The MUFG Global Markets Podcast

Markets want a “Fed Pivot” and they may get a “Fed Pause” instead: The MUFG Global Markets Podcast

In today’s episode, MUFG Head of U.S. Macro Strategy George Goncalves continues to suggest that the markets’ belief that the Fed has or is about to pivot is just wishful thinking and is more a narrative being used to explain the markets performance as of late. George thinks that inflation remains the Fed’s main focus. Even if the assumption is that the peak in headline inflation is behind us, so long as core PCE inflation stays elevated, it’s a binding constraint for them. Thus those in the marketplace expecting the Fed to dial back its hawkishness and/or eventually flip into easing in 2023 might be getting ahead of themselves.
In many ways George suggests the recent financial conditions easing during the summer of 2022 will require the Fed to lean further into tightening if they truly want to become restrictive. We expect rates to get deeper into the 3% range for the base rate soon and if max-QT in September/October does not result in a material tightening of financial conditions, the Fed may have to lean even harder to get their desired results on reigning in core inflation via slowing down aggregate demand. At a minimum the longer it takes for inflation to get to the Fed’s 2% target, it’s likely they don’t pivot but instead pause at a higher rate level.
Disclaimer: www.mufgresearch.com (PDF)

Japanese investors start to rebuild foreign bonds positions after selling a record amount the first half of the year: The MUFG Global Markets Podcast

Spot Dollar/Yen, Yen rate, and cross-currency basis have behaved well as of late, and we expect this to continue. The Nikkei Average has reversed course and rallied reflecting an improvement in risk sentiment. Separately Prime Minister Fumio Kishida has reshuffled his Cabinet early. 
In today’s episode, MUFG Chief Japan Strategist Takahiro Sekido reviews Japanese investor activity in foreign markets as reflected in Japanese Ministry of Finance data. He also shares his views on spot Dollar/Yen, Yen rate, and Yen basis.
Disclaimer: www.mufgresearch.com (PDF)

USD and the Fed’s battle with inflation: The Global Markets FX Week Ahead Podcast

After a weaker than expected US CPI print this week, Derek Halpenny, Head of Research Global Markets EMEA and International Securities explains to Matthieu Gloux, Head of Global Client Sales EMEA, why the data itself might not have much significance for the financial markets over the near-term. Derek also looks back at 2s10s curve inversions to assess equity and FX performances. The US dollar is set to strengthen further from here with the Fed’s battle with inflation far from won.

Record streak of capital outflows from EMs: The MUFG Global Markets Podcast

Foreign investors have pulled funds out of emerging markets for five consecutive months in the longest streak of withdrawals since records began in 2005, underscoring how recession apprehensions, tightening in global liquidity, geopolitics, the stronger US dollar and rising interest rates are jolting sentiment.
In this week’s podcast, Ehsan Khoman, Head of Emerging Markets Research (EMEA), delves into the details and offers insights into the recent dynamics in cross-border capital flows and what may be in store for the remainder of 2022.

Summer Sunday Burnout and the Mortgage Basis Outlook: Thee MUFG Global Markets Podcast

In today’s episode, MUFG Head of Prepayment Modeling and Strategy Glenn Schultz reviews the July prepayment data, burnout in the moderately seasoned cohort and its implication for refinance risk in the new production cohorts, as well as the agency MBS basis relative value outlook.
Disclaimer: www.mufgresearch.com (PDF)

Post-NFP/Pre-CPI Thoughts: The MUFG Global Markets Podcast

In today’s episode, MUFG Head of U.S. Macro Strategy George Goncalves reviews the market price action post the strong July NFP report and what to look out for in the upcoming CPI report. At a minimum, the latest NFP report has made market participants put the “Fed pivot” concept on the backburner as the ongoing robust job growth, along with higher wage inflation, suggests that the Fed will have to lean harder to tightening monetary conditions to weaken aggregate demand.
Meanwhile, George believes that markets will start to focus more on core inflation versus headline, which historically has been more volatile. Lastly, markets remain on edge, but once we get past this week’s CPI report and bond supply, it’s possible that the summer lull sets in with rates grinding out to potentially slightly lower rates. However, George suggests that investors should stay focused and expect an active market once activity picks up in September.  
Disclaimer: www.mufgresearch.com (PDF)

Foreigners cover shorts in Japanese bonds while Japanese investors show signs that they are done selling foreign bonds: The MUFG Global Markets Podcast

Neither Dollar/Yen FX, JGBs, or Yen cross-currency basis have moved much as of late, ahead of the lull of the Obon summer holiday. Separately, recent torrential rains and flooding damage in Niigata and Yamagata prefectures highlight the great dangers of climate change and the need for the BoJ’s climate change operations.
In today’s episode, MUFG Chief Japan Strategist Takahiro Sekido reviews cross-border security flows and changes to the monetary base during the month of July. He also shares his view on spot Dollar/Yen, Yen rate, and Yen basis.
Disclaimer: www.mufgresearch.com (PDF)

USD bounces back as dovish Fed policy pivot delayed: The Global Markets FX Week Ahead Podcast

This week, Lee Hardman, Currency Analyst, and Reza Nasehi, Vice President of the Japanese Client Sales Group for EMEA in London, discuss the main triggers for the USDs bounce back over the past week, and whether it is likely to extend further into the week ahead.
Reza and Lee will also discuss if the flare up in geopolitical tensions between the US and China over Taiwan will have any implications for FX markets. 
Disclaimer: www.mufgresearch.com (PDF)

Demystifying debt, distress and defaults across EMs: The MUFG Global Markets Podcast

Emerging markets are caught in the middle of a perfect storm. Indebted governments have spent capital they didn’t have to shore up healthcare systems against the pandemic. Then, the war in Ukraine turbocharged commodities, with central banks raising borrowing costs to quell inflation. To make matter worse, the Fed’s twin tightening – higher cost of funding and withdrawal of liquidity – alongside a lower gear in China, is biting, inhibiting capital flows with many investors retrenching from assets in emerging markets.
In this week’s podcast, Ehsan Khoman, Head of Emerging Markets Research (EMEA), contextualises the state of affairs, and believes that the odds are rising for a wave of bond defaults, with nearly a quarter of emerging markets now trading at distressed levels.
Disclaimer: www.mufgresearch.com (PDF)

Markets are trying to pivot for the Fed: The MUFG Global Markets Podcast

In today’s episode, MUFG Head of U.S. Macro Strategy George Goncalves explains that the broader markets are increasingly more concerned about recessions and growth versus just focused on inflation, however the Fed has not taken its eye off of the elevated levels of inflation. Thus it’s too early for markets to force a pivot and rally on bad news, as if the Fed would come to the rescue and stop hiking and/or ease.
We think a couple more hikes are in store for 2H22 and that should keep curves inverted and eventually weigh on other asset classes, too. We briefly highlighted our views from a joint publication with the capital markets team on a piece called “Mixed Signals: An Assessment of US Recession Risk in the Year Ahead” reviewing our take on recessions and the signals we use to assess them.  
Disclaimer: www.mufgresearch.com (PDF)