00:00Adam, are we still thinking about the yen this morning? I mean, to some extent, this was yesterday's real area
00:05of focus, wasn't it?
00:06But today we see the yen underperforming a little bit, and that's perhaps not what those who want a stronger
00:13yen wanted to see.
00:14So what's our latest conclusion as to whether this intervention by the Japanese and the Americans will work?
00:19Yeah, I think when you consider the fact that we've had a couple of confirmed rounds of intervention now,
00:24which is also coordinated with the U.S. and have had warnings from the U.S. Treasury Secretary Best,
00:27it's been particularly disappointing. I mean, even at the trough, we didn't really break through the May lows.
00:32I think the Japanese officials would have been hoping they would have got below 1.55.
00:37So I think when you also consider the positioning backdrop, I mean, yen shorts, they were higher since July 2024.
00:42Dollar positioning was at record highs on some measures. It's a pretty pitiful response in what we've seen.
00:48And I think, you know, ultimately, there's a couple of things at play here.
00:51One is that the BOJ just isn't playing its role.
00:53We kind of get this continued communication effort from them that they may do something at some point in the
00:58future.
00:59In a world, there's price of Fed hikes that just isn't good enough.
01:01And we saw some angst about the BOJ overnight. So that's soft 10-year JGB auction as well.
01:06So that's also front of mind.
01:08But also as well, quite simply from a geopolitical standpoint,
01:11with something out of control for Japanese officials, is that they need this war to end.
01:15They need oil prices to come lower.
01:17Yeah, so it's actually it's kind of a waste of money on this intervention unless you get a step in
01:22from the BOJ.
01:24Just on that geopolitical point, you know, the headlines flying around, the comments flying around,
01:29Donald Trump being pretty angry towards Iran, them saying that the talks aren't even happening.
01:37What does the market need to have greater progress?
01:41Yeah, I mean, I think there's a pretty high bar at the moment for success.
01:44You know, we saw Trump be relatively bullish on the prospects over the weekend.
01:48The same time Iran was talking with Oman about the Strait of Hormuz,
01:51it wasn't even about the full reopening of it.
01:53And traffic through the Strait of Hormuz is still particularly low.
01:56Then in other parts of the Middle East, traffic flows are relatively low.
02:00I think, you know, obviously we need to see Trump's bullishness over the weekend reciprocated from Iran.
02:03But we're just simply not seeing that at the moment.
02:06They're just saying that, you know, the U.S. needs to change its behavior.
02:09And I think even if we do get an interim peace agreement,
02:12then I think the market's going to be particularly wary of it,
02:14given that we've already had one broken down.
02:16And then since the onset of the conflict, as far as I can tell,
02:19there's been no progress on nuclear.
02:22So I think, you know, energy prices will stay sticky.
02:24And in that environment, upside for bonds is limited,
02:27you know, particularly in the U.S., where there's a real rate story,
02:29and then also for Europe.
02:30Yeah.
02:31Let me ask you about the data point of the week,
02:32which is non-farm payrolls due on Friday, of course, Adam.
02:35Are we concerned?
02:36I mean, last week we saw that steepener trade,
02:38partly due to the Fed narrative rather than the data.
02:40But we don't really know how the Fed is going to react to data.
02:43That's by design, Kevin Walsh has told us.
02:45So how are you thinking the market could respond then to this non-farm payrolls?
02:49Yeah, I mean, it's a big data point.
02:50You know, we need to play the ball, not the referees, Kevin Walsh says.
02:53And any data point now is a much higher vol event than it otherwise would have been.
02:57There's plenty of scope to reprice a September hike,
03:00only priced around 65%.
03:01I think it's more interesting if we get a hot report.
03:05Do markets really ramp up these wages at the front end?
03:08I think the Fed's getting behind the curve.
03:09But also at the back end of the curve,
03:11there's a real rate story which is really driving things as well.
03:14We saw a strong ISM yesterday.
03:16And if you see a strong NFP,
03:17do we start getting 30-year yields towards 5.3%?
03:21And that has also become a cross-asset story as well.
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