'Markets Are A Bit Concerned That A 50 Basis Points Rate Cut Is Too Much': Geoff Dennis

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00:00We are joined live from North Carolina by Jeff Dennis, who is Independent Emerging Markets

00:06Commentator.

00:07Jeff, thanks so much for taking the time.

00:09I am curious about what you think because there was a bit of a slip of the tongue by

00:12the Fed Chair when he was talking about there is no increased risk of a recession and then

00:17he corrects himself to say a downturn.

00:20The question that a lot of observers will probably be asking is if there was no elevated

00:27risk of a downturn, then why a 50 basis point cut and why not a smaller cut?

00:34I was a bit surprised personally.

00:35I thought they would probably cut by only 25 today, so I'm not the best person to ask,

00:41I think.

00:42But I think the answer here is that after a very, very sharp cycle, up cycle of interest

00:49rates, they probably wanted to get this cycle moving with a nice cut and then set up a whole

00:56series of smaller cuts.

00:57In other words, begin with a bang, if you like.

01:01But I also think it reflects two things.

01:04First of all, the inflation data has got remarkably better in the third quarter, so it does give

01:11them the room to take out some more insurance against an economic downturn because we're

01:18now at two and a half percent basically on the PCE price index and on headline inflation

01:25heading towards two.

01:27And although the economy does look okay, the labor market is weakened.

01:31And so I think you treat it as the start of a Fed fund cycle, and it's a bit of insurance

01:38that the conditions for lower rates are better than they were, obviously, three months ago.

01:43Okay.

01:44I will ask you about equities, but I'm curious what you think about the other asset classes

01:49because there have been certain comments about credit becoming more attractive with the rate

01:54cut.

01:55We saw gold prices hit an all-time high in yesterday's session, overnight as well, before

02:00coming off very slightly.

02:02What do you think about that, as well as the dollar?

02:06Where do you think that is headed?

02:07Well, some of the price action would suggest the markets are a bit concerned that the 50

02:13basis point cut is too much and doesn't the margin raise the risk of some uptick again

02:19in inflation.

02:20Gold doing very well.

02:22The bond market basically not reacting at all.

02:25You haven't seen any net any decline in yields on the back of the Fed's decision, although

02:30of course some two-year rates have come down.

02:33I think that although the dollar did fall this morning before the Fed's decision and

02:40did fall further immediately after the Fed's decision, it's rallied a little bit over the

02:47last few hours, clearly.

02:49So the dollar's a bit confused as well.

02:51Now, I truly believe, and I've said this many times on this show, that if we are at the

02:56beginning of a pretty big interest rate cycle, and I think we are and the Fed's mapped that

03:01out, you know, with interest rates down to three and a quarter to three and a half by

03:05the end of 2025, ultimately that will bring the dollar down significantly.

03:11And I think that's good for equities, but I think in particular it's very good for emerging

03:15market equities.

03:16Fantastic.

03:17So that sets up the perfect question.

03:19How do you look at India in the context of where we are right now?

03:23We've got more clarity than we did perhaps a month back, but a lot of people are saying

03:29that India is expensive where it stands right now.

03:32What is your opinion?

03:33India is always expensive.

03:37And I think that I personally still like the story very, very much.

03:41There's a lot of conversation out there about is it time to rotate from India into China?

03:46The answer to that, in my opinion, is absolutely no, it is not the time to do that.

03:51India and Taiwan have been the big drivers of what gains you've had in emerging markets

03:55this year.

03:57I think the lower dollar, if we get that coming through, will provide a little bit of support

04:03at the margin for the rupee, which has ticked up a little bit recently, not by much, of

04:08course.

04:09But also the other thing we've not discussed here is oil prices have come down a long way,

04:13which is also very beneficial for investor sentiment towards India.

04:17So I still really like the India story.

04:20The growth backdrop is good.

04:23The earnings numbers, of course, are, as ever in India, somewhat patchy.

04:27But I don't think there's anything to worry about valuations here today that we should

04:33have worked, you know, when we didn't worry about them three, six months ago.

04:36And in particular, I wouldn't do much rotation out of India into other markets like China

04:41at this point.

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