Bouncing back

0:00Well, a bit of a bounce back from yesterday's reaction to the Fed meeting, particularly AI-related stocks, even though open AI have given more reports of their machines misbehaving. The Bank of England didn't move race, but they did do something to try and keep Bonyled in check. And today is the turn of the Bosch and a bunch of RBA people in front of the Senate hearing today as well. It's Friday, it's the 18th of September, 2026, it's the morning call from now. Good morning. Well, not much moving in the US dollar today, but the Aussie is back up 0.3% to 71.1. US cents shares a bounce back at 0.6% for the Nasdaq, 1.1% for the S&P, 0.9% for the Euro Stocks 50, and 1.2% for the FTSE 100 in the UK on the back of the Bank of England. Big falls in Bonyleds down, seven basis points for 10 year treasuries, and for UK 10 year guilt down, three in Germany and much of Europe, Aussie 10 years. We're down five basis points yesterday to 5.3% more or less the same place on futures this morning. And oil is a bit lower down 1% for Brent, half a percent for WTI Brent, down below 105

1:03a barrel now, spot a gold incident, it's up 2% today, but it has been on the slide quite a bit over the last couple of weeks. And it's Ken Compton joining us today. So I guess there was a, was it a mile panic after Kevin Warsh, sounding a bit more hawkish, perhaps than many people were expecting yesterday. But a lot of that, as I say, is unwound, it seems shares are certainly back on the up aren't they? And, and bond yields falling. Yeah, good morning. Feel that brief wobble in risk assets and even bonds as well while Kevin Warsh finished off the press conference yesterday, they did begin to fade to be honest, even sort of relatively early in the, in the, in the Asian session here. And most equity markets, he started to turn green and I mean, 10 year treasuries yields, which I've been, which I've been watching, they were still hanging around 5% by the end of the session here yesterday. But then as, as Europe came in and Europe and the US trader, we've ended up with those yields down, I'm just sort of now sub 4.94%. So pretty material decline in yields. And then you probably get chalked up to a couple of things. I mean, people sort of re-evaluating what the sort of hawkish stance of Kevin Warsh

2:04or the Fed more generally, I probably actually means. And I think given that this has come with a mild curve flattening ultimately, you can, you can sort of put that in the point of the market giving the inflation fight stance a bit of credibility in that, you know, we are pricing a few more hikes that's anticipated to actually sort of have a, have an effect on inflation and sort of get to what the Fed wants to do. I mean, probably also overlaying that too is that as you did mention oil down another 1%. I think that probably puts us at 3%, 4% down over the course of a couple of sessions. You know, Saudi Aramco was talking about restoring a good chunk of flow through, through that, through that East West pipeline within a couple of days. So, you know, obviously that's still vulnerable. I think some of the underlying issues in the Middle East aren't changed, but that is sort of one another point of good news and that probably helps with the global inflation backdrop. And I've sort of been, you know, sort of half saying at various points this year that rather than trading bonds, maybe she just trade oil. So I think I'm having oil come off of cutlip a cent does help as well.

3:07And I'll just stalks one, just invest in shares and just invest in AI because it seems, you know, if it goes down, it's always going to bounce back up again. And you know, we've got stocks up generally 2.1% for IT stocks, but it's the chip makers. So they're really on the rise. So 2.6% for Nvidia, 6.1% for AMD, 2.5% for Broadcom. So I mean, you know, if they're down, you just have to wait a few days and then they'll bounce back, it seems. Yeah. And I mean, obviously, lower rates probably don't certainly do not hurt that sort of relatively cash flow, cash flow in sensitive sector of the equity market where everything's based on sort of discounts of long run value, so that obviously that doesn't hurt. That doesn't hurt either. So just a bit of a bit of a bounce back there is probably not too surprising. You know, it's a sector that's beleaguered by waves of sort of skepticism and headlines and rotation selling and here, but ultimately at this point, if it is a bubble, it's not

4:08busting yet. That's for sure. Interesting though, because all of the, you know, it's the infrastructure, it's the chip makers and the infrastructure which you're doing well. So open AI, we had yesterday a fresh batch of reports about their models misbehaving. So that according to the FT, they're finding ways to operate beyond their remit basically. They're covering up their mistakes, their fabricating stuff, behaving like humans. And now the one, we're asking about the president actually on that basis. But I mean, no one seems concerned about that unless that's why people are saying, well, it's a safer bet to invest in the chips rather than actually the companies developing the models themselves. Well, that would be my bet. That's the part of the value chain in order of industries that Australia puts itself out, supplying the raw materials to whoever they do it they want with them. And, you know, we'll take the lower level returns from being at this end of the chain. The same argument as apply for the infrastructure investors. I mean, after over the infrastructure supplies in AI, I mean, obviously with the added complication that there is that entire sort of industry of circular financing that's

5:09going on there as well. I mean, that's a separate issue and probably will be on the scope of this podcast. But that's something to consider in there as well. And you know, as more headlines again overnight, as you said, of open AI finding that there models have apparently been trained pretty well, although that would be my assessment as well, sort of acting like a bunch of over eager humans. So the training is working. But, yeah, obviously, there is sort of bigger questions that here apply is to sort of where accountability lies for for these sort of things. Is it an AI agent entirely law unto itself? Is it accountable or are it's creators accountable at some point? And I said that this point. And I have to be on. Yeah, you would have thought that I'd have to be surely. But anyway, we're not going to fix that one in a 15 minute show. So New Zealand's GDP was up to 2.6% in the second quarter that's year on year. That's up from 1.7% year on year in Q1. So bit of a jump. And so we are expecting a hike now from the RBNZ at the next meeting. Yeah, the RBNZ was looking for that for that quarterly print to be flat.

6:10So even the Q2 outcome would be stronger, but even more so with some revisions. So in the eyes of Stephen Toploss and my other colleagues over at BNZ, the key thing there is this has sort of lifted the level of output there. And obviously the output gap is potentially closing a favourite for us in the bank at a assume. Well, we all BNZ had taken out their expectations of September hike. That's now back on. And I guess what's pretty strong, domestic demand, actually pretty flat, but strong exports was part of the story there. Now obviously, New Zealand has a price problems. We've got this activity level up a little bit. That's hence why we're looking for faster hikes again now. But obviously things are particularly robust over there, I guess is the challenge. So we're not sort of lifting our peak cash rate expectation. Just still looking for around 375. So still a bit less than we were looking for a little while back. But that's being the change there. Right. And the bank of England, they kept rates on hold with the same division basically for amongst voters as last time.

7:11So six voting for and change three voting for a hike. But that wasn't the main news. The big news was they're pressing the pause button on QT. So no bon sales now until April. Yeah, we had a bit of a preview of that over the course of last week. So not a huge surprise, but still it has had a, the fact that it has been confirmed. We've gotten a few more details on it. Has had a material market impact. So, you know, the bank of England has been one of the more aggressive banks, a more aggressive central banks in terms of unwinding the bond portfolio. They built up during the pandemic or or in the preceding decade. And that has been fingered for putting a lot, a lot more additional pressure on UK long and bond yields in particular, which like everyone has been at multi decade highs, but the UK sort of started to bump up against issues before everyone else. So what they've done here is committed to keeping some of the very long duration debt, I think will not be sold at all. That'll sort of form a bit of a portfolio to back their issuance of a bank notes over time. And where they're going to, and they're going to stop selling bonds directly into the market.

8:13So instead, you know, after they get to April, so they'll take six months to sort of figure out the mechanism for this, but they'll adopt a program where instead of selling back into the open market, they'll sell back to the DMO. So the BLE still gets to achieve their goal of reducing their bond portfolio, but what sort of, I guess, sort of work in concert with the DMO to hand a bit more of a bit more control over long and supply. So the market's taken that sort of pretty... With gusto, I think 30-year yield to down, 12, 13 points. So pretty chunky move. I mean, back to sort of the BLE decision, it's self-though as well, as you said, six, three, not too much of a surprise there. I mean, there was a bit of a hawkish tinge to it, though. I mean, talk of inflation being tilted to the upside, or risk being tilted to the upside, or more so than at the last meeting in July, the committee ready to act. But, and sort of their... Inflation forecast profile being lifted up a little bit,

9:14but still largely headline and still sort of mostly concentrated in energy. I mean, what the majority and I... And he's has said is that, you know, core sort of second-round energy effects haven't been that persistent in the UK so far. And I think it's going to take the emergence of that to cause a substantial problem. And at this point, we're just not seeing it. Indeed, our most recent call from Navi Economics is still that the RPE... The BLE will sort of be able to see through inflation this year and not have to hike, but the concern they're expressed over not by the board is, of course, completely understandable. And a bit of secondary data from the United States overnight. So the jobless claims have fallen a little bit. Housing starts down 2.6% in August, but the July fall, as we revised upwards, but it still fell 9%. So it's not a healthy housing market. And then the Philly Fed manufacturing index down a bit, but that wasn't as bad as expected, except prices paid is up, as you might expect. And that employment component there did fall quite a bit.

10:16It's 11.8 from 27.9, but 27.9 was a bit of a standout. So actually, 11.8 is close to what we've been seeing really over the last month or last year or so. So mixed data, not of it, particularly surprising, I guess, is the summer, isn't it? Yes, yeah, agreed. These individual Fed surveys, regional Fed surveys, are all over the shop months to month and even... And not even in concert with each other half the time. But I guess one thing you could look through there too, new orders and shipments pretty steady. So I guess at a point into that assessment by Kevin Wars yesterday, that if you look at the window and try and assess the stance of monetary policy, which is something that our friend of the Podfield Suttle has talked about, you look out there and you can see employment, okay, growth, okay, inflation, pretty high, on the back of all that, maybe you should be raising rates a little bit, which is what they've started to do. Well, today we get the New Zealand trade balance. Michelle Bullock from the RBA is in front of the House of Repp Standing Committee on Economics.

11:18I think if it's a standing committee, they should make them stand. They would get the holding over with quicker, wouldn't it, if they weren't allowed to sit down. So anyway, she's going to be there with Andrew Hauser, Sarah Hunter and Brad Jones. So what will they say? That's going to be interesting to see how hawkish they are in front of that group. Yeah, so this hearing was delayed from last month, just sort of just some just some issues with the members of the committee. Couldn't find seats. Maybe second month, last month's last month's seats. That could indeed be the problem. But it's fully in the middle of a sort of a big, a bit of a big lot of RBA communications. Obviously we've had a few fireside chats, we've had a few conference appearances, we've had pod carol. I think the podcast is next week actually. But there's obviously a lot of commentary coming out of the RBA. So far it's all been. Yeah, it's all sort of lent very heavily on the hawkish inflation side. So I imagine to the extent that the RBA controls the narrative, because it is of course a Q and A system primarily. But I imagine that's the area they'll be focusing on.

12:21I'm interested to see no doubt there will be a lot of questions coming out them from housing, about housing, probably some attempts to get them to deliver some gotcha sound bites on to take you on government policy. They're not going to want to do that obviously. I think the housing, often said they've been minimising housing market issues, but certainly they've been heavily, heavily stressing the inflation component of the mandate more so than any recent housing's providing. So you just see if things can go there. The market is still pricing an awful lot of sort of further tightening out of the RBA. So it's probably hard for them to sort of say anything today that's going to move that up drastically. But maybe you could be fine. I think it's a bit lower, I guess we'll see. So Michelle Bullock's doing podcast appearances. You should welcome anytime Michelle, anytime to say the word. Japan see what you're going to say. I think it's Sarah Hunter to be fair. I was like, okay, but which you never know. Okay. Well, when, how many Sarah? Yeah, because we have a bit of media people. Japan CPI is out today. Same as the same day that the Bosch makes it's rated out.

13:22We're just expected to rise to one and a quarter percent. Yeah, this is going to be a particularly interesting one. Look, the market is fully geared to see this to see this hike happen today. And substantial chance of follow-through as well. I think it'll be a by December by December. Another one is fully priced. And then we're pretty close to pricing at third one by April. So this is sort of an unprecedented pace of activity anticipated by the B O J. Now sort of imagine if they don't. Imagine the reaction if they don't do it today. I think that's exactly the, that's exactly, well, it's the risk. But yeah, exactly. We've already started with the Fed becoming more active. The work that the Moff has done, or Moff in concert with Treasury would seem, has done in terms of keeping the USDJPY contained. That's pushing back up sort of 159. 160 again now because the Fed is tightening. So policy rate differentials are working against the B O J again.

14:25If they're not doing their own side of that, you're going to do even more damage to the work that's being done leaning against the Yen move. So, yeah, I'm sort of, I guess, quite confident of myself that given the way every sort of preview and every sort of familiar person with the matter has been, has been commenting in the past a little while that we will see them back the path that's there at the moment. But can the Yen sort of strengthen drastically off the back of that? Well, with three hikes currently already priced and a bit of credibility having been gained a little bit so far. It's probably more a test of, you know, these are credibility there at the moment, more so than being able to end up a bit more. That's interesting meeting. Just the confirmation, isn't it? They were waiting for, okay. And then the only other thing is UK retail sales for August, which I expected to fall. But, you know, it was too hot to shop. Still, wasn't it in August? That's the argument, I guess. Except for ice cream sales. They might be up. But less interest than anything else today, it's the Bosch, which is really the focus.

15:25Good to talk, Ken. We'll see you next time. Cheers. Thanks for. And on the weekend edition, I talked to Washington political analyst Michael Townsend about the US midterms. Is it a slam dunk for the Democrats in the House and the Senate? And how will markets react to that? In fact, how do markets generally react to midterms? And will it be any different this time? Red, blue, or deadlock? That's what it's called. That's our weekend edition out from the middle of this afternoon. Join me for that. And I'm back here on Monday morning, of course, and as well for another edition of the morning call. I'm Phil Dobby for Nav. Have a great weekend. It's going to be a good one by the looks of it. See you soon.