December 4, 2025 • 41 mins
Big tech is stumbling while pharma stocks surge, what does that mean for markets heading into 2026? In this episode, Anthony and Piers unpack why Nvidia, Microsoft, and Amazon are dragging, while Eli Lilly and Merck lead a surprising rotation. They also explore shifting Fed rate cut expectations, conflicting US labor data, and what it all signals for the S&P 500’s next move.
We also break down Deutsche Bank’s “triple whammy” dollar call, Trump’s Fed chair pick, and why a yen carry trade unwind could shake crypto markets. Plus, UK PMI surprises and pound strength, are brighter days ahead for the UK economy?
Tune in for easy-to-follow macro insights this week!
(00:00) Topics & Listener Shoutouts
(02:51) Big Tech Wobble, Pharma Surge
(09:16) Fed Cut Expectations & Labour Data
(18:27) Trump’s Fed Pick & Market Reaction
(24:23) Deutsche Bank US Dollar Call
(30:07) Yen Carry Trade & Crypto Risk
(36:01) UK Budget Bounce & PMI Surprise
*****
Last chance to join our in-person Finance Bootcamp in London 15-19 December 2025. As part of our podcast community, you can use the code BOOT500 at checkout for a £500 discount.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Hello, and welcome back to the Market Maker podcast.
And we've got lots to talk aboutfrom a macro perspective, all
very much interlinked, even though we might go into about 5
or 6 different things. And these are going to be for
the headlines. the US dollar facing a December triple whammy,
according to Deutsche Bank. So what is this triple whammy?
(00:23):
And I think Pierce thinks it's aquadruple whammy actually.
So we'll see what element #4 is in that, that mix.
And then we've had conflicting US labor signals.
They continue to shape expectations around a fed cut.
However, that's roughly trackingabout 90% when I last checked.
So things aren't changed a greatdeal with that.
(00:46):
Equities are back to almost all time highs, but an interesting
breakdown on how what's under the bonnet and driving those
gains has shifted a little bit over the last few months.
And then who's going to lead theFed next pivot update.
Trump has been quite vocal this week.
I think he's got his man, so to speak.
So I don't think there's too many surprises there, but we can
cover that. And then something that I was
(01:08):
reading about and would like to,I know Piers, just so good at
making the complex super simple to understand and the yen carry
trade unwind. So that might be foreign to
quite a few people, but I know you can break that down, make a
bit more sense of that. And it comes at a time when
(01:29):
Japan are giving some interesting signals about
potentially shifting in policy to rate hikes.
So yeah, let's let's before I, well, actually before I dive in,
quick shout out to Marchello Porter, who I saw posted on
LinkedIn this morning because Spotify rapt is out and we were
(01:53):
his number one on his list for who he listens to bumping
Goldman Sachs and Morgan Stanleyinto second and third place.
So got a lot of time for my cello there.
And then also quick one to Siobhan O'Neill who who messaged
me as well on LinkedIn. She said it really helped her on
her commercial awareness. And actually she's starting a
(02:16):
training contract at Clifford Chance.
So not even, not even finance. Interesting.
She said. It really helps actually just to
understand, you know, the practicalities of the economy
and finance and so on. And then finally Aza, who I met,
lovely lady, came over from Omanon a bit of a tour of London.
She's seeing lots of different clients.
(02:37):
And yeah, hopefully we get to work with her and her team in
Oman. Little trip for you, perhaps
Piers in 2026? Yeah, sign me up.
But let's dive in, Let's talk about, well, maybe we could talk
about stocks first, because we're back in like touching
distance of all time highs. But this time big tech, which
(03:00):
has been such a predominant feature of of 2025, isn't
leading the rebound. And, and seemingly it's been the
last two months really where we've had a bit of a notable
shift. And in fact, it's actually some
of the some of the pharma names,your Eli Lilly's, your Biogens.
We're going to talk in our next M and a show about the biggest
(03:20):
IPO of the year coming in a similar type of line of business
as well next week. But Big tech is down.
The information technology indexas part of the S&P 500 is
actually down about 4%. There's obviously some
discrepancies amongst those big mega cap tech stocks, but yeah,
any thoughts on on that sort of rotation what we're seeing?
(03:43):
Well, if we just talk the index 1st and we can look at those
different sectors, Look, the S&P, you remember, if you go
back a few weeks like November's, you look at the
chart for November and we got a nice V shape and it's the same
like on the NASDAQ and pretty much any index you look at.
And so the first half of November was a real wobble.
(04:03):
It was a real test of the resolve of the, you know, the
perma bulls that have been, you know, driving this this
unbelievable rebound from the April roads.
So you've got this V the sell off first half of November was
about that wobble was about, oh,maybe the Fed aren't going to
(04:25):
cut rates in December. And so maybe that kind of part
of the catalyst for driving stocks higher had been like the
the Fed getting back onto the rate cutting kind of trajectory.
And so we had a little wobble. Maybe they're not going to cut.
But as you just mentioned already, we're now back to a
pretty much 90% chance of a Fed cut at them.
(04:46):
Final meeting of the year, whicham I right and say is that next
week the meeting? So you know, it's a it's a
pretty much a shoe in, right? So that that wobble has
rebounded. But it is important to note the
SP hasn't made new highs. So the high of the year and the
all time high is still the October 28th high.
So we have gone over a month here without making new highs,
(05:10):
which is pretty much a first since you go back to the April
low. It's the first time we've gone
this long without having a new high.
So yes, rebound, but not continuation of the bull trend
yet. I'm not saying it won't happen,
but so and that's because, yeah,the kind of lead category
driving that major rally from that April low was tech.
(05:31):
And big tech has just had a little wobble.
Like if you take over the last one month, Nvidia's down 13%.
So that's your big reason why, you know, NVIDIA was is even
though it's down 13 percent, is still the biggest company in
this index. So that's dropped quite sharply.
Obviously that's, that's the major story as to why tech
(05:55):
hasn't been participating as much and certainly hasn't been
leading this rebound. You've also got Microsoft down
7.6, you've got Amazon down 8.5.Came to that.
Well, Google's up nearly 13% andwe're going to talk about it in
our in our next episode. We'll talk a little bit about
the, you know, the GPU kind of market dominance of Nvidia's
(06:18):
chip and how that's starting to get challenged by some some
other major tic. You know, Google and Amazon
coming to the market with their own silicon and perhaps rivaling
Nvidia's market share IN20262027in the future, right?
So look, you've had, you've had a pretty interesting, Apple's
had a good month. They're up about 6%, right?
(06:38):
So when you look into the tech space as mixed, but because
NVIDIA and Microsoft, the two biggest are down.
Well, then, yes, you say, Oh, well, tech hasn't been
participating. But what is good is that we've
got a broader set of sectors that are contributing to the
upside, which has been one of the major sort of criticisms or
worries, if you like, about the sustainability of the rally was
(07:02):
that it was very narrow and it was just tech.
Well, now it's not just tech andpharma, particularly looking at
Eli Lilly's up 15% in the last one month, Johnson and Johnson.
So these are the big hitters, right?
Johnson and Johnson are up 10%. Merck, they're up 24, right.
You got Amgen up 16. That farmers the best performing
(07:24):
sector. And partly it's because you've
had some real a lot of MNA activity that we've covered on
our other show. But yeah, and what we're going
to talk about in our show next week will be the biggest IPO.
Well, it hasn't happened yet, but potentially I should say the
biggest IPO of of the whole yearwith Medline coming to market
(07:46):
probably early 2026. So look, there's a lot of
activity going on, right? And so I think it's been a
little bit of an under loved sector and it's just getting a
bit of a right revival. And because you got some big,
big guns in that sector, it's just really starting to actually
chip in and contribute to the overall index moving up.
So yeah, it's a healthy thing. The rally's not as narrow
(08:10):
anymore, but I would say, can the rally take another leg
higher? I don't think that can happen
without tech contributing, so we'll see, yeah.
True. I mean just given given the what
the tech sector is probably still over a third of the entire
(08:32):
index. Yeah, it's like 33% I think.
Yeah, it's around a third, yeah.And the concentration in NVIDIA,
as you said, is relatively large.
So, yeah, but they're down 14. So those are going to be people
out there going down 14. Yeah, I fancy that intent of the
year. And if they start to move in
(08:54):
order of five plus percent or then yeah, maybe it's gets.
But we're going to talk about, you know, Amazon has been a
challenger to NVIDIA. It was, I think when we spoke
this time last week, it was it was Google who are coming out
putting the cat amongst the pigeons on the AI race.
Now it's Amazon, but we're goingto save that for our next
(09:14):
episode as a bit of a deep dive.But one thing you were talking
about there was interest rates and how we've gone from not
sure. I think it was only a few weeks
ago we were saying it's 5050 andit's all in the air now.
It's pretty much locked down like you said.
So what's happening in the underlying economy?
So when we say like hard data, so things like the labour
(09:37):
market, which is obviously a crucial cornerstone of the the
policy setters decision making process, what's the labour
market looking like? Because we've have have had a
few signals this week, right? Yeah.
And you remember that we've had a bit of a blackout period
because of the government shutdown.
So we've lacked, you know, a consistent set of kind of
(09:59):
economic data flow in recent months.
So it's been a bit difficult. But now obviously the
government's reopened and you started to get catch up, but we
had an ADP labor market report that was announced yesterday.
We've got non farm payrolls tomorrow, right?
Which is kind of the big one, ifyou like, for the labor market.
(10:19):
But ADP is a pride looking at the private sector job creation
and that surprise to the downside.
And it came in at -32,000. So that's a decline and actually
said that yeah, that that's, that was notably bad.
And it's actually, I think the sharpest drop since 2023.
And just it's a further data point.
(10:40):
Like you look at these labor market charts, look at the ADP
chart, look at the non farm payrolls chart, There's only one
trend and it's only going in OneDirection that is down.
And, and so, you know, you've got a 12 month downtrend in
these data sets. And, and that really is the, the
driving force, I'd say behind the narrative that, look, the
(11:04):
labor market's turned, it's softening, you know, we're going
to have a kind of negative economic impact as a result of
that. Therefore, you know, you're
getting some commentators saying, right, we really should
be cutting rates. And that's why the Fed rate cut
expectation has climbed back to an almost certainty.
However, as ever with economic data, there's a lot of it, and
(11:28):
especially when it comes to the labor market, I mean, there's
like, I don't know, 100 different readings about the US
labor market from all the different angles you can
possibly think of. So actually we had the US
jobless claims last week. So this is a different.
So that ADP employment report ismeasuring how net job creation
(11:49):
each month in the private sector, and it was -32,000.
OK, So now you've got something else called initial jobless
claims. This is a weekly data set where
they're measuring the number of people that are claiming
unemployment benefit essentiallyfor the first time, right?
That's that's actually dropping.So that's less people claiming
(12:12):
unemployment benefit. That's a good thing.
So that's that's an indicator that the labor market is strong.
So that that's that's dropped. And look, if you're worried
about a recession, you just lookat the jobless claims chart and
that is nowhere near recessionary territory.
That's actually territory this labor market solid.
So we have got unusual circumstances with the whole
(12:37):
switch up in the migration flowsas a result of Trump coming into
office has made trying to read the labor market next to
impossible. And you do get conflicting
signals. So no matter your view, there's
a key data point you can use to back it up, right, if you're
(12:57):
bullish or bearish. But at the moment, as I said, my
main point is generally trends are weakening, which is why
we're seeing that rate cut expectation.
On that, on that Labour Point statistics you were just
covering there, does that not create in itself somewhat of a
Goldilocks scenario where rates are coming down, but the labor
(13:20):
market is kind of the sweet spotwhere it's enough, that enough
of the indicators insinuating weneed to cut, but there's some
underlying strength there that averts a risk recession.
So it's kind of like within thatband of panic and within sweet
spot, we're kind of just within the sweet spot at the moment.
(13:41):
Yeah, I'd say, but I mean, like you look at things like the
unemployment rate, right? And, and I mean, all right, it
has, it is the highest it has been I think for four years,
right. So when that rises, obviously
that's bad, the unemployment rate, but it's 4.4% with, you
(14:02):
know, over the longer term is a very healthy rate that again,
that's not recession territory, right?
You need 567 percent unemployment when you're, you
know, going into a recessionary cycle.
So. But yeah, as I said, it's just a
weird set up and I and I think that a COVID might be a hangover
of COVID. One thing to note, right, in
(14:23):
COVID, generally companies basically they had a labor
shortage. And when we were coming out of
COVID, it was impossible to hireanyone, particularly in like the
hospitality sector. And So what happened was we went
into a mentality of companies not firing people, even though
(14:44):
they perhaps ordinarily would have done in previous cycles,
not firing them this time for fear there'll be a labor
shortage again and they won't beable to hire.
So it might be that we're getting this situation where,
yes, job openings, so is down. So companies hiring new people
is perhaps down, but you're seeing less firing on the other
(15:08):
side, which maybe is creating this unusual setup in the labor
market just makes it hard to read so.
Yeah. And then the the see the labor
market is a crucial one, but inflation because with tariffs,
it seems to have gone just quiet.
(15:28):
There doesn't seem seem to be a lot going on at the moment on
the tariff. I know there's a Supreme Court
hearing going on, stuff like that.
But from where we were, if you think of 2025, yeah, it's
tariffs that have been like the predominant story of the year.
And yet that's not being spoken about.
And from from where we where we were in terms of like how that
(15:53):
was going to impact inflation. Yeah, to now where we're at now.
There's two reasons, yeah #1 themedia, they kicked up an
almighty kind of fear mongering storm ahead of Trump arriving in
(16:13):
office and his tariff policy andthen Liberation Day and Oh my
God, it's going to be inflationary.
It's going to collapse the global economy.
They really amped it up. It's just that they were wrong.
Hang about, are you going? Are you?
Trump. Trump slipped you some some back
pocket here. Well, it's.
(16:34):
Just my weekly media bashing segment of the pot.
So why, why do you think it's all gone quiet?
Because they're all sat there intheir corners going yeah, oops,
we didn't we didn't get that oneright, did we?
So look, it's just stopped beingthe column inches on it.
It's just vanished because I think they were wrong.
(16:57):
The other point is that obviously the big concern on
that front was China and the US and, and if there was some kind
of disastrous fallout with 150% tariffs, well then fine, you
know, it would have been a big thing.
But that looks to have not, you know, the risk of that happening
is obviously reduced significantly.
(17:17):
So, so that's why the tariff thing.
But look, I would say inflation,I'm looking at the US CPI chart
right now for September because again, we, we haven't had
October data because the government was shut.
I actually don't know. Do you know when, when are we
supposed, when are we getting October inflation data,
nevermind November, I'm not quite sure.
(17:38):
But if you go back, it'll be important when it lands because
the September figure was 3%, which was off the back of a six
month uptrend. That's back to the highest point
of the year that we saw back in January at 3%, right.
And so we don't want to see inflation go above 3% really,
because, again, that'll start feeding into the narrative of,
(17:59):
well, tariffs are inflationary and it's going to prevent the
Fed from cutting. So I really do want to see that
October inflation print. Not sure when it's coming.
OK. And then the other part of this
is sticking with Trump. Yeah, Is about what he's been
saying about his nomination for the Fed chair.
(18:21):
Yeah, this week. So where do we stand with that?
We had like a shortlist last time we spoke about this.
Is that now done? Well, so reminder is Powell
rotates off, I think it's May 2026, and then that's his term
done. And he's definitely not getting
another term. Trump would have preferred to
have got rid of him already anyway.
(18:43):
So Powell's out, right? So who's coming in?
And there's been some noises on this this week.
And on Tuesday, Trump said that he planned to name his pick for
the Fed chair early next year. OK.
And look, the media pushing him,you know, who's it going to be?
Who's it going to be? And they were asking about
Hassett and and Trump said, yeah, Hassett's definitely a
(19:04):
potential contender. Besson has been interviewing
these lot, all right? He's been running a kind of
multi stage recruitment process.Obviously, as you would, this is
a highly critical role that you can't get it wrong, right, That
recruitment process. So Besson's been kind of
interviewing people over the last few months, and I think we
had another round of these. And This is why it's kind of
(19:25):
come back up in the media. And Trump said, right, we're
going to make a call early next year.
But because he mentioned Hassettand him being a potential
contender, well, then actually the dollar reacted to that.
And we'll come on to the dollar in a bit more detail in a
second. But the dollar dropped off the
back of these comments. And that's because Hassett is in
Trump's camp. He's like his senior economic
(19:48):
adviser, and he's very much a Trump.
So in Trump's back pocket, so tospeak.
And he has been insisting that the Fed should be cutting rates
sharply. You know, he's called Powell a
stubborn mule and inverted commas in the past.
You know, he's right out of the Trump playbook.
(20:08):
So if he gets the job, well thenright, we should have, we should
increase our dovish expectationsabout what the Fed are going to
do with interest rates in 2026 in the second-half of 2026.
I should just point out if even if he did get the job, it's,
it's not just up to him, right? He it's not, there's a committee
at the FOMC, the FOMC, the Federal Open Market Committee,
(20:31):
and those people, those officials democratically decide
they each get a vote, right? So he has it can't cut.
He has to bring the committee with him.
But obviously having a chair who's super dovish can certainly
help to move things you. Say he can't cut.
Kind of disagree with that because he can cut by just
(20:54):
saying not that he's going to cut, but he can.
The difference is here is that he can turn to the mic at any
point in time as Fed chair, the most senior person of the
world's most influential centralbank, and whatever he says, by
definition of his role, would move markets regardless of the
(21:15):
committee's agreement or deliberation.
Well, here's your problem though, because if he's on the
one hand on the mic, you know, off the cuff going, we're going
to cut, we're going to cut, we're going to cut, but then
come FOMC day, they don't. Well, then this is where the Fed
lose credibility. And this is one of the big
(21:37):
concerns about the markets is that the Fed will that their
independence from the administration will be eroded.
And basically the Fed will just end up doing whatever the
president wants them to do. Rather than making decisions on
pure, you know, economic assessment, they might be making
(21:59):
decisions for political gain. That's the big concern, right?
And so, you know, you've got people prefer like the bond
markets and players in the markets would prefer someone
who's independent from Trump. Couple of names have cropped up
like black rocks. Rick Ryder has been that name
has been thrown in the mix. There's a Fed governor who's
(22:21):
already part of the Fed, Christopher Waller.
They would prefer those kind of guys.
But look, Trump would would wantone of his men, right, One of
his guys to lead that office. And so, look, this is in the
news whether it happens or not, We're going to find out early
next year that Hassett, he's qualified for the job, right?
He's not, not like just Trump's mate who wants rates to go down.
(22:45):
He's he's a he's a serious heavyweight from a kind of an
economic perspective. He's been the economic senior
adviser on presidential campaigns for John McCain,
George W Bush, Mitt Romney. You know, he's been around the
block. So he's got the credentials.
The issue is just people are worried he's too much in Camp
(23:05):
Trump and therefore the Fed's independence might be
threatened. So maybe where this lands then
is you have someone like Waller who's obviously of the existing
Fed members, probably the most Trump friendly.
So you have someone like that markets like it has still a bit
of independent thought, but a prefer preference for just
(23:28):
natural disposition of being more dovish than Powell is.
And then you have you have like a triangle.
Then you've got Trump there, you've got the senior economic
advisor in Hassett remains in his role, and then you have
Waller. And that's good enough for Trump
to get rates lower faster than what they're going at the
moment. And you know how it works,
right, With markets and their reaction and their behaviour.
(23:49):
If you start throwing out the Hassett card now, but then you
end up choosing Waller, then themarkets will be our few.
But you know that's a good result because he hasn't chosen
Hassett, so. We rally and then if we do have
a wobble, then you say, well I'mgoing to swap him with Hassett
(24:11):
and then we go again and rally because rates are going to go
down. So you keep Hassett as you're
like your trump card for later basically.
But this is one of the reasons why the dollar like why Deutsche
Bank are coming out and saying look, 2026 dollars going down.
(24:31):
Yeah, triple whammy. The triple whammy, one of the
cornerstones of that thesis is that the Fed are going to be
dovish and cut rates in 2026. And obviously this Hassett news
and all the rest of it feeds into that narrative.
And look, the dollar is going toweaken.
What were you going to understand about exchange rates,
(24:52):
though? The dollar exchange rate with
other currencies? It's obviously there's two
things, right? If we talk about the yen,
because this is the best example, right?
If the dollar weakens, the dollar has to be getting less
valuable than the yen. The yen needs to be appreciating
in value. But what's happening in Japan,
you know, just because the Fed are cutting doesn't on its own
(25:15):
mean the dollar will weaken. It's a relative game.
So are the Fed could be more dovish than other central banks
in 2026? And if you get that monetary
policy divergent, then yes, the best place to see that is in the
exchange rate FX markets. And Lagarde said what just a
(25:36):
week ago, that they're probably in the right place now.
Right. So you've got Europe saying
let's take the UK out of that, OK, this is the Eurozone are
saying that we're probably done on rate cuts.
The UK, I mean, well, I don't know, we'll touch on the UK in a
minute, but there's probably more to go on the rate cutting
side in the UK perhaps, But in Europe, rates probably not going
(26:01):
down in 2026 in Japan or by the way, in Japan, they're in a rate
hiking cycle, right? So literally going in the
opposite direction. Now they have paused that.
So Japan heights rates off. So pre this hiking cycle, it was
at minus nought .1% their interest rates, right?
They hiked in March of 2024, they hiked in July of 2024.
(26:26):
They hiked in in January of 2025.
And then they haven't done anything since.
But at their last meeting, it was a 7/2 split.
So you're starting to get some of the committee now saying,
look, it's time to hike again. So Japan are in a hiking cycle.
We're expecting maybe another one to come at the start of next
year. So that's your divergent
(26:47):
literally where interest rates are going in opposite
directions. So we anticipate that the dollar
will possibly weaken I'm in 2026if the policy divergent is
sustained. Right.
And then the other legs of the triple whammy.
(27:09):
So you've mentioned Japan sending signals of a potential
hike. You've got the dovishness with
potential hasset and then you'vegot a potential Supreme Court
ruling against tariffs, which isthe way it's gone in the lower
courts. And does that the idea there
being what it just softens the tail risk of inflation emerging
(27:31):
from tariffs? Yeah, but but that's negative
for the dollar. Yeah, So that's right.
I mean, that that cut that couldwork.
But my, my hesitation there is the whole narrative at the end
of 2024 was that Trump's going to come in, he's going to
implement tariffs and the dollar's going to go up because
(27:53):
it's inflationary. None of that happened.
In fact, the dollar weakened in 2025.
So I don't quite buy the story that if now tariffs are not
going to happen, the dollar is going to weaken because tariffs
did happen and the dollar weakened.
(28:15):
So why would it weaken when it doesn't happen?
So I'm I'm a little bit I'm on the fence on that third element,
that one other. Thing that Deutsche Bank who
came up with this triple whammy idea said was about the seasonal
seasonally weak December. So this is when you look back
through and compare average performance of a currency in the
(28:37):
different months of the year, year on year.
And one of the things of just having a quick look that the
dollar index is seen as worst average monthly returns in
December, largely in the second part of December.
What what AI is telling me, not my researcher Saab, is, is that
(28:58):
the patterns often attributed tocorporate tax flows and
portfolio rebalancing towards the end of the year?
Yeah, which can include shiftingcash abroad.
Right. And so that last point,
obviously the US is the biggest market.
So if you've got international asset managers running
portfolios, they're going to have a big portion of U.S.
(29:18):
stocks or bonds like in their portfolios, right?
And if those assets have performed well and generally
equities and particularly US equities in the last decade have
just been on fire, right? So at the end of the year, you
rebalance, it just means you trim, you book a bit of profit.
Let's simplify it by just saying, look, you book in a bit
of profit. But if you sell your NVIDIA
(29:40):
stock and you're a fund manager in the UK, well, you sell your
NVIDIA shares, which are dollar denominated, so you get dollars,
and then you convert those dollars back to pens.
So you're selling dollars and buying pens.
So that puts a little downward pressure on the dollar's
currency. So that that does make sense,
yeah. OK.
(30:01):
Well, look, 2, two more things then just to kind of wrap up
this part of the conversation, unwind of carry trade.
So you're talking there about this divergent of rates and
where they are and where they'reexpected to head in 2026.
And one of the things that we were seeing this week was that
(30:21):
cryptocurrencies have been up and down, But at the beginning
of the week, they fell quite aggressively.
On Monday, I think Bitcoin fell under 85,000.
Ether was down over 7% at one point.
So a couple of things there, regulatory warnings from China
and so forth, but fears that Bank of Japan rate hike wood
forest, an unwind of the yen carry trade and so a this kind
(30:46):
of carry trade concept and then why the unwinding of it now?
What are the repercussions and ramifications?
Yeah, this is a big, this is a big potential risk, but it's not
something new. As I said that Japan have been
on a hiking cycle for a year more, right?
So, but it hasn't really gone too far yet.
(31:09):
Japan are hiking at .1% at a time, right?
So it's, it's, it's slow, but the fear is it speeds up and
then I think we do have a problem.
So what is the carry trade? It's essentially this clever
trick where you borrow money to then invest, right?
So it's leveraged investment, but you're, so if you just want
(31:31):
to borrow money, great. Well, obviously you want to
borrow at the cheapest rate you can, you can find, right.
And if you're a clever player and looking internationally,
you're going to look around the world and right, who's got low
interest rates? Well, it's always Japan.
Japan have had low interest rates for 40 years, OK, or 30
years I should say, because theyhad a financial crisis in the
90s and basically deflation and they've had zero interest rates
(31:54):
since. So they've always been
considered the go to for the carry trade, meaning that's
where you borrow your money. So.
I got a good example of this from early in my career, I think
it was March 2008, so pre reallythe the financial crisis kicking
off when it was at its most prevalent like 07, the carry
(32:16):
trade Japanese interest rates were at 0.5% Australian interest
rates. What what?
What do you remember them being back in 2000 and sort of early?
Well, I know late O. 7 Early O 8.
Well, I know off the top of my head, I know that like US was
clocking around 5-6 percent thattime.
(32:36):
So I'm going to guess the Aussies are a bit more.
I'm going to say 7 1/2%. Good memory.
So Japan was 0.5, Australia 7.25.
How's that for a carry trend? Yeah, that's, that's good.
It's a lot of source there. So look, the point is you borrow
cheap. So you you that means you need
(32:58):
some yen, right? So you you bought well, sorry,
you receive yen because you're borrowing in Japan.
So you're going to get yen, All right.
Then you take your yen, you sellit and convert it to another
currency like the dollar. OK.
And then you buy Bitcoin like inan extreme example and look,
Bitcoin, if you look at the kindof market participants in the
(33:21):
crypto space, there's a higher proportion of risky leveraged
traders operating in that space,right?
So that's why you might say Bitcoin and crypto generally is
more vulnerable to this carry trade unwind than normal markets
like the S&P 500, where you've got, you know, just vanilla
(33:42):
participants like big asset managers who aren't leveraged
right? Now here's the problem.
That whole setup makes sense. Borrow in Japan, low rates, buy
Bitcoin to lever up my position.OK, that that's all it's all
fine unless well, what happens if it starts to get less cheap
to borrow in Japan because interest rates are going up,
(34:05):
right? And there's an exchange rate
issue as well because your loan is in yen.
So you might have a double whammy where if interest rates
in Japan go up, well then your interest rate on your loan is
going to be increasing. But interest rates going up in
Japan might lead the yen to appreciate.
OK. But if you're in the US yen
(34:27):
appreciating means actually the overall value of your loans
going up as well. So it's like a double whammy.
Now at some point, people are worried that it's enough of a
thing for people to start to unwind their carry trade.
They're no longer happy with thefunding source of their leverage
(34:49):
because conditions have changed.So they need to unwind it.
How do you unwind it? Well, I need to sell my Bitcoin.
I get dollars back for that. OK, so Bitcoin goes down.
I then need to sell my dollars to buy yen.
So the dollar goes down. And then with that yen cash, I
pay back my yen loan. So you kind of get that unwind
(35:13):
risk that people are really quite concerned about,
especially if the Fed acceleratetheir cutting cycle next year.
And if, if, if who knows, Japan accelerate their hiking cycle.
You really need to look at the dollar yen for a guide as to
whether that's really going to become a big issue and that that
(35:36):
unwind hasn't happened yet. I mean, maybe, maybe tiny, tiny
here and there, but it you'll know if it does because that
will be, that will trigger a really, really major market
episode. But at the moment it's it's
small. OK, to finish then, as we always
(35:56):
like to do a bit of a flying theUK flag here.
We've always been quite downbeatthrough 2025, the prospects for
the UK, but we've had some interesting news this week.
So what was that? Yeah, well, the and the pound,
I'll just preface this by sayingthe pound is on fire here.
The pound against the dollar. If you go back to two weeks, it
(36:18):
was trading at 1:30. I went out one 3350.
This is this is when the Labour government needs to take a page
out of the Trump playbook. If this was Trump and he was
getting beasted like the Chancellor Rachel Reeves has
over the budget, he'd be out there banging his drum talking
about what you've just said every 5 minutes.
(36:40):
I don't know why they don't do that, even though you and I know
that economically there's lots of reasons why pound other than
this data is going to. Basically the UK budget was last
week and we were really worried that they were going to
massively increase tax, they were going to spend more money,
IE borrow more money to spend more.
And we thought it was. And we've always got this Liz
(37:01):
Truss episode in the back of ourminds and Oh my God, it's going
to be a disaster. Well it well it wasn't from a
markets point of view, it was a markets friendly budget.
So the outcome was all the riskswe were worried about didn't
happen. So they are going to raise
taxes, but it's kind of all kindof back ended, you know into
(37:23):
like 202920282029. So they're not coming now.
So they're just going to spend more without without raising
taxes. So I think it's it's a market
friendly thing. Now, will it work from an
economic perspective? I think we're just in the same
old death spiral that every government has to spend more and
(37:44):
borrow more and cut taxes because that's what people want
to hear. And that's how you win votes.
So you're kind of in that kind of death loop where ultimately
borrowing debt piles are kind ofonly going one way and that's
up. So economically long term, I
don't know if it's a great thing, but short term for the
markets, it was like all those worst case scenarios didn't
(38:07):
happen. So the pound has rebounded.
And so, yeah, from that point ofview and maybe this feeds in, we
did actually get some data from the UK.
So that was the budget. We got some data which is more
hard evidence maybe. Well, it's not necessarily hard.
A lot of it's survey based, but we had some PMI data come in
(38:28):
that was much better than expected.
So actually on the manufacturingPMI side, that came in at 50.2,
which is notable because it's gone back above 50 for the first
time for, for 12 months. So that's expansionary
territory. And so that we, we had that, we,
we just had some good economic data for once out of the UK,
(38:49):
which coincided with this budget, you know, avoiding the
banana skins situation. And so, yeah, the pound has had
a really nice week. Well, we'll, we'll park for the
moment what you think about the pound's prospects for 2026,
because I think we're going to record next week our outlook for
(39:13):
next year where we can talk about maybe who's going to be
the winners and losers in the different asset classes.
Maybe that's a good way of goingabout it.
Like what's going to be the outperforming metal or
commodity. So we can talk oil and gold.
Maybe then we'll talk about U.S.stocks or any other competing
ones that might outperform or underperform in that case.
(39:35):
So yeah, stay tuned for that can.
We review, can we go back and what were our calls at the end
of 2024 and did they actually, were they right or did we just
really the. Only one I can think of is our
stock call. We're both.
Yeah, I think you were right. You were looking good in
(39:57):
February. Yeah.
I was looking great in April. Yeah, and I was looking good
about two months ago. And then it stops.
So I'm hoping for a little Santa's bump and then I'm all
gold and then we'll see. But yeah, stay tuned for that.
So don't forget to subscribe to the show.
Also, as I said at the beginningof the conversation, we have had
(40:18):
Spotify Wrapped statistics come out.
So just want to say huge thank you to everyone who who listens.
And you know, one of the standout statistics is our total
new audience. That's new people finding the
show was up over 600% in the last 12 months.
And this podcast has been going for about four years, so quite a
(40:39):
meaningful change up in gears. So I super appreciate everyone
who listens and predominantly who's sharing it.
I think WhatsApp is still the most common mechanism for people
to share it with their peers. So please do.
And yeah, the outlook for 2026 is going to drop before
(40:59):
Christmas, so keep an eye out for that as well.
Thanks, Piers. Cool, see you later.
Hello, and welcome back to the Market Maker podcast.
And we've got lots to talk aboutfrom a macro perspective, all
very much interlinked, even though we might go into about 5
or 6 different things. And these are going to be for
the headlines. the US dollar facing a December triple whammy,
according to Deutsche Bank. So what is this triple whammy?
(00:23):
And I think Pierce thinks it's aquadruple whammy actually.
So we'll see what element #4 is in that, that mix.
And then we've had conflicting US labor signals.
They continue to shape expectations around a fed cut.
However, that's roughly trackingabout 90% when I last checked.
So things aren't changed a greatdeal with that.
(00:46):
Equities are back to almost all time highs, but an interesting
breakdown on how what's under the bonnet and driving those
gains has shifted a little bit over the last few months.
And then who's going to lead theFed next pivot update.
Trump has been quite vocal this week.
I think he's got his man, so to speak.
So I don't think there's too many surprises there, but we can
cover that. And then something that I was
(01:08):
reading about and would like to,I know Piers, just so good at
making the complex super simple to understand and the yen carry
trade unwind. So that might be foreign to
quite a few people, but I know you can break that down, make a
bit more sense of that. And it comes at a time when
(01:29):
Japan are giving some interesting signals about
potentially shifting in policy to rate hikes.
So yeah, let's let's before I, well, actually before I dive in,
quick shout out to Marchello Porter, who I saw posted on
LinkedIn this morning because Spotify rapt is out and we were
(01:53):
his number one on his list for who he listens to bumping
Goldman Sachs and Morgan Stanleyinto second and third place.
So got a lot of time for my cello there.
And then also quick one to Siobhan O'Neill who who messaged
me as well on LinkedIn. She said it really helped her on
her commercial awareness. And actually she's starting a
(02:16):
training contract at Clifford Chance.
So not even, not even finance. Interesting.
She said. It really helps actually just to
understand, you know, the practicalities of the economy
and finance and so on. And then finally Aza, who I met,
lovely lady, came over from Omanon a bit of a tour of London.
She's seeing lots of different clients.
(02:37):
And yeah, hopefully we get to work with her and her team in
Oman. Little trip for you, perhaps
Piers in 2026? Yeah, sign me up.
But let's dive in, Let's talk about, well, maybe we could talk
about stocks first, because we're back in like touching
distance of all time highs. But this time big tech, which
(03:00):
has been such a predominant feature of of 2025, isn't
leading the rebound. And, and seemingly it's been the
last two months really where we've had a bit of a notable
shift. And in fact, it's actually some
of the some of the pharma names,your Eli Lilly's, your Biogens.
We're going to talk in our next M and a show about the biggest
(03:20):
IPO of the year coming in a similar type of line of business
as well next week. But Big tech is down.
The information technology indexas part of the S&P 500 is
actually down about 4%. There's obviously some
discrepancies amongst those big mega cap tech stocks, but yeah,
any thoughts on on that sort of rotation what we're seeing?
(03:43):
Well, if we just talk the index 1st and we can look at those
different sectors, Look, the S&P, you remember, if you go
back a few weeks like November's, you look at the
chart for November and we got a nice V shape and it's the same
like on the NASDAQ and pretty much any index you look at.
And so the first half of November was a real wobble.
(04:03):
It was a real test of the resolve of the, you know, the
perma bulls that have been, you know, driving this this
unbelievable rebound from the April roads.
So you've got this V the sell off first half of November was
about that wobble was about, oh,maybe the Fed aren't going to
(04:25):
cut rates in December. And so maybe that kind of part
of the catalyst for driving stocks higher had been like the
the Fed getting back onto the rate cutting kind of trajectory.
And so we had a little wobble. Maybe they're not going to cut.
But as you just mentioned already, we're now back to a
pretty much 90% chance of a Fed cut at them.
(04:46):
Final meeting of the year, whicham I right and say is that next
week the meeting? So you know, it's a it's a
pretty much a shoe in, right? So that that wobble has
rebounded. But it is important to note the
SP hasn't made new highs. So the high of the year and the
all time high is still the October 28th high.
So we have gone over a month here without making new highs,
(05:10):
which is pretty much a first since you go back to the April
low. It's the first time we've gone
this long without having a new high.
So yes, rebound, but not continuation of the bull trend
yet. I'm not saying it won't happen,
but so and that's because, yeah,the kind of lead category
driving that major rally from that April low was tech.
(05:31):
And big tech has just had a little wobble.
Like if you take over the last one month, Nvidia's down 13%.
So that's your big reason why, you know, NVIDIA was is even
though it's down 13 percent, is still the biggest company in
this index. So that's dropped quite sharply.
Obviously that's, that's the major story as to why tech
(05:55):
hasn't been participating as much and certainly hasn't been
leading this rebound. You've also got Microsoft down
7.6, you've got Amazon down 8.5.Came to that.
Well, Google's up nearly 13% andwe're going to talk about it in
our in our next episode. We'll talk a little bit about
the, you know, the GPU kind of market dominance of Nvidia's
(06:18):
chip and how that's starting to get challenged by some some
other major tic. You know, Google and Amazon
coming to the market with their own silicon and perhaps rivaling
Nvidia's market share IN20262027in the future, right?
So look, you've had, you've had a pretty interesting, Apple's
had a good month. They're up about 6%, right?
(06:38):
So when you look into the tech space as mixed, but because
NVIDIA and Microsoft, the two biggest are down.
Well, then, yes, you say, Oh, well, tech hasn't been
participating. But what is good is that we've
got a broader set of sectors that are contributing to the
upside, which has been one of the major sort of criticisms or
worries, if you like, about the sustainability of the rally was
(07:02):
that it was very narrow and it was just tech.
Well, now it's not just tech andpharma, particularly looking at
Eli Lilly's up 15% in the last one month, Johnson and Johnson.
So these are the big hitters, right?
Johnson and Johnson are up 10%. Merck, they're up 24, right.
You got Amgen up 16. That farmers the best performing
(07:24):
sector. And partly it's because you've
had some real a lot of MNA activity that we've covered on
our other show. But yeah, and what we're going
to talk about in our show next week will be the biggest IPO.
Well, it hasn't happened yet, but potentially I should say the
biggest IPO of of the whole yearwith Medline coming to market
(07:46):
probably early 2026. So look, there's a lot of
activity going on, right? And so I think it's been a
little bit of an under loved sector and it's just getting a
bit of a right revival. And because you got some big,
big guns in that sector, it's just really starting to actually
chip in and contribute to the overall index moving up.
So yeah, it's a healthy thing. The rally's not as narrow
(08:10):
anymore, but I would say, can the rally take another leg
higher? I don't think that can happen
without tech contributing, so we'll see, yeah.
True. I mean just given given the what
the tech sector is probably still over a third of the entire
(08:32):
index. Yeah, it's like 33% I think.
Yeah, it's around a third, yeah.And the concentration in NVIDIA,
as you said, is relatively large.
So, yeah, but they're down 14. So those are going to be people
out there going down 14. Yeah, I fancy that intent of the
year. And if they start to move in
(08:54):
order of five plus percent or then yeah, maybe it's gets.
But we're going to talk about, you know, Amazon has been a
challenger to NVIDIA. It was, I think when we spoke
this time last week, it was it was Google who are coming out
putting the cat amongst the pigeons on the AI race.
Now it's Amazon, but we're goingto save that for our next
(09:14):
episode as a bit of a deep dive.But one thing you were talking
about there was interest rates and how we've gone from not
sure. I think it was only a few weeks
ago we were saying it's 5050 andit's all in the air now.
It's pretty much locked down like you said.
So what's happening in the underlying economy?
So when we say like hard data, so things like the labour
(09:37):
market, which is obviously a crucial cornerstone of the the
policy setters decision making process, what's the labour
market looking like? Because we've have have had a
few signals this week, right? Yeah.
And you remember that we've had a bit of a blackout period
because of the government shutdown.
So we've lacked, you know, a consistent set of kind of
(09:59):
economic data flow in recent months.
So it's been a bit difficult. But now obviously the
government's reopened and you started to get catch up, but we
had an ADP labor market report that was announced yesterday.
We've got non farm payrolls tomorrow, right?
Which is kind of the big one, ifyou like, for the labor market.
(10:19):
But ADP is a pride looking at the private sector job creation
and that surprise to the downside.
And it came in at -32,000. So that's a decline and actually
said that yeah, that that's, that was notably bad.
And it's actually, I think the sharpest drop since 2023.
And just it's a further data point.
(10:40):
Like you look at these labor market charts, look at the ADP
chart, look at the non farm payrolls chart, There's only one
trend and it's only going in OneDirection that is down.
And, and so, you know, you've got a 12 month downtrend in
these data sets. And, and that really is the, the
driving force, I'd say behind the narrative that, look, the
(11:04):
labor market's turned, it's softening, you know, we're going
to have a kind of negative economic impact as a result of
that. Therefore, you know, you're
getting some commentators saying, right, we really should
be cutting rates. And that's why the Fed rate cut
expectation has climbed back to an almost certainty.
However, as ever with economic data, there's a lot of it, and
(11:28):
especially when it comes to the labor market, I mean, there's
like, I don't know, 100 different readings about the US
labor market from all the different angles you can
possibly think of. So actually we had the US
jobless claims last week. So this is a different.
So that ADP employment report ismeasuring how net job creation
(11:49):
each month in the private sector, and it was -32,000.
OK, So now you've got something else called initial jobless
claims. This is a weekly data set where
they're measuring the number of people that are claiming
unemployment benefit essentiallyfor the first time, right?
That's that's actually dropping.So that's less people claiming
(12:12):
unemployment benefit. That's a good thing.
So that's that's an indicator that the labor market is strong.
So that that's that's dropped. And look, if you're worried
about a recession, you just lookat the jobless claims chart and
that is nowhere near recessionary territory.
That's actually territory this labor market solid.
So we have got unusual circumstances with the whole
(12:37):
switch up in the migration flowsas a result of Trump coming into
office has made trying to read the labor market next to
impossible. And you do get conflicting
signals. So no matter your view, there's
a key data point you can use to back it up, right, if you're
(12:57):
bullish or bearish. But at the moment, as I said, my
main point is generally trends are weakening, which is why
we're seeing that rate cut expectation.
On that, on that Labour Point statistics you were just
covering there, does that not create in itself somewhat of a
Goldilocks scenario where rates are coming down, but the labor
(13:20):
market is kind of the sweet spotwhere it's enough, that enough
of the indicators insinuating weneed to cut, but there's some
underlying strength there that averts a risk recession.
So it's kind of like within thatband of panic and within sweet
spot, we're kind of just within the sweet spot at the moment.
(13:41):
Yeah, I'd say, but I mean, like you look at things like the
unemployment rate, right? And, and I mean, all right, it
has, it is the highest it has been I think for four years,
right. So when that rises, obviously
that's bad, the unemployment rate, but it's 4.4% with, you
(14:02):
know, over the longer term is a very healthy rate that again,
that's not recession territory, right?
You need 567 percent unemployment when you're, you
know, going into a recessionary cycle.
So. But yeah, as I said, it's just a
weird set up and I and I think that a COVID might be a hangover
of COVID. One thing to note, right, in
(14:23):
COVID, generally companies basically they had a labor
shortage. And when we were coming out of
COVID, it was impossible to hireanyone, particularly in like the
hospitality sector. And So what happened was we went
into a mentality of companies not firing people, even though
(14:44):
they perhaps ordinarily would have done in previous cycles,
not firing them this time for fear there'll be a labor
shortage again and they won't beable to hire.
So it might be that we're getting this situation where,
yes, job openings, so is down. So companies hiring new people
is perhaps down, but you're seeing less firing on the other
(15:08):
side, which maybe is creating this unusual setup in the labor
market just makes it hard to read so.
Yeah. And then the the see the labor
market is a crucial one, but inflation because with tariffs,
it seems to have gone just quiet.
(15:28):
There doesn't seem seem to be a lot going on at the moment on
the tariff. I know there's a Supreme Court
hearing going on, stuff like that.
But from where we were, if you think of 2025, yeah, it's
tariffs that have been like the predominant story of the year.
And yet that's not being spoken about.
And from from where we where we were in terms of like how that
(15:53):
was going to impact inflation. Yeah, to now where we're at now.
There's two reasons, yeah #1 themedia, they kicked up an
almighty kind of fear mongering storm ahead of Trump arriving in
(16:13):
office and his tariff policy andthen Liberation Day and Oh my
God, it's going to be inflationary.
It's going to collapse the global economy.
They really amped it up. It's just that they were wrong.
Hang about, are you going? Are you?
Trump. Trump slipped you some some back
pocket here. Well, it's.
(16:34):
Just my weekly media bashing segment of the pot.
So why, why do you think it's all gone quiet?
Because they're all sat there intheir corners going yeah, oops,
we didn't we didn't get that oneright, did we?
So look, it's just stopped beingthe column inches on it.
It's just vanished because I think they were wrong.
(16:57):
The other point is that obviously the big concern on
that front was China and the US and, and if there was some kind
of disastrous fallout with 150% tariffs, well then fine, you
know, it would have been a big thing.
But that looks to have not, you know, the risk of that happening
is obviously reduced significantly.
(17:17):
So, so that's why the tariff thing.
But look, I would say inflation,I'm looking at the US CPI chart
right now for September because again, we, we haven't had
October data because the government was shut.
I actually don't know. Do you know when, when are we
supposed, when are we getting October inflation data,
nevermind November, I'm not quite sure.
(17:38):
But if you go back, it'll be important when it lands because
the September figure was 3%, which was off the back of a six
month uptrend. That's back to the highest point
of the year that we saw back in January at 3%, right.
And so we don't want to see inflation go above 3% really,
because, again, that'll start feeding into the narrative of,
(17:59):
well, tariffs are inflationary and it's going to prevent the
Fed from cutting. So I really do want to see that
October inflation print. Not sure when it's coming.
OK. And then the other part of this
is sticking with Trump. Yeah, Is about what he's been
saying about his nomination for the Fed chair.
(18:21):
Yeah, this week. So where do we stand with that?
We had like a shortlist last time we spoke about this.
Is that now done? Well, so reminder is Powell
rotates off, I think it's May 2026, and then that's his term
done. And he's definitely not getting
another term. Trump would have preferred to
have got rid of him already anyway.
(18:43):
So Powell's out, right? So who's coming in?
And there's been some noises on this this week.
And on Tuesday, Trump said that he planned to name his pick for
the Fed chair early next year. OK.
And look, the media pushing him,you know, who's it going to be?
Who's it going to be? And they were asking about
Hassett and and Trump said, yeah, Hassett's definitely a
(19:04):
potential contender. Besson has been interviewing
these lot, all right? He's been running a kind of
multi stage recruitment process.Obviously, as you would, this is
a highly critical role that you can't get it wrong, right, That
recruitment process. So Besson's been kind of
interviewing people over the last few months, and I think we
had another round of these. And This is why it's kind of
(19:25):
come back up in the media. And Trump said, right, we're
going to make a call early next year.
But because he mentioned Hassettand him being a potential
contender, well, then actually the dollar reacted to that.
And we'll come on to the dollar in a bit more detail in a
second. But the dollar dropped off the
back of these comments. And that's because Hassett is in
Trump's camp. He's like his senior economic
(19:48):
adviser, and he's very much a Trump.
So in Trump's back pocket, so tospeak.
And he has been insisting that the Fed should be cutting rates
sharply. You know, he's called Powell a
stubborn mule and inverted commas in the past.
You know, he's right out of the Trump playbook.
(20:08):
So if he gets the job, well thenright, we should have, we should
increase our dovish expectationsabout what the Fed are going to
do with interest rates in 2026 in the second-half of 2026.
I should just point out if even if he did get the job, it's,
it's not just up to him, right? He it's not, there's a committee
at the FOMC, the FOMC, the Federal Open Market Committee,
(20:31):
and those people, those officials democratically decide
they each get a vote, right? So he has it can't cut.
He has to bring the committee with him.
But obviously having a chair who's super dovish can certainly
help to move things you. Say he can't cut.
Kind of disagree with that because he can cut by just
(20:54):
saying not that he's going to cut, but he can.
The difference is here is that he can turn to the mic at any
point in time as Fed chair, the most senior person of the
world's most influential centralbank, and whatever he says, by
definition of his role, would move markets regardless of the
(21:15):
committee's agreement or deliberation.
Well, here's your problem though, because if he's on the
one hand on the mic, you know, off the cuff going, we're going
to cut, we're going to cut, we're going to cut, but then
come FOMC day, they don't. Well, then this is where the Fed
lose credibility. And this is one of the big
(21:37):
concerns about the markets is that the Fed will that their
independence from the administration will be eroded.
And basically the Fed will just end up doing whatever the
president wants them to do. Rather than making decisions on
pure, you know, economic assessment, they might be making
(21:59):
decisions for political gain. That's the big concern, right?
And so, you know, you've got people prefer like the bond
markets and players in the markets would prefer someone
who's independent from Trump. Couple of names have cropped up
like black rocks. Rick Ryder has been that name
has been thrown in the mix. There's a Fed governor who's
(22:21):
already part of the Fed, Christopher Waller.
They would prefer those kind of guys.
But look, Trump would would wantone of his men, right, One of
his guys to lead that office. And so, look, this is in the
news whether it happens or not, We're going to find out early
next year that Hassett, he's qualified for the job, right?
He's not, not like just Trump's mate who wants rates to go down.
(22:45):
He's he's a he's a serious heavyweight from a kind of an
economic perspective. He's been the economic senior
adviser on presidential campaigns for John McCain,
George W Bush, Mitt Romney. You know, he's been around the
block. So he's got the credentials.
The issue is just people are worried he's too much in Camp
(23:05):
Trump and therefore the Fed's independence might be
threatened. So maybe where this lands then
is you have someone like Waller who's obviously of the existing
Fed members, probably the most Trump friendly.
So you have someone like that markets like it has still a bit
of independent thought, but a prefer preference for just
(23:28):
natural disposition of being more dovish than Powell is.
And then you have you have like a triangle.
Then you've got Trump there, you've got the senior economic
advisor in Hassett remains in his role, and then you have
Waller. And that's good enough for Trump
to get rates lower faster than what they're going at the
moment. And you know how it works,
right, With markets and their reaction and their behaviour.
(23:49):
If you start throwing out the Hassett card now, but then you
end up choosing Waller, then themarkets will be our few.
But you know that's a good result because he hasn't chosen
Hassett, so. We rally and then if we do have
a wobble, then you say, well I'mgoing to swap him with Hassett
(24:11):
and then we go again and rally because rates are going to go
down. So you keep Hassett as you're
like your trump card for later basically.
But this is one of the reasons why the dollar like why Deutsche
Bank are coming out and saying look, 2026 dollars going down.
(24:31):
Yeah, triple whammy. The triple whammy, one of the
cornerstones of that thesis is that the Fed are going to be
dovish and cut rates in 2026. And obviously this Hassett news
and all the rest of it feeds into that narrative.
And look, the dollar is going toweaken.
What were you going to understand about exchange rates,
(24:52):
though? The dollar exchange rate with
other currencies? It's obviously there's two
things, right? If we talk about the yen,
because this is the best example, right?
If the dollar weakens, the dollar has to be getting less
valuable than the yen. The yen needs to be appreciating
in value. But what's happening in Japan,
you know, just because the Fed are cutting doesn't on its own
(25:15):
mean the dollar will weaken. It's a relative game.
So are the Fed could be more dovish than other central banks
in 2026? And if you get that monetary
policy divergent, then yes, the best place to see that is in the
exchange rate FX markets. And Lagarde said what just a
(25:36):
week ago, that they're probably in the right place now.
Right. So you've got Europe saying
let's take the UK out of that, OK, this is the Eurozone are
saying that we're probably done on rate cuts.
The UK, I mean, well, I don't know, we'll touch on the UK in a
minute, but there's probably more to go on the rate cutting
side in the UK perhaps, But in Europe, rates probably not going
(26:01):
down in 2026 in Japan or by the way, in Japan, they're in a rate
hiking cycle, right? So literally going in the
opposite direction. Now they have paused that.
So Japan heights rates off. So pre this hiking cycle, it was
at minus nought .1% their interest rates, right?
They hiked in March of 2024, they hiked in July of 2024.
(26:26):
They hiked in in January of 2025.
And then they haven't done anything since.
But at their last meeting, it was a 7/2 split.
So you're starting to get some of the committee now saying,
look, it's time to hike again. So Japan are in a hiking cycle.
We're expecting maybe another one to come at the start of next
year. So that's your divergent
(26:47):
literally where interest rates are going in opposite
directions. So we anticipate that the dollar
will possibly weaken I'm in 2026if the policy divergent is
sustained. Right.
And then the other legs of the triple whammy.
(27:09):
So you've mentioned Japan sending signals of a potential
hike. You've got the dovishness with
potential hasset and then you'vegot a potential Supreme Court
ruling against tariffs, which isthe way it's gone in the lower
courts. And does that the idea there
being what it just softens the tail risk of inflation emerging
(27:31):
from tariffs? Yeah, but but that's negative
for the dollar. Yeah, So that's right.
I mean, that that cut that couldwork.
But my, my hesitation there is the whole narrative at the end
of 2024 was that Trump's going to come in, he's going to
implement tariffs and the dollar's going to go up because
(27:53):
it's inflationary. None of that happened.
In fact, the dollar weakened in 2025.
So I don't quite buy the story that if now tariffs are not
going to happen, the dollar is going to weaken because tariffs
did happen and the dollar weakened.
(28:15):
So why would it weaken when it doesn't happen?
So I'm I'm a little bit I'm on the fence on that third element,
that one other. Thing that Deutsche Bank who
came up with this triple whammy idea said was about the seasonal
seasonally weak December. So this is when you look back
through and compare average performance of a currency in the
(28:37):
different months of the year, year on year.
And one of the things of just having a quick look that the
dollar index is seen as worst average monthly returns in
December, largely in the second part of December.
What what AI is telling me, not my researcher Saab, is, is that
(28:58):
the patterns often attributed tocorporate tax flows and
portfolio rebalancing towards the end of the year?
Yeah, which can include shiftingcash abroad.
Right. And so that last point,
obviously the US is the biggest market.
So if you've got international asset managers running
portfolios, they're going to have a big portion of U.S.
(29:18):
stocks or bonds like in their portfolios, right?
And if those assets have performed well and generally
equities and particularly US equities in the last decade have
just been on fire, right? So at the end of the year, you
rebalance, it just means you trim, you book a bit of profit.
Let's simplify it by just saying, look, you book in a bit
of profit. But if you sell your NVIDIA
(29:40):
stock and you're a fund manager in the UK, well, you sell your
NVIDIA shares, which are dollar denominated, so you get dollars,
and then you convert those dollars back to pens.
So you're selling dollars and buying pens.
So that puts a little downward pressure on the dollar's
currency. So that that does make sense,
yeah. OK.
(30:01):
Well, look, 2, two more things then just to kind of wrap up
this part of the conversation, unwind of carry trade.
So you're talking there about this divergent of rates and
where they are and where they'reexpected to head in 2026.
And one of the things that we were seeing this week was that
(30:21):
cryptocurrencies have been up and down, But at the beginning
of the week, they fell quite aggressively.
On Monday, I think Bitcoin fell under 85,000.
Ether was down over 7% at one point.
So a couple of things there, regulatory warnings from China
and so forth, but fears that Bank of Japan rate hike wood
forest, an unwind of the yen carry trade and so a this kind
(30:46):
of carry trade concept and then why the unwinding of it now?
What are the repercussions and ramifications?
Yeah, this is a big, this is a big potential risk, but it's not
something new. As I said that Japan have been
on a hiking cycle for a year more, right?
So, but it hasn't really gone too far yet.
(31:09):
Japan are hiking at .1% at a time, right?
So it's, it's, it's slow, but the fear is it speeds up and
then I think we do have a problem.
So what is the carry trade? It's essentially this clever
trick where you borrow money to then invest, right?
So it's leveraged investment, but you're, so if you just want
(31:31):
to borrow money, great. Well, obviously you want to
borrow at the cheapest rate you can, you can find, right.
And if you're a clever player and looking internationally,
you're going to look around the world and right, who's got low
interest rates? Well, it's always Japan.
Japan have had low interest rates for 40 years, OK, or 30
years I should say, because theyhad a financial crisis in the
90s and basically deflation and they've had zero interest rates
(31:54):
since. So they've always been
considered the go to for the carry trade, meaning that's
where you borrow your money. So.
I got a good example of this from early in my career, I think
it was March 2008, so pre reallythe the financial crisis kicking
off when it was at its most prevalent like 07, the carry
(32:16):
trade Japanese interest rates were at 0.5% Australian interest
rates. What what?
What do you remember them being back in 2000 and sort of early?
Well, I know late O. 7 Early O 8.
Well, I know off the top of my head, I know that like US was
clocking around 5-6 percent thattime.
(32:36):
So I'm going to guess the Aussies are a bit more.
I'm going to say 7 1/2%. Good memory.
So Japan was 0.5, Australia 7.25.
How's that for a carry trend? Yeah, that's, that's good.
It's a lot of source there. So look, the point is you borrow
cheap. So you you that means you need
(32:58):
some yen, right? So you you bought well, sorry,
you receive yen because you're borrowing in Japan.
So you're going to get yen, All right.
Then you take your yen, you sellit and convert it to another
currency like the dollar. OK.
And then you buy Bitcoin like inan extreme example and look,
Bitcoin, if you look at the kindof market participants in the
(33:21):
crypto space, there's a higher proportion of risky leveraged
traders operating in that space,right?
So that's why you might say Bitcoin and crypto generally is
more vulnerable to this carry trade unwind than normal markets
like the S&P 500, where you've got, you know, just vanilla
(33:42):
participants like big asset managers who aren't leveraged
right? Now here's the problem.
That whole setup makes sense. Borrow in Japan, low rates, buy
Bitcoin to lever up my position.OK, that that's all it's all
fine unless well, what happens if it starts to get less cheap
to borrow in Japan because interest rates are going up,
(34:05):
right? And there's an exchange rate
issue as well because your loan is in yen.
So you might have a double whammy where if interest rates
in Japan go up, well then your interest rate on your loan is
going to be increasing. But interest rates going up in
Japan might lead the yen to appreciate.
OK. But if you're in the US yen
(34:27):
appreciating means actually the overall value of your loans
going up as well. So it's like a double whammy.
Now at some point, people are worried that it's enough of a
thing for people to start to unwind their carry trade.
They're no longer happy with thefunding source of their leverage
(34:49):
because conditions have changed.So they need to unwind it.
How do you unwind it? Well, I need to sell my Bitcoin.
I get dollars back for that. OK, so Bitcoin goes down.
I then need to sell my dollars to buy yen.
So the dollar goes down. And then with that yen cash, I
pay back my yen loan. So you kind of get that unwind
(35:13):
risk that people are really quite concerned about,
especially if the Fed acceleratetheir cutting cycle next year.
And if, if, if who knows, Japan accelerate their hiking cycle.
You really need to look at the dollar yen for a guide as to
whether that's really going to become a big issue and that that
(35:36):
unwind hasn't happened yet. I mean, maybe, maybe tiny, tiny
here and there, but it you'll know if it does because that
will be, that will trigger a really, really major market
episode. But at the moment it's it's
small. OK, to finish then, as we always
(35:56):
like to do a bit of a flying theUK flag here.
We've always been quite downbeatthrough 2025, the prospects for
the UK, but we've had some interesting news this week.
So what was that? Yeah, well, the and the pound,
I'll just preface this by sayingthe pound is on fire here.
The pound against the dollar. If you go back to two weeks, it
(36:18):
was trading at 1:30. I went out one 3350.
This is this is when the Labour government needs to take a page
out of the Trump playbook. If this was Trump and he was
getting beasted like the Chancellor Rachel Reeves has
over the budget, he'd be out there banging his drum talking
about what you've just said every 5 minutes.
(36:40):
I don't know why they don't do that, even though you and I know
that economically there's lots of reasons why pound other than
this data is going to. Basically the UK budget was last
week and we were really worried that they were going to
massively increase tax, they were going to spend more money,
IE borrow more money to spend more.
And we thought it was. And we've always got this Liz
(37:01):
Truss episode in the back of ourminds and Oh my God, it's going
to be a disaster. Well it well it wasn't from a
markets point of view, it was a markets friendly budget.
So the outcome was all the riskswe were worried about didn't
happen. So they are going to raise
taxes, but it's kind of all kindof back ended, you know into
(37:23):
like 202920282029. So they're not coming now.
So they're just going to spend more without without raising
taxes. So I think it's it's a market
friendly thing. Now, will it work from an
economic perspective? I think we're just in the same
old death spiral that every government has to spend more and
(37:44):
borrow more and cut taxes because that's what people want
to hear. And that's how you win votes.
So you're kind of in that kind of death loop where ultimately
borrowing debt piles are kind ofonly going one way and that's
up. So economically long term, I
don't know if it's a great thing, but short term for the
markets, it was like all those worst case scenarios didn't
(38:07):
happen. So the pound has rebounded.
And so, yeah, from that point ofview and maybe this feeds in, we
did actually get some data from the UK.
So that was the budget. We got some data which is more
hard evidence maybe. Well, it's not necessarily hard.
A lot of it's survey based, but we had some PMI data come in
(38:28):
that was much better than expected.
So actually on the manufacturingPMI side, that came in at 50.2,
which is notable because it's gone back above 50 for the first
time for, for 12 months. So that's expansionary
territory. And so that we, we had that, we,
we just had some good economic data for once out of the UK,
(38:49):
which coincided with this budget, you know, avoiding the
banana skins situation. And so, yeah, the pound has had
a really nice week. Well, we'll, we'll park for the
moment what you think about the pound's prospects for 2026,
because I think we're going to record next week our outlook for
(39:13):
next year where we can talk about maybe who's going to be
the winners and losers in the different asset classes.
Maybe that's a good way of goingabout it.
Like what's going to be the outperforming metal or
commodity. So we can talk oil and gold.
Maybe then we'll talk about U.S.stocks or any other competing
ones that might outperform or underperform in that case.
(39:35):
So yeah, stay tuned for that can.
We review, can we go back and what were our calls at the end
of 2024 and did they actually, were they right or did we just
really the. Only one I can think of is our
stock call. We're both.
Yeah, I think you were right. You were looking good in
(39:57):
February. Yeah.
I was looking great in April. Yeah, and I was looking good
about two months ago. And then it stops.
So I'm hoping for a little Santa's bump and then I'm all
gold and then we'll see. But yeah, stay tuned for that.
So don't forget to subscribe to the show.
Also, as I said at the beginningof the conversation, we have had
(40:18):
Spotify Wrapped statistics come out.
So just want to say huge thank you to everyone who who listens.
And you know, one of the standout statistics is our total
new audience. That's new people finding the
show was up over 600% in the last 12 months.
And this podcast has been going for about four years, so quite a
(40:39):
meaningful change up in gears. So I super appreciate everyone
who listens and predominantly who's sharing it.
I think WhatsApp is still the most common mechanism for people
to share it with their peers. So please do.
And yeah, the outlook for 2026 is going to drop before
(40:59):
Christmas, so keep an eye out for that as well.
Thanks, Piers. Cool, see you later.
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
My Favorite Murder with Karen Kilgariff and Georgia Hardstark
My Favorite Murder is a true crime comedy podcast hosted by Karen Kilgariff and Georgia Hardstark. Each week, Karen and Georgia share compelling true crimes and hometown stories from friends and listeners. Since MFM launched in January of 2016, Karen and Georgia have shared their lifelong interest in true crime and have covered stories of infamous serial killers like the Night Stalker, mysterious cold cases, captivating cults, incredible survivor stories and important events from history like the Tulsa race massacre of 1921. My Favorite Murder is part of the Exactly Right podcast network that provides a platform for bold, creative voices to bring to life provocative, entertaining and relatable stories for audiences everywhere. The Exactly Right roster of podcasts covers a variety of topics including historic true crime, comedic interviews and news, science, pop culture and more. Podcasts on the network include Buried Bones with Kate Winkler Dawson and Paul Holes, That's Messed Up: An SVU Podcast, This Podcast Will Kill You, Bananas and more.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com