 Okay, hello and welcome to episode 93 of the market maker podcast and I feel very privileged because Pierce Curran has decided to join me this week. He's made some space in his schedule and But sorry, there was I don't think we've heard the story yet about that. I'm now Sat here doing this podcast with a full blown celebrity Ah Yeah, it did well well firstly, you know You're lucky I've managed to fit you in tight schedule and Yeah, just just count yourself lucky basically, but yeah, the yeah, I'm I'm famous And I've got an official measure for what what actually fame is Yep So as I was I was telling you I was in Birmingham last week And I was coming back from but I was at the University of Birmingham fact We run a few kind of modules and stuff there. So I was just up in Birmingham and coming back on the train at night and there was problems with the train and I had to get a connecting train from a lovely place In this country that I'm sure everyone will have been to classic holiday destination none eaten and So I was a connecting train that got so I was on the platform in none eaten and then got on there and someone else got on and anyway I sat down and then yeah, I learned behold someone else like plunks themselves right in front of me And I was about to kind of tuck into some food because I hadn't eaten all day and he plunked himself in front of me goes You that guy off that podcast Which your responses what don't want you talking about no, I'm not me alone Yeah, so being recognized on a train in none eaten is now the official measure Okay of fame. So unless unless that's happened to you. I don't think you're famous. Yeah, well, I mean Hello, and thank you for that person for listening. Yeah, hopefully listening to this episode. Yeah And can he connect with me on LinkedIn? I asked him to he works at Shroders he said he was going to connect. So don't remind a connect with me, please You you haven't followed through on your promise. Anyway Obviously your chats up lines need a bit of work Anti-climax in reality, obviously Another thing that I have seen is Spotify have started doing their year wrapped and if you're a Spotify user, you'll know talking about it basically Auto-generate some quite cool graphics around your most listened to tracks. You must listen to podcasts someone and so forth and shout out to Elliot Rumble. Yes Who? We I think we're there above Morgan Stanley and above the FT pierce. So That's right in terms of Elliot's listening hours. Yeah, I mean quite right So, yeah, I mean if if we do pop up on your feed It would be amazing if you could share it on your on your socials and it would do a great deal I'm sure to just get the word out and can I can I set a challenge because Another shag Steven Steven Barnett obviously amplify He's been on a couple of the podcast going back, but he dropped his in the slack chat this morning, and he's clocked 1762 minutes listening to to us which is But yeah, I mean look if it if that pops up in your feed And you could do like Elliot has done which is share it I guess LinkedIn is kind of the the optimal platform for that sort of stuff if you think people be interested It'd be much appreciated, but look, let's get straight down to it Because I know Given the celebs that you are peers. I've already got you I think for another 15 minutes So we're gonna talk a little bit about a keynote speech from the Fed chair Jerome Powell Which sent equities Rocketing yesterday, so I want you to break that down for a spot with said What are your thoughts where do we go from here and then talk a little bit about oil? Because of the looming OPEC meeting which is coming in a couple of days time and there's been quite a lot of Rumours flying around about what could happen and there's a few different elements. I think that need explaining around What might influence their decisions? So let's start with with Jay Powell. What happened yesterday? Yeah Well, what happened was stocks went sharply higher Of the back of what Jay Powell was saying that just kind of meant lots of headlines fodder for the press So I think the S&P Let me get this right was up three percent. I've lost my stat now I think it was up a three up three odd or three point one percent I think it was on the day the NASDAQ was up four point four percent just meant these indices closed out November in with a positive month and Which meant two months in a row of of gains for US stocks Which is actually the first time they've strung together two months back to back since last year so Yeah, very positive run into the close last night and this comes actually Just weirdly bang on the anniversary. So yesterday was the 30th of November. We're recording this on Thursday the first So yesterday happened to be the anniversary of the Fed pivot The first one because back on the 30th of November 2021 Powell delivered a speech that then With hindsight became to be the turning point in the feds sort of view on inflation And how they were going to tackle it prior to the 30th of November 2021 the Fed were downplaying Inflation they were using that word transitory as you'll remember and that don't worry no big deal blah blah blah On the 30th of November 2021 Powell made a speech and he said look inflation pressures were high and He said it's appropriate in my view to consider wrapping up the tapering of our asset purchases Perhaps a few months sooner because it's weird to believe that 12 months ago The Fed were still pumping their QE program. It's crazy, isn't it? But that moment was the pivot right inflation is higher than we thought it's not transitory We're gonna have to stop QE much faster and that then started this super steep Tightening cycle, right? So that was a the anniversary. That was yesterday. Anyway, just so happens Powell was speaking yesterday And it's yeah quite nice timing because maybe yesterday again is a bit of another pivot although the pivot was kind of preempted with the Fed meeting and the The last Fed meeting and the Fed minutes and maybe the inflation data that we had a few weeks back But what he said last night to make markets rocket higher He said the time for moderating the pace of rate increases may come as soon as the December meeting So there's not there's nothing new there, right markets are kind of already thinking they'll drop To a 50 basis point height in their December meeting having hiked 75 basis points at the previous four meetings So but this is like the clearest evidence yet from the man himself But December will be a 0.5 percent hike So so that's obviously good just to get even more certainty on that He said some interesting stuff like my colleagues and I do not want to over tighten I will simply say that we have more ground to cover History is cautious or history cautions strongly against prematurely loosening policy. So he kind of Contradicted himself a little bit there. So he's basically saying look, we're gonna slow down We don't want to over tighten, but you know, we don't want to prematurely loosen either So those hoping for our interest rate cuts in 2023 Maybe that's a bit ambitious But obviously that will that will the you know play out and it's data dependent, right? So if your view is that inflation is going to come down Pretty quickly next year then even though he said what he said last night, you know, don't expect premature loosening If your view is inflation will drop sharply Then we could well start to see the Fed, you know with that data coming through start to go Well, all right, maybe it is time to start cutting rates So yeah a kind of dovish angle to his speech last night that trade has got a hold of and Ramped up the equity space, you know across the piece See what one thing maybe just to elaborate. He spoke specifically about the labor market So maybe a bit of color on that. He said in order to bring inflation back down He warned that the labor market must become substantially Eventually softer and there would need to be a sustained period of below trend growth. So in layman terms What's what's he telling us there? Well, he's saying that Because for the last because it's not farm payrolls tomorrow, right? So how many jobs were created in November if you take the last three months? So job creation in August September and October then the average for the three is 290,000 jobs created per month, right now You need you'd expect job created like if the labor market was flat and the economy was flat You'd you kind of need a hundred thousand jobs created a month just to absorb the population growth Okay, so that 100,000 a month is like your neutral level. Okay, so 290,000 well, that's a hundred and ninety thousand above neutral jobs being created so he's saying that's still actually super strong and Ultimately, we're gonna need to see the labor market turn and pivot and we're gonna need to see job losses Which then results in that demand destruction Which then leads to price pressures falling. So he's basically saying that look, you know the labor market is still super strong So that's why I don't expect any rate cuts Anytime soon is what he's saying. So the now the fact he's put that job creation thing He's just put that right up at the top of the agenda In terms of incoming data in the future and actually I can point towards evidence of that It just happened nine minutes ago Because you asked me just before we hit record, you know What's happened with stocks this morning because you've been out at a meeting and I was saying well They're basically flat compared to last night So they rallied into the close last night off the back of pal's comments and then they're flat You know US futures trading flat this morning. So just hanging on to those gains, but nothing more until 130 p.m. They've just spiked and ramped higher again because we've just had the challenger job cuts numbers and they have massively gone up so 76,835 jobs cut in November That's the highest number since January 2021. So job cuts Looks like They're beginning and that's not a surprise because we've heard from all the tech big tech firms, you know We're laying off 10,000 here and 10,000 there and Twitter cutting that workforce in half Google thinking about job cuts. You know, what was it 11,000 job cuts at Facebook? All the rest of it. So it's not a surprise but the fact pals put He's put job Job numbers front and centre now I think for the months ahead for us now to gauge not When will they ends the hiking cycle because we think that's now in and it'll end either with the December meeting And being the last hike or maybe one more hike of 25 basis points thereafter. So we're pretty sure where the top of this hiking cycle is so now it's all about Well, when's the start of the cutting cycle? So in terms of like the equity move that we're seeing at the moment most banks on the streets Have been saying like your JP's your ms's and so on that this was a temporary rally And actually we were going to go back down retest print new lows again on the back of valuation multiple still to Decompress or language that they use. Yeah, have they got that wrong now then and actually Couple this with what might be happening in China although there's violent protesting if there is a softening in the COVID protocols Hey, it's very hard. I mean, I think it's it's a super hard one to call right now I think it's really, you know, I think we were talking about the bottom a few weeks ago and Looks like the bottoms in and the feds now saying right, we're gonna hike at a slower rate and and we've had a bounce And so the question is was the bottom a few weeks ago. Was it the bottom of this whole thing? Or not and it's hard to call I think the bottom for the years in so and I think we might have a positive December, you know the Santa rally December's typically a very positive month for stocks and I think, you know, we just need another You know soft inflation number out of the US for December or a really soft non farm payrolls number tomorrow Just to kind of continue that upward trajectory. What happens in 2023? You know, is this another temporary bounce on what? Continues to be an onward going downward longer-term trend. I mean, I think that's hard to call and it's entirely based on The inflation beast and does it come down sharply? It's entirely dependent on the geopolitical factors, you know, which obviously rushes one But then what about China as you're saying, you know, and I think they're really hard to call and predict So I don't know the jury's out on that and I think we'll assess that in a month or so is time I think but but for now, I think we're still pointing pretty positively into year-end I would say Okay, well, look, we've got a couple of minutes left so let's pivot over to pivot over to oil and let's talk a bit about OPEC because there's a Virtual meeting happening on December 4th and actually just by fact of it being virtual Sources to have suggested there might be any policy change Which I can kind of get to a certain extent is that I didn't realize it was virtual then why are they So is that normal or why they didn't it's not well over it? It was it would it wouldn't be normal And they've only recently decided to do that and Reuters sources yesterday were suggesting that that lowers the likelihood of any policy change But why the shifts are virtual, do you know? Well, you know how OPEC works these decisions have really been made Yeah, there's no need for meetings. The other thing of course was that Saudi Arabia So this was two days ago Saudi Arabia and other OPEC members are reportedly considering production increases So everything you've just spoken about in the economic the macro context was about slowdown Rising unemployment Everything that would constitute the opposite normally and for a consumption oil point of view But the Wall Street Journal was reporting that Saudi specifically and others were talking about considering a 500,000 barrel per day increase to production. Yeah, though Well, why are they doing that? And what's the connection with Russia within this in the EU? Yeah, so the something big is just happening. It's just happened today. Well, is it big? We don't know yet. What's happened is today the 1st of December is kind of officially the beginning of the Europe's sort of sanctions on Seaborn Russian crude oil now they made noises about this back in the summer. They said, right, we're gonna stop buying Russian seaborn oil, okay But we're not we're only gonna stop doing that in December to give us a bit of time to Shift and adapt and find alternative supplies. Well, now it's December So the band starts today So EU countries are no longer going to be going to be buying Russian seaborn oil There's a lot of oil being piped Which is a different matter But the the other thing they've gone one further because what Europe are doing their sanction is we will not buy any and We will not ensure any Russian oil tankers that are going to any other country in the world unless the buyer Agrees to not buy crude oil above a certain price now We're not sure what that price is There it's been ranging between like something as low as maybe even $20, but more likely probably something in the $60 range So let's say if India want to buy Russian crude oil They have to pay they have to adhere to the European price cap if Russia want the European insurers to ensure that boat Which is now European insurers is the biggest insurance market They account for all the boats, but not all of them But the point being where you could say well, all right, we'll just do it without insurance Well, India wouldn't do it without insurance But you could say well Russia could ensure it or India could ensure it But the problem is Europe control all the ships So in order for Russia, so we don't know what's going to happen Will India continue to buy Russian oil if so, how are Russia going to get it there and Are there any alternative ships that they can use and the answer is yes, but probably nowhere near enough To maintain their current supply to India So we're not quite sure how this is all going to play out India said well, you know, I'm not going to play ball I'm not Europe. I'm not adhering to your price cap. Thanks, but it's just more a question of logistically How they're going to get it there. So there is a genuine risk that Russian crude oil drops off quite sharply Which is why I think the Saudis are talking. Well, look, we'll increase production to offset that But there's a hell of a lot of unknowns in here So I think in the next month or two, it'll really play out You've got some analysts thinking that oil is going to ramp to 120 bucks here Because Russian supply will drop quite sharply and it won't be able to be the gap won't be able to be filled by Saudi So, yeah, I think we're entering into quite an unusual and an entirely unique period of uncertainty on supply So it'll be interesting to see what OPEC do over the weekend or whether it's a month too early Because they haven't really got any data on how this is all going to play out particularly But Russia will be talking to Saudi on Sunday to say what are their alternative plans for getting oil to India? And to China, of course So we'll see how this plays out just just on that supply side The other issue is if you're thinking about just global supply generally Well, US stockpiles of crude oil because during all this time Biden's been tapping their emergency reserves Because he needs to win a midterm election and he needs to get the petrol price down. So he's been greedily tapping the US Emergency supply to the point where that is now carrying the lowest number of barrels since the year 2000 and actually if they keep going they're not far off having the lowest amount of emergency supply since the 1980s So That's another supply concern if this Russia supply thing if it is worst case and it drops off much sharper than expected Not much US emergency supplies. You could get a bit of a ramp higher in crude prices Into the new year, which of course then what does that mean for the inflation story? Is that now another chapter of? High inflation or so. Yeah There's a lot of mixed it one thing I would say is I don't think people should get too anchored by the idea of having to wait A month for OPEC to observe and respond I think if needs be that they will just do what's necessary. They won't hang about this is OPEC The other thing then is what what about? China there's obviously been quite a few developments happening in China this week namely that of very unusual public protesting against the government's mandate of zero tolerance COVID and usually because of the fear of reprisal from the government so Yeah, any thoughts on that and whether Xi will Move and how so to respond to quell that rise up rising well, I think they've they've moved from they they've kind of Yeah, I think these Let's get a lot of press attention in the West of course and I there's been quite a lot of demonstrations in China this year Which haven't got as much attention. There's a lot of demonstrations around mortgage payments Related to the fact that the property market was crashing and that there were a lot of unfinished departments and Evergrande and the rest of them were perhaps Defaulting and that meant that people were paying mortgages on unfinished departments And so there was a big demonstration around that and you know people Striking and lots of stuff going on around that. I think what's different here is Those those demonstrations earlier were squarely focused on the home builders, right and Evergrande now It's not it's on Xi Jinping himself and indeed I think well, certainly the West were very keen to report the one demonstration was was, you know Shouting calling for the removal of Xi Jinping in a regime change It's hard to say whether that was a general theme across all the demonstrations in all the cities I doubt it, but um, I I don't know. I still think at the moment. It's probably it will blow over Is my sense But it's hard again, it's so hard to predict isn't it and it will be COVID dependent and whether these lockdowns Do ramp up or not? So yes, Xi Jinping's treading him kind of tightrope at the moment So if you are Gonna go one of two ways in terms of the current COVID situation because from a case rate perspective that has gone up Yeah You know in China and so whether or not that requires more lockdowns will see it probably will do to some extent So is that does that? Compound the already negative trend for the Chinese economy in the short term or is it actually a positive In a sense that the government will be forced their hand to make some type of change that that change could be monetary Fiscally it could be in various different forms even in the actual COVID policy in itself So actually does it does COVID reemerging in that way? Force the hand or does it just then make the situation that's already bad bad worse Yeah, I mean maybe that's his out, right? It's look we're maintaining stubbornly with this zero COVID policy, but Look to just calm you lockdown. Here's a wave of fiscal stimulus Hmm, you know, here's a stimmy check You know, I actually wouldn't be surprised if that's the kind of line He takes to keep everyone happy in which which was apples solution to the focus on issue by the way By the way, I think they were throwing 1300 bucks US that each individual So but the problem with the problem with that is it isn't that inflationary again No, because suddenly a massive stimmy check lands on the door mat and well, what are you gonna do? You're gonna spend it, right? So you could get another temporary spike in demand and then you got your supply chain issues still. I mean Yeah Don't know. So that's why that's why I say 2023 even though we're almost there I think it's still super hard to call it because there's so many moving parts So I'm kind of in a wait and see I'm a I'm a relatively positive into year end With then let's set less wait and see till we get there as to what I think about next year Okay, well, we'll end it there. I know, you know, I know you don't like laying George could only wait for lunch So I'll let you go and yeah, we'll speak again next week. Thanks, Piaf. Yeah. Have a good weekend. See you