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00:00Let's quickly get in a view from Steve Englander, he's Global Head of G10 Forex Research and

00:06North America Macro Strategy at Standard Chartered Bank.

00:09Steve, great to have you on the show and thank you so much for joining in.

00:14Let's just get your view, let's start with the Jackson Hole comments.

00:18Everything that could have been hoped for and more?

00:23Pretty much, I mean the only thing he didn't say was that he was thinking about 50 but

00:28I think I was implied in some of his comments that if it turns out the unemployment rate

00:36keeps going up and the inflation keeps approaching target, they're far away from neutral in terms

00:43of fed funds.

00:45So at some point they may have to do a 50.

00:48Market thinks that it would be sometime in Q4, we think it's going to be in Q1 but I

00:52think that there's room for that if the forecasts and expectations play out.

00:59Did you say, Steve, that you think the cuts are going to be in Q1 versus the market expected

01:06in Q4?

01:07No, we think they're going to do 3.25s in Q4 and a 50 and a 25 in Q1.

01:16Steve, in that case, how do you expect risk assets to react?

01:21Because for the last year to year and a half, equity markets have been seen buying on anticipation

01:27of that rate cut.

01:28That rate cut will, of course, the first of the rate cuts will come in on the heels of

01:32the US elections.

01:34Do you buy equity, do you buy risk or is it time now to take profits off the table?

01:39Because much of it, I would believe, is already in the price.

01:43There is a lot in the price.

01:45If you look at, say, what the market expects Fed funds to do, that essentially by the middle

01:50of next year, it's going to be down to 3%.

01:53And obviously, the 10-year is trading underneath 3.80s.

01:55So there's a question of how much more there is.

02:00Having said that, I think the Fed is back to being the market's friend.

02:06If they feel that they're going to be close to inflation, they're not going to want it

02:09to go below target again.

02:12They certainly sort of have a sense that they've said explicitly that they think that

02:18the unemployment rate right now is close to neutral.

02:21So they don't think it has to go higher.

02:23If we do see it going higher, they may consider cutting faster and deeper.

02:29So I think for now, the market will like what it sees.

02:34I think the big risks, the negative risks for the market would be either that it looks

02:40like the policy is failing, that the unemployment rate keeps going up even as they cut, and

02:45it's not having an impact, then all sorts of profit warnings would trigger.

02:50Or conversely, if we're all wrong, I mean, and it just turns out that the inflation stalls

02:55at current levels and doesn't go further down, and the Fed really isn't able to follow up

03:03on all the cuts that are now priced in, that would be very negative, I think, for equities.

03:10Of course, you track global markets and, of course, other asset classes as well.

03:16What does this mean for emerging markets like India?

03:20Usually in a lower interest rate setup in the U.S., it's good news for emerging markets

03:25like India and China.

03:28From where we look at it, where there are arguments that Indian markets are expensive,

03:32do you feel that incremental foreign inflows will find their way into Indian equity markets?

03:38Will we turn a lot more attractive now on expectation of the rate cut?

03:42Well, yeah, I mean, look, you know, there was a bit of a carry trade, you know, even

03:50when Fed funds was, you know, or even with Fed funds at 5 percent, the Fed funds goes

03:56down to 3 percent, that carry trade is going to be even more attractive.

04:02And it applies to several emerging market countries where the yield differential with

04:07the U.S. is quite high.

04:09So I think it should be a positive for most of the EM, especially, you know, the parts

04:15of the EM that are, you know, well managed, conservatively managed, have respected central

04:20banks.

04:21I think that the currencies at least should benefit.

04:24Steve, just wondering what you think of the latest sort of, you know, rise in tensions

04:32in what has happened over the weekend with Hezbollah firing into Iran, Iran's preemptive,

04:38sorry, into Israel, Israel's preemptive sort of strikes and the concern that this is only

04:43going to grow bigger.

04:44Now, crude prices have largely ignored the Middle East scenario for some time.

04:51The bigger concern seems to be what the demand will be in China.

04:54But do you see this as a major issue panning out on the horizon that really hasn't been

04:59accounted for?

05:01I think market analysts have a lot of trouble becoming political analysts.

05:07What I can see is that even though oil prices have gone up since the Friday close, you know,

05:13say, West Texas is still, you know, well below 80.

05:17Even Brent is a little bit below 80.

05:20You know, there is concern, but it doesn't seem to be overwhelming concern yet in the

05:25markets.

05:26What I've seen, say, over past episodes of geopolitical tensions is that the markets

05:33tend to be pretty resilient unless the fears, you know, really realize themselves.

05:40And so I think we're still in the resilient stage right now.

05:43Right.

05:44Steve, a couple of areas that you're an expert on, and that's currency markets.

05:50The dollar will, of course, and has been weakening on anticipation of that much expected

05:56rate cut on the 18th of September.

05:59Where do you see the dollar index headed and also the dollar rupee?

06:03How do you see that play out?

06:04I know the Indian rupee versus the dollar is a fairly constrained and limited, you know,

06:09trades in tight range usually.

06:11But what's the verdict on the dollar rupee and the dollar index?

06:15Well, we actually expect the rupee to appreciate.

06:19We think that the current level is quite high and is certainly going to beat the forwards

06:24and beat the forwards nicely.

06:27The dollar overall, you know, we could see some, you know, consolidation, maybe even

06:33a little bit of strengthening temporarily in the fourth quarter.

06:38I don't think it would mean much, but I think that the you know, we've had a big move.

06:42And as you said earlier, there's a lot priced in.

06:46But I think the direction of travel for the dollar is to get weaker.

06:51You know, it may be more in 2025 than in 2024, but the you know, I think it's going to be

06:58a weak dollar year in 2025.

07:01So weaker dollar in 2025.

07:03A quick check on lastly, before we start wrapping up.

07:07What is the world?

07:08I don't know whether you track commodities closely, but it'd be unfair if you do.

07:10And I don't ask you about gold, because that's been the best trade of 2024.

07:14It seems like it.

07:15Even more is to come from what people, what traders and investors are indicating.

07:20Do you track gold?

07:21Do you have a word on gold from year on?

07:24What's the next stop?

07:25You know, gold has a lot going for it now.

07:28Central banks love it as a reserve asset.

07:33Certainly with rates cutting down, you know, coming down, there's, you know, historically,

07:38that's been a positive driver of gold.

07:42And when the dollar weakens, that also helps gold.

07:45So you know, gold is a very good situation.

07:49It's not a bad time to be a gold miner.

07:53All right.

07:54Thank you so much, Steve.

07:55Always a pleasure speaking with you, Steve England, there of Standard Chartered.

Will Fed Cut Rates By Half A Point In September? | NDTV Profit

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