Good afternoon, and thank you very much for joining today’s webinar, where I’m planning to spend the next 30 minutes running through some of the macro themes and thoughts and observations that we’re having on global markets at the current point in time.

So, thank you for joining. As for what's going on around the world, starting in the US. We continue to see a picture in the US economy where the economy continues to truck along forward with decent momentum it seems. And of course, the sheer volume of investment spend, spend that's taking place in AI, is something that's really helping to sustain corporate earnings, sustain momentum in the economy.

Bluntly, you're throwing so much money into the economy at the moment that, no surprise that the growth engine is still ticking over. Even though, the reality is that if you look at the picture on employment, here the numbers have been coming through much weaker than obviously had been sort of foreseen.

But in as much as we are looking at the monthly payroll numbers, I think one thing that we would say here, very clear, clearly having sort of spent time in Washington, D.C, and discussed this with the Federal Reserve is you have to bear in mind the big delta of change that's taken place in terms of the break-even rate of additional new jobs you need every month, just to keep the unemployment rate stable, going sideways.

There was a point a year or two back where the US population was effectively growing as a result of immigration, both legal and illegal, by as many as 5 million new inhabitants per year. Now, during this particular period the estimations of what the break-even rate of new jobs you needed to add in the economy was actually moved up as high as 250,000 jobs per month.

And so, where in the past we were still seeing strong monthly job ads. The fact that at times we were weaker than that particular total was one of the reasons why the unemployment was rising, not because the economy was ever weak in 2024, more as a function of the fact that we saw just so much immigration.

By contrast, if we look at the situation now, there's been a big reversal of those immigration flows. Not only are the states deporting folk. Bluntly, a lot of people are looking at some of what's happening around them, and actually deciding to jump before they're pushed, looking to return to home countries. Or even, for example, to move north of the border into Canada, where you don't have that sort of deportation risk. And as a result of this, it looks like where we were seeing 5 million additional citizens or 5 million additional people, I should say not US citizens, coming into the US every year, in a year like 2025 that number could be netting out close to zero.

And so, on the back of that, the break-even monthly payroll number to keep the unemployment rate, around flat is again close to zero itself. And so, although optically we've seen a big slowdown in the pace of hiring the unemployment rate hasn't really been moving. And so, yes, we're looking at an economy where employment is relatively weak, but otherwise, demand in the economy has remained pretty strong.

And if you think about consumption in the US economy 54% of the consumption is driven by the 10% of consumers, and this is a cohort that are also benefiting off strong market gains, strong wealth effects over the course of the past year, and over prior years as well. And so, I was even reading today about the boom in the number of, I think they're calling them, pumpkin scapers, people who will come to your house and charge you a thousand bucks to decorate your pumpkins and arrange your pumpkins.

Apparently, it's a new trend for Halloween this year, and I think again it's another symptom of the fact that within the economy you still see a strong cohort with money to spend, with disposable income, that continue to sustain a big chunk of economic activity.

I think the other takeaway from a recent trip to Washington, D.C, is that in many respects, if you look at the economy into 2026, you lay on the current situation, the fact that you're seeing some benefits out of lower interest rates, some benefits out of tax cuts. You're also seeing benefits come through from deregulation as well. So, if anything that could pertain to the idea that we could see some acceleration to growth, a 3% growth trajectory into the coming year.

And so, bearing this in mind the idea that the economy looks to be relatively robust. And at the same time you're mixing that with some interest rate cuts in the short term clearly is creating a relatively constructive backdrop for risk assets, and this is partly one of the reasons why you've seen earnings being pretty strong and markets putting in a pretty robust performance.

Now, of course at the moment in Washington, of course, we have this government shutdown that's in place. In many respects, much of what has been happening there has seemed to be largely performative, but of course by the end of this particular week, we'll be running into a moment where you'll see government workers, they'll be missing potentially a second consecutive paycheck in a row.

And so, at some point over the course I'd say of the next couple of weeks, some of the pain around the shutdown could actually start to manifest, it could start to drive more of a compromise that needs to be found. And in particular, air travel has been one of the spots of the economy that you really highlight here, and that's been a pain point in prior government shutdowns.

Ultimately, you'll end up with workers who aren't being paid, although they're required to come to work, calling in sick, leading to an increase in cancellations, unbearable lines in immigration, in airport security. And when the whole idea of air travel is sort of shutting down, this could be a pain point that actually sort of brings about sort of, more of an end to that sort of government shutdown.

But it's worth saying that as much as this persists, it does create a bit of an economic negative in the short term. It is another reason, if the Fed needed one, that they'll be looking to confirm an interest rate cut earlier this week. And I think also in the week of a relatively benign CPI print last Friday, and with some of the downside risks in the labour market, again, we'd expect expectations to firm and be cemented that a cut this week will also be followed by a further cut to come in December as well.

But thereafter, after two more rate cuts you're looking at sort of US interest rates coming close to 3.5%. You're getting close towards a level where some Fed participants will actually see the current level of interest rate not far from where they would deem the neutral level of interest rates to sit.

That being the case, I think that the argument for further rate cuts into 2026 is now looking more challenged.

And further onto this, I'd also say that in terms of the discussion around the Fed, I think that one of the takeaways I've taken from recent meetings and conversations is some of the risks over the idea that the Fed is falling, sort of, capture to the Trump agenda. I think some of those risks may have become somewhat overstated.

Just, earlier today we saw confirmation Treasury Secretary Bessent, that, there are five names being considered for the next Fed Chair. You have Kevin Walsh, Kevin Hassett, Chris Waller, also Rick Rieder and Michelle Bowman, who I think are, very, very unlikely to end up, inheriting the role.

And actually, I would contend that the most likely candidate to actually win the Fed Chair will continue to be Scott Bessent himself. Although he's kind of recusing himself at the moment, if anything what we're seeing is Bessant trying to slow up the whole Fed Chair nomination process. It may be that we don't get a declaration as to who is the winner of that race until the early part of 2026. And it may well be that Bessent himself then ends up sort of agreeing to take the position, one that he's denied that he would take up until this particular point in time.

But that said, regardless of who the candidate is, I think you're looking at a short list of candidates who know their own mind, who'll do their own thing. They won't just be delivering the Trump agenda as a Trump patsy. And one of the things you can say is that everyone in DC, everyone in the White House will reflect on the fact that, “Of course, our president, of course Donald, he wants lower interest rates. What real estate developer didn't want lower interest rates?” It goes without saying, doesn't it?

But at the same time, they're speaking into his ear and reminding him that actually the big election issue back in 2024 was actually inflation. Inflation was the number one economic issue that really cost Kamala Harris her run at the White House.

And so, the last thing that the administration should want is a situation where the economy is doing pretty well and you end up easing interest rates too much and pushing inflation higher to the point where you're needing to think about putting interest rates higher this time next year, just ahead of the midterm elections. Particularly when you bear in mind that in the short term there are going to be further inflation upside risks. Because when it comes to tariffs, again a lot of the academic research we've been looking at there as we've been studying this, will tend to suggest that the biggest hit on inflation from tariffs normally arrives in the third and fourth quarter after the imposition of a tariff.

And so, from that point of view there's still more inflation ahead of us than behind us in terms of the tariff particular agenda. And from that point of view it's probably sensible to think that inflation still pushes up towards 3.5% into the middle of next year.

So, from that point of view, I think yes to interest rate cuts in the short term, but fading the idea of interest rates to come further out into 2026. And so the way that I've wanted to look at markets is that if you do end up with a further rally in yields, perhaps on the back of a weak payrolls print when they start releasing the data, once the shutdown ends, once you actually reach that particular moment, it could actually give you an entry point into a short-duration trade. Don't want to be too early on this, don't want to get in just yet, but that's certainly the way that we're thinking.

I'd also contend that this backdrop that we have is a backdrop which probably means you're going to see less curve steepening of the US curve than we may have previously hoped to see. We have been running curve steepeners, and the US curve is still flatter than many other global curves, and we still think it's too flat. But the magnitude of US curve steepening is probably going to be conditioned by the fact that if you're not seeing really big, really aggressive US rate cuts coming through, that will act as a bit of a break on that curve steepening.

Otherwise, with recession risk remaining relatively low, although credit spreads are pretty tight, we think that credit continues to hang in pretty well for the time being. And just in terms of risk assets more generally, we're sometimes asked about equities, and asked whether we're seeing some evidence, any evidence of a bubble forming in equity markets. And of course, this is very difficult to give an accurate answer to, but the one thing that does strike me is when I look at the valuations across the AI tech space, in aggregate, it does look as if those valuations that are being embedded are going to be very difficult to fulfill.

Essentially, you kind of need to see earnings growth in the next 5 years be stronger than the earnings growth numbers we've seen in the last 5 years. But now, of course you're coming from a much higher base than you were 5 years ago. So, in many respects this seems to be a bit of an unrealistic ask. So, in aggregate it feels like the equity market will set itself up for disappointment at some point.

And it could be the moment when the sequential growth rate on earnings starts to drop. When you're only growing earnings at 20% a year, not 50% a year, that delta of change could be one of the catalysts to everything rolling over. But I don't think it's happening just yet. At the moment, it still feels like this bubble, if it is a bubble, could have further to inflate. Although we're seeing evidence of greed, you don't see too much leverage.

And the other thing that I'd also say always about bubbles, having seen a few in my particular career, is that bubbles tend to reach an end as and when the loss of the bears capitulate. It's when the bears get out, this is the moment where you actually see that reversal of price action, when there are no more buyers left to suck into a particular market.

And so, from that point of view, I think that thinking about historical metaphors, we're still probably early in 1999 rather than the end of 1999. Of course, that was the year where the NASDAQ famously run up 130% between Jan’ 99 and March 2000, only to collapse by 70% thereafter.

But it's always a salutary tale that if you try and oppose a bubble, you try and call against it too early, that can be a career-shortening event bluntly. You can lose a lot of money by trying to speculate against a bubble when the bubble is still inflating. And so, from that point of view I'm not sure that we've seen any conditions just yet to tell us that things are about to turn. And actually, looking forward into the next 6 months, if we've got this period where growth is pretty strong, we've got interest rates going down, we've got for the time being a lot of tailwinds behind us. It may be when those sequential growth rates roll over, at a time when interest rate cuts have stopped, perhaps when growth is slowing, maybe a bit later next year, could be the moment where we need to be a bit more fearful in markets.

Otherwise, just turning, changing tack quickly into Europe. There's not that much to talk about in Europe at the moment. Europe has been the story this year about waiting for evidence that some of the big fiscal spend would start coming through, start invigorating some of the economic activity numbers. But of course, we're not really seeing it yet. I guess, understandably so, although big spending plans have been announced, obviously you need to allocate those budgets, you need to place orders before it starts showing up in economic activity.

So, we haven't really reached that point just yet. That's something that obviously we're looking forward to in 2026, but at the moment, it does feel a bit of a story of mañana, mañana. We got a bit excited about European growth back in March on some of the German fiscal plans, but at the moment, we're still yet to see this coming through.

And all at the same time, we continue to see a European economy that continues to be hamstrung by very high energy prices that just renders a lot of European industry uncompetitive. It's the sad reality of our times that the European commitment to net zero, all that has really done, it's done nothing for the planet, bluntly, because the rest of the planet is going on regardless.

The only thing a lot of net-zero policies have really managed to achieve is that it's effectively made Europe a much poorer place by setting up a big wealth transfer from European consumers, European businesses to businesses further afield. So that's a bit of a sad reality of our times at the moment, and it shows you the problems of trying to tack what is obviously a big and very serious social cost. If you try and go this alone, and you don't have support from the rest of the international community, obviously you're just sort of setting yourself up in an inequitable position where you end up coming through as a loser.

And that has been an issue in Europe this year. We're still paying four times for energy what many of our trading partners are paying. And on top of that in Europe, we see sectors like autos, where Europe’s, one of its big hopes had been the hope to be the leader in the big, sort of, green EV revolution that would be coming in the automotive sector. Well, bluntly, China has won that battle. And again, Europe is now having to retrench some of its efforts, some of its aspirations when it comes to the auto sector.

So, there are areas where Europe is struggling, limping along. And so, yes you've got the good news, if it is good news, of additional fiscal spend in the pipe, but the European story isn't a very compelling one, a very exciting one.

That would make us actually a bit more optimistic on the outlook for German bund yields, against a more subdued economic backdrop. But at the same time, the one other thing that we'd say in European duration, and for that matter, in duration elsewhere, is we're just seeing less demand for longer-dated bonds. It seems that there was a time that people wanted a lot of duration as a hedge to risky assets, as a means to match assets to liabilities.

But actually, with those defined benefit schemes closing, with the duration hedge not working in 2022, it seems there's less demand these days for longer-dated bonds, probably more demand for owning income, owning yield, ergo earning credit, rather than owning long-duration assets. And so, the fact that we see a bit less demand for duration, I think, is a factor that kind of stops and prevents Bunds from rallying very much, and so with yields on the 10-year around 2.5%, it's hard to get too excited.

Similarly, in the UK, the UK in the past couple of weeks we've seen gilt yields coming down. We had a better inflation print. I say better, it's still 3.8 on CPI, it's still 4.5 when it comes to the RPI price, so we've still got inflation miles above target. But given how we've got a very dovish central bank in the UK, I'd have every expectation that the BOE will cut again next year. The market is discounting two rate cuts. We'd actually been bullish at the front end of the UK curve, and we actually took, sort of, profits on the back of a rally at the front end there.

But with 10-year yields now around 4.4, I feel that, again yields are getting a bit too low. Particularly because I don't think that the fiscal problems that the UK has had are going away anytime soon. Bluntly, we've got a budget coming our way pretty shortly, but the Labour response to this is to try and tackle the problem in government finances by raising taxes and not addressing spending commitments, but in doing so, I think it's just embedding a benefits culture in the UK.

In sort of just going after taxes you end up with the reverse of the Laffer Curve economics that the US has been benefiting from. The US has been able to lower taxes, but stronger growth has ended up helping to pay for those tax cuts. In the UK, we're raising taxes, but we're hurting growth to the point where raising taxes isn't really delivering material additional revenue. We saw that with the NI rise early in the year, we've seen that with the non-Doms, we've seen that with the private schools. We'll see that again, I fear, in the upcoming budget. And so, this reliance on tax rises, I think, is still an Achilles' heel for the UK. And something that keeps us more cautious on UK gilts, and for that matter, on sterling as well.

Turning quickly to Japan, we have a new prime minister these days, Sanae Takaichi took over as the first female prime minister in Japan, just a week or two back. Now, her policies have been seeking to deliver additional fiscal easing and also easier monetary policy, which seems a little bit at odds with her desire to actually bring inflation level down, given that rising prices have impacted consumer real incomes.

So, I'm not sure how coherent this particular policy agenda is. It is something that can potentially weigh on yields, weigh on the valuation of the yen, and we've seen some of that since her election. That said, when we think about the very long end of the JGB curve, the 30-year point, we continue to highlight that this trade's too cheap relative to the 10-year point. So we still like that very long-end curve flattening trade, even though elsewhere we're structurally a bit more pessimistic on yields because of the policy mix.

And although we really think that the yen is a really cheap currency, a place that this year will be a great place to go and do some Christmas shopping, because it's very, very cheap. It's about 25% cheaper than the shops in the UK, on a like-for-like basis. The reality is you can't really get behind the yen until policy is pointing in the right direction.

With that on FX, FX has kind of been going sideways. There was a time a couple of months ago where we thought that maybe we were seeing a story of weaker US growth, or closing up of growth differentials, and that could weigh on the dollar. But if anything, we still see this ongoing US growth exceptionalism. With that being the case, it's hard to get very enthused about a weak dollar trade.

Similarly, we saw a couple of months ago how overseas equities were outperforming US stocks, but more recently this AI theme has been back in vogue. We've seen US outperformance once again, and at the moment, it seems to be difficult to actually get ahead of this. And so, from this point of view I don't feel that now is necessarily the moment to get behind a weak dollar trade. And so, from that point of view we've tended to think that we should sort of flatten out currency risk just for the time being.

And otherwise, lastly, in a world where risk assets are doing pretty well, emerging markets have been doing pretty well. And indeed, today the big news on an otherwise quiet day today. Of course, every day feels like a quiet day in a US government shutdown, because we have no data, but some of the excitement today was around the election in Argentina, with Milei winning on the back of strong support that has been pushed his way, coming from the United States. Maybe you can sort of make the argument that Argentina is too MAGA to fail. That's the line that would come to me in this particular light, but it does speak to how, sort of, the US is keen to exert its influence where it can in terms of this particular administration.

So, the first question I had was thoughts on Credit Suisse Tier 1s and an outlook for fins. So, this is an interesting one. Over the course of the last couple of weeks, we've actually seen the Swiss courts come out and fine against the Swiss government's move back in, what was it 2022? My memory's a bit dim and distant now, in terms of the year where this actually occurred. Was it 22 or 23 where, effectively Tier 1 bondholders in Credit Suisse were written down to zero.

And so effectively, you've had these legal claims on the idea that there would be restitution made to these subordinated bondholders. Those claims have been trading around about 8 cents. On the back of this latest Swiss court ruling, those claims are now trading at 25 cents.

Look, I think the Swiss court ruling was justified, it was right. What happened there, back in that moment in Credit Suisse, where the law was changed over the course of the weekend, was something that we at the time thought was a wrong sort of use and abuse of executive power. I think I even went as far, controversially, perhaps, as saying that I thought that Switzerland was making itself look like a banana republic at the time. Partly because it felt that this was not the way in which you expect a developed market government to behaving in a moment of crisis.

So, the fact that the courts have found against the Swiss government, I think is certainly interesting. We've still got a long way to go to think that those claims are going to be pulled out in full. But I think it's certainly sort of looking more interesting now to think that there may be some negotiated outcomes, some resolution. And of course, the interesting question will be who ends up footing the bill? Will it be the Swiss government or more likely, will it actually be UBS who end up having to make restitution on those claims?

But that's a story that will run and run. Of course, these legal matters, they don't get solved quickly, so this could be something that's an ongoing story for quarters and years still to come. But otherwise, on financial, we've been bullish of financials all year. We think that financial risks are overstated.

In any coming credit crisis, we're much more concerned that the epicenter of that will be problems in private markets. It's not going to be problems on bank balance sheets. Banks are very highly regulated, they don't take a lot of risk, they're much safer than they were 15, 17 years ago. And so, from that point of view, we actually think that bank credit spreads are too wide relative to what's justified by financials. And so from that point of view, we've been overweight Tier 1s within our strategies all through the case of the past year.

In terms of moving to a next question, positioning of our fund in terms of duration. So, on duration today we actually have a neutral position on US duration. We are slightly overweight in European duration and short in Japanese duration. In aggregate, this leaves us approximately flat overall. We don't have a big directional bias.

We have had a big curve steepening view in the US, but we're looking at sort of reducing that curve steepening position at the right level of exit. Elsewhere, we've also tended to be in curve steepeners in Europe. But we have that long end flattening position in Japan.

And then, otherwise, another question here coming through, on private credit. They must have been listening to my last bit of a rant that I was moving towards. I think the one thing that you'd say in private credit is this is a part of the market where intrinsically, you're lending to weaker companies, companies with more, leverage on balance sheet. In high yield, you're looking at 3 to 4 turns of balance sheet leverage. In bank loans, that may be 4 to 5. In areas of private credit, you're looking at 7, 8, 9 times balance sheet leverage. So, of course, there's more intrinsic vulnerability and potential pain in private credit.

Also, what we've seen in a bull market in private credit is a rapid or an ongoing sort of degradation of lending standards and covenants. And so consequently when things are going wrong, as they will go wrong, the recovery rates that we're seeing are much lower than you would have anticipated, historically speaking. And of course, recently we just saw the big collapse of First Brands in private debt that impacted some funds pretty materially.

But otherwise, beyond that, if you look at the private credit space, it's operating at a default rate at the moment of around 5.5%, and that's on a rising trend. And so, when you factor in the defaults you'd expect to see in private credit you layer on some of the fees that are being charged in private credit. I'd make a strong argument for saying that the the yield available on private credit is no more than you're getting in public market credit.

So, you're just not being paid for illiquidity risk and that liquidity premium at all, in my estimation. And I'm concerned intrinsically that in certain parts of private markets, in areas like private credit, sometimes it's being positioned and marketed as an area to invest, where actually it's effectively low risk. It's almost marketed as low risk, because you don't mark these assets to market, and so you don't see a lot of price volatility.

You'll also hear managers say, “Oh, there have been no problems in the last 16 years.” Well, of course we've had a pretty benign credit cycle for the last 16 years. It goes without saying that default rates have been lower.

But I do think that going ahead of us, this is intrinsically where there is scope for more problems. And what we know as investors, it's always areas that have sucked in a lot of capital that are the poster child in any sort of bull market move. Like it was in CDOs back in the 00s, these are the areas that can go wrong in more challenging times that may lay ahead.

I don't think we're going to see that problem manifest in the next 6 months, but it is coming. It will be out there. If we see bubbles, they will burst. So, it may be party season into the end of the year perhaps, but there will be a moment in 2026 where I think a lot more caution will be warranted.

With that, I've done my 30 minutes. Thank you very much for joining. I'll be back on again next month. I hope you found the webinar useful. Please do give us your feedback but otherwise wishing you all the very best in these markets. Great speaking with you. Thank you.