taxpayers be responsible for EU issued debt spending elsewhere in the Union 500 billion euros would be distributed as grants so as to not further increase the burden of countries laden with debt and Italy and Spain would be the greatest beneficiaries of this program the other 250 billion euros will be reserved for loans that countries may apply for moving on to Japan today Prime Minister Shinzo Abe's cabinet settled on a second supplementary budget of 31.9 trillion yen or 296 billion dollars to combat the effects of the coronavirus on Japan's economy this additional aid will make Japan's total stimulus spending come to approximately 230 trillion yen about 40 percent of their GDP the cabinet's supplementary budget bill proposal reportedly will be submitted to the diet Japan's Parliament on June 8th the first supplementary budget the same size as the second one was approved by the diet last month Prime Minister Abe a said quote I will defend the Japanese economy at any cost against this once-in-a-century crisis end quote this second supplementary budget bill comes shortly after the Prime Minister had announced the end of Japan's state of emergency on Monday Prime Minister Abe I highlighted that this new bill will raise the daily upper limit for employment adjustment subsidies for small and mid-sized companies if these companies are furloughing their workers as opposed to laying them off the government is covering up to 100 percent of leave allowances currently it's set at eight thousand three hundred thirty yen per person with the second supplementary budget it would be almost doubled to 15,000 yen between April and September other measures will include a cash handout program for workers who work at small and mid-sized companies were furloughed but not compensated by their employers covering a portion of rent for firms and sole proprietors who have faced massive revenue loss providing aid for schools who are giving breaks to students who are undergoing financial hardship and more and with that I'll send it back to you ash welcome Roger hi ash how's it going it's going well you know Roger we had a really interesting conversation earlier this morning about the state of Europe we talked about central bank's fiscal policy commercial banks general lending it was really interesting to hear your take and you explained it in a way that you know an American could follow you're obviously much closer much deeper in the weeds of this than most of us here in the States what are you looking at right now the thing is vendor lays anything since the lady's name the European Commission has announced the package that was floated on the 18th of May by Merkel and macron and and they sort of given it a little bit more detail today and I think this also coincides with the comments from Lagarde who said how bad the position for Europe was and you know how bad it was going to be economically I'm sure that's not I'm sure that's not a coincidence I'm sure she's busy saying look you need the EU to step up to help the eurozone and I think you know the package that they've announced it's it's a start we discussed it before but it still has a lot of hurdles as everything in Europe boys does there's so many hurdles this thing has to get through before it becomes reality yeah I'm interested you know as an American who doesn't follow the nuances of these institutions nearly as closely as you do could you explain a little bit about the significance between this being handled by the European Union versus the European Central Bank well I give it a go I mean there are so many institutions wrapped up in all the various parts of Europe but it's hard to keep a handle on ourselves but basically obviously the eurozone is the euro area it's the it's the monetary union and the EU is the broadest fear 27 countries including places like Sweden which obviously doesn't have the Euro and it's the part that the UK used to be a part of but we're leaving allegedly at the end of this year and the ECB has been doing all the heavy lifting and this has been one of the big problems because obviously we know about all the issues of whether they can buy bonds to what size are they following the capital keys are they buying too many in one country versus another and the ECB in fact Draghi had said many times before he left that it needed the fiscal authorities to come in that's the government's and effectively the European Union which is the body above everything there and so they've come in and said Oh what we're going to do is we're going to basically sell bonds so we're gonna raise debt I'm going to do two five hundred billion and this the key bit that's going to be up to the debate is that rather than being loans this is going to be grants which are none or no requirement for refunds or non-refundable grants so basically handing out money and that's five hundred billion of the seven hundred and fifty billion that was unveiled today and that's going to be the point of well that's gonna be this potential sticking block is will all 27 countries sign up to something which effectively could raise money in one area and just give it away to another yeah you know you touched on something in in that that I think he'd probably give us a little more detail on which was the notion of the capital key at the European Central Bank's what it is and why it's so significant they're basically said that the the euro level when the buying bonds they have a limit to how many can buy as a percentage of each country and it's around about 33 percent so they basically sort of have a limit now obviously if you have a finite number of bonds in any one country then eventually you'll hit that 33 percent limit if you've got a country which continues to basically raise raised money by selling bonds then you can obviously have more and more bonds bought because you'll never reach the 33 percent but then you'll break all your Maastricht criteria so you'll basically be to ladened with debt so it's always been this balancing act and for a number of countries it was getting close to the limits of how much they could buy unless the country started to Basie sell more debt the problem is the countries that need to do that are the ones that are probably are closest to or have already broken the rules anyway so they've been looking for a way around this and at the same time they'd been under scrutiny in various other parts of this whole sort of scheme from places like the German Constitutional Court had a ruling on something slightly different a couple of weeks ago but it's along the same lines of how much can you buy how much you're allowed to buy and and is this therefore constitutional on a country level versus the super national level the ECB and ultimately the EU the European Union yeah you know one of the things that you mentioned earlier that I found so interesting was you sort of framed out the coalition's and how they're forming he talked about The Frugal for what are some of those basic organizations and how they're playing off against each other from a policy and political perspective well the big thing here is that and I think this is the biggest part of this whole deal is that there's announced on the 18th of May I think he was only the day before according to the press reports that macron didn't actually realize that I didn't know that Merkel was gonna back it so wholeheartedly this is a bit of a u-turn by Merkel she basically said we aren't going to go for this this mutualization and that you know getting Germany on the side when Germany had been so hawkish for so long was a major coup and there's reasons behind that which I think are the ruling mothered German Constitutional Court the fact that this is such a big problem for Europe in terms of the coronavirus etc and also Merkel is obviously wanting probably a legacy she gets towards the end of a tenure so Jemmy having down on side is a big boon for the concept but there are still the frugal for which is Denmark Sweden Austria and the Netherlands and they want this money this 500 billion to not be a grant which is non-refundable but to be loans and loans normally have a penalty against it so the frugal for have already rejected it they projected it over the weekend and I think a note on on Saturday but they're a little bit isolated at the moment because even Wolfgang Schauble who is the former German Finance Minister and uber Hawk from 2012 was always saying 9:00 to everything but he's actually come out in favor of this so he's kind of on side so all the sudden the frugal four are looking a little bit more isolated so the pressure will build on them but at the moment they're still pushing back so this stage it's a great balloon that's been floated but there is still quite a few hurdles to get past in order for this to come to fruition yeah that was such a fascinating development what do you make of that you know what it says that hair show boa is moved in that direction is there some political shift in the CDU is this a broader trend in Germany toward attempting to salvage the eurozone no matter what what's your view of that well I think firstly it's it's sort of you know I think the German Constitutional Court has revealed the dirty little secret that everybody knows which is that the ECB basically has been has been required to do the heavy lifting and really push the envelope of what's allowed time and time again in order to bailout the eurozone of certain parts of the eurozone and I think that there's a realization that there's a lot of pressure being brought to bear on the ECB from external sources or NS external sources outside the ECB itself which is basically saying you know you're pushing what you can do and I think the second thing is that Angela Merkel herself has got a very very high approval rating at the moment because Germany's obviously by the looks of it handled the coronavirus pretty well compared to most of Europe and so she was always been as you'd expect for most the leaders been Pro Europe but has always been playing off being pro Europe with obviously the desires from a lot of Germans which has always been that that hawkish stance so I think given that the issues that Europe has the Proms of the ECB is now coming up against the fact that she's coming to the end of her term and she's got an approval rating these are all reasons why I think she has put away behind this and ultimately you know they've been people saying that they're the European idea itself could be under threat if the problems at certain parts of Europe have faced during this crisis are not dealt with sooner rather than later so I think these are all the sort of motives behind it yeah Roger that's so interesting having a high-level narrative like that and have you explained it in that way is really helpful to me I obviously don't follow this as closely as you do and I think most of us here in the States when you know when we hear this discussed on financial news it's either very shallow and superficial or it's so far into the weeds talking about you know the mechanics of various agreements embedded within certain regulatory frameworks it's very hard to follow but that's such a crisp I think summary of what's happening and the point that you end it on there is a critical one which is this is potentially an existential threat to the eurozone if these problems don't get solved yeah and look at it it's one of those things where I think's impossible as I mentioned the very beginning you know even for a European who's embedded in this it's very hard to kind of get everything all the ducks aligned in terms of all these different things so I do I do kind of work in generalizations but you mentioned this it's an existential threat but there are some people who think that it could be potentially a turning point for you people have been talking about it being the Alexander Hamilton moment and Hamilton being one of the founding fathers of the u.s. after independence around 1804 and helped devise the financial system is sort of the basis of what you have today and people are saying is this the beginning of federalism for Europe as well and that would be a big change I mean you know this would be I always say that Europe is always looking for a reboot on Rubicon to cross they cross many so far and there are many more to go but this would be one of the big Rubicon's so if they can potentially get the frugal four to sign up then they will be crossing a Rubicon and they'll be no looking back and people do worry that what's been announced has been 500 billion which is a drop in the ocean compared to the 20 trillion give or take that's the European economy but if they manage to get this signed off then 500 billion will merely be the start and people will ultimately expect expect it to expand a lot further from there yeah it's very interesting it could be crossing the Rubicon or potentially crossing the Rhine I guess with the support of dr. Shobha behind this absolutely and you know this is this is why it's an entry one because in the press it got a bit of kind of time a bit of coverage but it didn't get as much as you'd have expected for something which could be a game-changer and this is it I mean this is not hyperbolic language it could be a game-changer now we've been many times in a situation where we've seen something that could be a game-changer and when eventually after a couple years roll on you realize that actually all they did was they passed the the poison chalice around from one institution to another but certainly if you get debt mutualization it's the thing that most people have pushed against the problem is debt mutualization doesn't work unless you have a fiscal unity as well ie everybody has to have the same level of taxes that have to be pension --all at the same age the whole system of benefits has to be equalized and that's a mammoth task which is just unthinkable at this state so debt mutualization but without that side of it being fixed as well it'd be it'd be quite something to behold yeah you know there's the there are philosophical problems and there are also just the sequential mechanical challenges of this there's seems to be a case where you have this you can't do a without B but you can't do C without a and it's like this weird sequencing issue debt mutualization banking Union unified fiscal Authority unified taxing authority these are incredibly thorny issues that you know have at their core issues of sovereignty and those sorts of problems are very challenging to solve absolutely immense mean we've got countries in in Europe who quite recently we had one country which extended its or increase its retirement age to 67 another was trying to reduce it down to 60 I think it did reduce it down to 60 you can't have that if you have a true Union if you're gonna have that mutualization that's not going to be a constant movement of capital from one area one geography to another because if I retire at 67 and you retire at 60 that I'm paying for seven years for you to have a good time on the beach and that can't happen and so it's this sort of thing there's this monumental structural change that need to take place and that's always been the biggest pushback but from the frugal fours and this is the bit to watch for in this is that they might go for grants rather than loans will this just be a temporary five hundred billion so therefore it can't expand or will they demand structural changes to go with it being a grant but structural changes takes so long and the grant needs to be kind of now so you can just see where this battleground is is already going to kind of be fought yeah you know you talked about this earlier where you talked about the French lowering retirement ages while the Duchess are increasing them these are really thorny challenges especially when you have a continent of well I don't want to over the state the case but you have people I think it's fair to say whose grandfathers were not sharing pints and pups I mean Europe will always be different and one things that I love about Europe is and going to Europe is because there's so much difference around Europe in such a small space but there's always one it's great iron is if you remember the 2012 debt crisis and you'd have you know when all these countries are blowing up you go with the Irish is saying well we're not like the Portuguese a Portuguese not like the Greeks the Greeks are not like the Finnish the route is if you want a union you'll have to be the same and they're just not and the whole reaction in 2012 was proof though they're not the same which is great but it makes it very very difficult to have a true union so you know what we're looking at here is a baby step it's a balloon that's been floated and no more and no less at this stage but some people say it could open the Pandora's Box others could say it opens something towards a truly unified Europe but yeah that's that's a long way down the road this is just a sticking-plaster at this stage I'm curious Roger from from a cultural standpoint when you talk to people in their 20s do they feel a true European identity that supersedes their national identity how do they think about that well I mean in the UK it's always sort of been a UK but then in the UK from Manchester you're Mancunian if you're from London you're a cotton if you're from the right part so that identification has always been there I don't think it's any different in Europe either so it's one of these hard things where I think the European concept is one of having your cake and eat it which is everybody wants to retain their identity and be individual and but they want the benefits of mutualization but the benefits of mutualization are almost impossible if you want your individual identity so it becomes it can never fulfill itself and you can see that pretty much everywhere I mean you know Britain is incredibly similar but also incredibly disparate and I think it's the same in Europe so it's going to be very hard I think to truly get this into a tree mutualization position the desire for benefits without cost who's heard of that before exactly we will love it so Roger we also talked more specifically about the European banking sector what are your thoughts about that well today we saw in fact over the last couple of days we've seen some pretty good moves in the banking sector but it's been out of this consolidation pattern and I think it's all part and parcel of what looks like a rotation has been going through the market so obviously we've been just used to Nasdaq flying away into the heavens over the last few days we've seen the Nasdaq underperforming in fact what we've seen is things like the Russell 2000 there wasn't 2000 a bit of disappointing action today was up about 2% and then drifted back to flat and is that a bit more but what it looks like is that we've got to that stage where it's a case of risk on to the point where you go okay well now we'll start rotating within equities so we saw banks performing well we saw the Russell performing well we saw the transports performing well but we saw the Nasdaq now underperforming so that's distribution that's taking place which you don't say that's the top of the market but it's often that the momentum phase is starting to shift and you can also see it in in some of the currencies as well I mentioned this last week where emerging market currencies were starting to break a little bit high and we've had a good run if you're a trader that is not for an investor you had a good run in a lot of emerging market currencies and what this already goes down to is that those areas of the economy that's have a lot of deaths have been doing well if you if you map the JPMorgan emerging market FX index versus the eurozone banks they're pretty much the same in terms of shape over the last five years with one six month period about four years ago where they diverged I think the reason behind this is something that Rao is talking about recently which is these are both relatively debt latent type of environments emerging markets we know corporate debt mainly bit of government debt but mainly corporates and then banks particularly in Europe laden with debt mainly government debt and under a bit of financial debt obviously I'm sorry corporate debt as well but these broke out from a consolidation pattern where they hadn't really bounced until two or three days ago it's difficult to read anything too much into that I just think it's it's taken two months of rally before these things are broken out to me that is towards the end of the process not the beginning of the process I heard that in Europe today there was some momentum from institutions buying European equities but they've been in the doldrums for so long I still think that when you look at banks nothing's particularly changed yes its packages at the margin beneficial if it happens but overall the outlook for banks over overall outlook for yield curves and yields is flatter yield curves or flatten your curves negative yield curves ones are just not beneficial to banks so I would still be a seller of the bounces in the banks in Europe and I would be a seller of the emerging market bounces in FX as well yeah I mean when you just look at the u.s. two-year are in the US 10-year Treasury it's not a bullish market for banks thanks to the arriving for banks this is a really difficult environment and I can't say getting in any better because you're getting people at the Fed some on today I forget who it was talking about yield curve control so capping yields out along the curve so what's going to happen is that you're going to get yields which are close to zero in some cases in Europe negative you might have a yield curve that has some steepness in it but it'll be in negative territory so none of this is good for banks and at the same time if you are distorting the yield curve and creating a cost of capital that below where it should be but that really kind of informs people's decision-making then you're not going to get any long-term capex out of this this is why savings will go up so the whole dynamic of capping yield curves and having force yields and interest rates to zero or negative means banks can't make any money crop if don't think they can invest to make money in the long term so they won't savings will go up velocity of money falls further so it's just not a great environment for banks so these will become coordinate utilities and what I mean by that is they will just be very boring companies that lend a little bit of cash at a small margin but there will not be the this was a huge behemoth that we saw the last 20-30 years they'll come come back to something which is a little bit always sort of people in gray suits and great massages and beards and no offense to anyone but you know it'll just be a little bit more quiet and genteel no offense taken by anyone with a gray moustache Roger you know as the kids say what a time to be alive there's good news and there's bad news the bad news is that you know yields are negative the good news is that there's there's some steepness in the curve I mean man that's a pretty that's a pretty grim prognosis yeah it's not enough is it I mean my own view on the yield curve is that I do think that the Fed will be locked for longer around zero and that the movement towards negative rates and yields will come along the curve now you'll have this kind of weird thing where I could see that your the the five the two-year and the five-year yield go significantly lower and the tenure will go lower but not as low as those two but with potentially the Fed still keeping those interest rates around zero so I think that the heavy lifting will come from the three months pace which is already gone negative on a couple of occasions out to the belly of the curve in particular then what's going to be really interesting is what happens in the 10 and 30 years base because if you do get fiscal then the pressure will be on and we've seen some of this with some of the steepening that we've seen of late is that expectation for more spending should push ten and thirty year yields higher but central banks and the Fed like the Fed keep on saying well we don't want that we don't want boring costs to spiral out of control so you're just going to get this really boring flat curve there's no income to be generated from it to have any note and therefore banks will hold cash the velocity of money again will fall because they won't want to learned and most corporates were probably mobile of about dealing with the balance sheet rather than borrowing unfortunately those that can borrow are the zombie companies those that need to borrow are the small family and office ISM and companies that ultimately will probably be the ones filing for bankruptcy yeah some real challenges in pain coming in the real economy for small and medium-sized enterprises but you know when you talk about boring Roger right I'm sort of struck by the idea that banking could be a boring business again maybe that's not such a bad thing it's interesting if you if you watch old movies from the 40s 50s 60s and someone was introduced as a banker they were the most boring guy in the room it was guy in a three-piece suit as you said with the white mustache this was not an exciting person and then something happened during the during the 80s and 90s where it it became the place that all smart ambitious kids wanted to go I was at BB&T and Credit Suisse I in my 20s I know you were at Goldman and I think Morgan Stanley and then deutsche bank there was a real magnetic pole that banks held for ambitious young people and I wonder if that is no longer going to be the case I think that that was the financialization of almost everything and we saw that with you know Monday was money spare money to invest and banks worked out a way to do it but it was a thing of the interesting conversation was Carole Sokoloff with Lacey Hunt talking about how actually no it was it Richard Werner talking about how the number of banks with fallin in the old days used to have loads and loads of banks and you probably knew the bank manager and and they helped you with your local business whereas today they became these sort of fan financial behemoths doing financial engineering and kind of becoming otherworldly they need to get back to the real world and remember this is a real world problem that we've got today and we need to get can the money into the real world unfortunately we don't have the system to do that as we've talked about before the people who can get the money the big boys the people who need the money are the smaller companies smaller family offices smaller family businesses they're not going to be able to get hold of it in a rapid enough time which is why we have the issues of solvency down the road over the next well I'd say multiple party over the next couple of years yeah I don't think financial engineering is ever going away it may move out out of the banks it may move into hedge funds private equity god knows what kind of special-purpose vehicles will be spun off to do it but there are too many IQ points that are having too much fun and making too much money for that business ever to go away well the financial engineering has been going on for a long time I just took delivery of a book from Cambridge University judge school there was written in 2016 which was a kind of a response after 2008 of financial history and in the opening page it just basically says financial engineering it's been going on for a couple of hundred years you know mutual funds a couple hundred years old they're not things that have just appeared in the last 50 years or even hundred years this sort of stuff has been around for a very long time and humans are very innovative they'll always find ways of doing it but I do believe that banks should not have abnormal profits which is what we saw in the 2000s when there was just a huge amount of leverage and it was kind of obvious retrospectively that a sector that is very very old you know hundreds of years old we're suddenly making these abnormal profits that should go to an entrepreneur and have we usually say but we're entrepreneurs we weren't we just leveraged everything up we took small margins leveraged the mess up and then said hey how great we are and unfortunate what's happened since the banks went bust is the rest of the economy all the other corporates did exactly the same thing they follow the same path and they leveraged up which is ultimately is effective what share buybacks became and so it just that whole process would just roll around you'll get stopped in the corporate sector someone else will do it it just gets passed around the economy yeah financial engineering has been going on since at least the the South Seas bubble at the innovation called joint stock companies which were so controversial at the time and now I have become you know something that we just take for granted but sounds like you're doing a little light breeding on the weekends Roger well if only just took delivery of it but I was I was just looking into there's a couple bits of history because at the end of the day we what we're doing here is we're looking at something which has never happened before in terms of the speed and we're always comparing it to you know we often talk about is this like the 1920s will it be a depression is it going to be like the 1970s is it going to be a stagflation and with all these scenarios I just think do I know enough about those past periods to be able to compare them to today and work out what I think might be happening in the future so I saw this book and I thought yeah I'll have that and see what it is and actually the first the first page not the first chapter is actually all about the process of gathering information which i think is gonna kill me before I get into the meat of the book what's the title I'm sure someone will ask in the comments well it's I've got it here actually it's um it's a financial market history reflections on the past for investors today and it's from Cambridge University judge Business School so financial market history by David chambers and Elroy Timpson there we go just save some time for the people in the comments yeah I think it'll be I mean for history these financial history it's it is fascinating and it's it's so useful because I'm trying to work out right now where we go inflation deflation and I genuinely think that the periods of inflation that most people are looking at are not the ones to use because you had a very tight system in the 1970s a very tight system in the 1940s into which was injected fiat currency the end of the last vestiges of the gold system in the 1970s but demand was pent up where today we've come into a system where demand had already been too high because of debt now it will shut down I think that's an enormous hole in which you've got to put a vast amount of liquidity you know fiscal monetary stimulus accommodation whatever you want to call it and that'll get it just back to where we started and that's not going to cause inflation is gonna get beyond that and I'm not sure that the I'm not sure there's a wherewithal yet to do that I think we actually still need another kind of extension to the crisis for that sort of measure to be brought into action because it's the dance of death things get better from here they're not going to do it they're only going to do it if things get a lot worse and that would be deflationary yeah it's you know for those of us who watched the 2008 financial crisis it feels a bit like the bad news is good news days doesn't it yeah and those those were always the case because you know we got the point now when every time a big a really bad data point comes out it's almost like the instant reaction is well that's going to be more from the Fed and so this becomes the tricky game narrow is that as we approach the all-time highs there will be less desire less drive to put more capital in because remember could see that in January and February this year that I think it was one of the Fed know things the Dallas Fed started to say publicly I think our liquidity has been driving the S&P to what looks like extremes I'm they were becoming more cautious about liquidity so that's an indication that as we make new all-time Heights or if we make new all-time highs as we push on to these sort of levels then they're going to step back because they'll feel that the job has been done good remember as it has been said on on this platform I think it was that the lazy hunt they can lend they can't spend so lending into effectively the shadow banking system and to banks who then are not actually lending it to the people who need it is therefore only going to see the money either directly or indirectly driver passive prices you need to get it into that real economy that's the fiscal authorities that need to do that so I think the Fed will ultimately step away if we see these equity markets continue to rise so it becomes a self self leveling mechanism yeah that's so interesting it was Laci hunt a great interview with Carole Sokolov if you haven't seen it go and check it out it's a really interesting analysis of many of the monetary issues that you were just talking about Roger and some of the challenges and limitations I think was what Lacey hunt is really so eloquent on the limitations of monetary policy and the places that it simply cannot take us well that's right and I think what the interesting thing for that was that you know the Federal Reserve is still limited as to what it can do which is why I can't turn that switch on for inflation yet which is what you got to look at other places which is why I think the UK could be the place for that I talked about this with that last week but the e the Bank of England can join up and is joining up with the government to basically allow the government to spend and then buy the debt off them and we've got a free-floating currency you know it's it will if they do that it should put pressure on sterling downwards versus other currencies that people might say well not against the euro because the year is a basket case it should against the US we've had a couple of days where the Sterling's had a nice little risk on rally like everything else has why do you think that with the potential for the UK to go quite hard on the fiscal front potential for breaks it to still be a problem because the uncertainty means that there's not much attention coming on it and I think that the Europeans will play hardball I think that sterling could be a good play on the downside probably against the dollar and because that would be the obvious one maybe even the euro but you know I can understand why so many people would be unsure the euro because there was just this uncertainty should you be positive the euro if this rescue fund is is agreed or should you be negative because they're going to go kind of fiscally quite aggressive I think personally sterling is still the best one to look at for that with my European context because we're the first mover yeah I was going to ask and it seems as though you've already started to give us an analysis of this but what are you going to be looking at going forward to understand how that faeces is playing out well the first thing is that I've been looking for for yields between the UK and the u.s. to close and that's already been happening but it's actually been some of the ones where I was right but for the wrong reasons it wasn't that UK yields went up it was actually the US yields had a lot further to fall in this sort of environment but we've seen that yields between the UK and the u.s. starting to close so that's already happened it's interesting that we've seen the front end of the UK curve also go negative because if they're going to be profited then we should start worrying about inflation but it shows you the problems of the well it shows you the deflationary problems that they have that yields want to go negative two year space in the five-year space so I think if they start to nudge back up but really again you've got to look at the long end the long end is nudging back up in terms of yield I'll be looking at that and then obviously you know what are we looking on sterling we've been down sort of to 1:10 sort of levels I think we can get back down there I'm looking for parity versus the dollar over the longer term and that's gonna be good for the UK because it will be inflationary but there's gonna be a point where UK will look attractive to foreign investors this is always one of my thesis any way around the brexit story is that if our currency started to fall well actually you'd want to pile in because foreigners will be will be piling in as well so I see the UK is just being a stabilizing mechanism in terms of sterling coming down I don't think it's going to be such a sudden crash but I do think that the UK has the first mover so you know just taking out some of the recent lows back below 120 it's currently been in the one near the low one 20s below 120 I'd look for a little bit of momentum to build on that well you know we started with a 50,000 foot overview of the narrative and we ended very tactically on a specific point our to look for in FX yeah and FX I think still remains perhaps the best source of clarity on the global environment the M FX is currently bouncing because people I think are getting a little bit more comfortable but if it starts to roll over again particularly M FX then I think we're again pricing in a move away from solvency so a moving away from liquidity being sold to solvency becoming an issue so far liquidity it feels has been sold things are belatedly starting to move on the value chain but if they start to roll over fairly quickly I think people will realize that we're in this for the long haul so EMF X just remains my focus no EMF X FX in general remains my focus to give me clues on where things are going yeah so once again short term liquidity issues relatively easy to solve long term solvency issues very different story absolutely yeah Roger I always enjoy your analysis I look forward to these conversations every week good to speak to you as well and I'll speak to you next week I guess thanks for joining us good see.
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