I did tell you that today was going to be full of firsts. There's another first now because our next speaker, I've never introduced him before. What can I say? Well, generally, an eternal optimist. Did a great TED Talk on printing money without generating inflation. Don't think that's going quite so well. Although I'm still hopeful that the one about using SDRs, that did actually work during the pandemic. Also, like Guy at the start, I'm very proud to be one of the leaders of the macro-research team here at State Street, which obviously won all those nice Euromoney awards that you saw scrolling up at the start. Look, that's last year. What I'd like to spend the next 20 minutes or so talking about is what happens next. As the title of my slides - if we can get the slides up - suggests, it was about cutting through hopes for 2024. A lot of this was actually about whether the market was too optimistic in pricing in rate cuts. Of course, it feels like in the last month or so we've swung wildly in both directions on that. Now we're back to pricing in cuts again. So there is this question about if that's what the hope for '24 is based on, is that justified? What I'm going to do, I'm going to break this into four sections. I'm actually going to start in a way where Robin left off and take a look at financial fragilities, both in the banking sector, but also in the government sector. I'm going to do that through the lens of media and behaviour. A nice corollary to the fundamental analysis that Robin did. I'm also then going to talk a little bit about some of the macro-fragilities that we have. In particular, I'm going to focus on actually recession risk and I'll touch a little bit on inflation. You have one of the world's leading experts on inflation talking later this morning, so I'll just touch on that. Then unfortunately, we are sadly back to talking about geopolitical risk. Again, there's a talk on that this afternoon, from Elliot Hentov, as Guy mentioned at the start. I'll just touch on some of the metrics that we have that we see through the media, and also through our partners at GeoQuant, about how we can try and quantify some of those risks for you. Then I'm going to end with some conviction market views. I feel like conviction should be in inverted commas, given how uncertain the outlook is. So that last section might be quite short, but we'll see. There will be time for questions at the end. I like the way Robin charactered it, so we're over the hump. At various points this year though, it didn't look like we were going to be over the hump. I think at least for a few days, there was a lot of commentary around this being the next Lehman. What I want to show you here is how we viewed it through our media analysis. What I'm looking at here is the intensity of media coverage of the term deposit withdrawal. Now, as Robin noted, the SVB crisis happened very quickly, and it was darn lucky that it happened near a weekend. The role and one of the reasons why it gets accelerated now, of course, is the role of media. This is almost classic bank-run theory, is the more that people talk about the risk of deposit withdrawal, the more likely it is to occur, even for a sound financial institution. No surprise to see that we saw a spike in media coverage around the term deposit withdrawal around SVB, but what is it showing today? If we look at this data through October, actually, it is still a little bit above average. It's way down from its high, of course, but it hasn't gone away completely. So there is still a little bit of a focus on this term deposit withdrawal and what that might mean. We're also able to look at what investors are thinking about through their flows. Here, I'm going very narrow in terms of looking at - as those of you that follow our research know, we have tens of thousands of different cuts of investor behaviour. What I'm showing you here is a very narrow one, into the commercial bank industry group, both in the US and the Eurozone, and I'm showing that to you as a percentile. We don't get any prizes for telling you that in March and April, institutional investors were heavy sellers of US commercial banking equity. It is interesting to see how it's progressed since. Actually, how quickly the recovery was, even as banks were beginning to fail, actually institutional investors didn't really panic. We did see significant outflows, but we did see a quick recovery. The same is true in Europe. Eurozone investors you can see, investors towards Eurozone commercial banks actually reacted a little bit later, but the recovery also came. You'll notice on this chart, I've got to click on the logo to see this chart on insights. Obviously, you can't do that here. There will be hard copies - I'm going back to your book, Guy - there will be electronic copies of this available afterwards. So when you click on the PDF, it will just take you to this chart on insights, so you can see it updating. When you look at it today, you'll notice that demand for commercial banks is still very negative, and a credit to Maria and Anthi the equity team that we have here, they've been negative on banks for more than a year at least. What this suggests is that, yes, fundamentally we might not be about to have a crisis, but sentiment towards the banking sector is still, unfortunately, really quite weak. You can see it in some of the fundamental analysis also when you look at things like the Senior Officer Loan Survey in the US. Now obviously, we hadn't updated this yesterday, and so that dark blue line, sorry, the bars have come down a little bit. In general, more than 30 per cent of banks are still tightening credit in the US. That makes sense, given the tightening cycle that we've had. The bit that hasn't yet happened is that lending is now about to roll over. Actually, on the weekly data that you get from the Fed, you can see that the lending data is finally beginning to roll over. The reason I mention that is that will lead us into a little bit about the economic outlook, starting with the banks and saying, okay, we might be over the hump, but sentiment is still weak. It's probably worth noting, broadening that out, is that US money supply is contracting for the first time ever on some of the metrics. That will eventually have some impact I think on, must have some impact on output. The interesting thing is even though we're having this contraction in the money supply in the US - and by the way, we're having it in many countries as well. Obviously, part of it is things like quantitative tightening - is that bonds generally, yes, they've had a good couple of weeks more recently, but in general, fixed income has underperformed, even though the money supply is contracting. That leads you to this question about whether there's something going on in the bond market that we should be worried about. This is what Robin touched on is that are the bond vigilantes back? Is there this new concern about fiscal sustainability in the US? I'm just going to give you four numbers here as to why that might be the case. In terms of US rate payments, they're almost at a trillion dollars now. Expected debt issuance in this quarter, it's not quite a trillion, but it's a big number for the market to absorb. Then here's the interesting thing. Obviously, everyone remembers after the great financial crisis the whole thing was about austerity and getting the deficits down. That hasn't happened this time around. It hasn't happened this time around I think because of the recession that followed the great financial crisis. So that's an issue. Even the forecast for the US deficit in five years' time is still above seven per cent, which is a concern. Then I mentioned GeoQuant. GeoQuant is one of our new data partners that help us quantify various forms of political risk. Actually, they have one that looks at governance risk in the US. That measure, for quite some time, has actually been through its January '21 high. So we know that there are issues here in the fixed income market. Here's our take on whether bond vigilantes are back. This is from a note that I did with my colleague, Marvin Loh, a couple of weeks ago. The first thing we looked at was, okay, we're going to decompose buys of treasuries into the different kinds of market segments. We're going to look at real money, that's from our data set. We're going to look at demand from Japanese investors, foreign central banks, hedge funds, commercial banks, and then of course the Fed. We just put that data into a percentile for the month of September and here's what came up. You remember obviously September was a terrible month for fixed income markets, for treasuries in particular, but the source of the selling wasn't the long-term investor. You might think, well, why does that matter? The price still went down. Well, the reason it matters - and this is run through our analysis of investor behaviour for decades - is that when real money go in a certain direction, they tend to stay in that direction for at least a couple of months. Whereas hedge funds if they sell this month, we've got no idea what they're going to do next month. Then this doesn't always work like this, but rather nicely when we update the data for October, sure enough, the hedge fund sign has just flipped completely. The reason why this is encouraging, basically, is that your demand for treasuries from long-term investor money, which tends to be sticky, is still quite solid. Yes, treasuries have come under a lot of pressure, but we don't think bond vigilantes are back. You might think, well, wasn't that money just rushing to the front end of the curve? Well, actually, our fixed income data, we can dig into the curve and see where the demand is occurring. Actually, it was occurring right at the long end. The risk-reward for buying long-dated debt right now because the convexity is really quite compelling, and sure enough, institutional investors have been buying long-dated treasuries quite significantly, which is the green line on the left-hand chart. I should just note - and this would have been a good chart to show our colleagues in Milan, potentially - is that if we look across country, there are a few signs of weakness. They're appearing in areas where you would assume that they might appear. If we're concerned about fiscal sustainability, investors do resume to sell Italian bonds. As well as emerging-market-level currency debt and credit. The fixed income story from our side is okay, but it's not universally good. That's just going to segue on a little bit to macroists. If investors are still buying treasuries, maybe that says something about their view about growth risks. Just going back to the media narrative, just to start this part, so there's the deposit withdrawals as one story. Recession has been another story, of course. We've been talking about recession forever though. This time last year we were talking about recession. In fact, actually, we were talking more about recession then than we are today. You can understand why the recession narrative has fallen a little bit. For almost 90 per cent of the time this year, US economic data has surprised on the upside. Expectations for US growth this year have more than doubled, so over two per cent. In Q3 alone, you had this wonderful, almost five per cent real growth, two-and-a-half per cent core inflation. That's known as goldilocks. So why are we worried about recession? Of course, that's all backward-looking data. Forward-looking indicators are still, interestingly, from our point of view, pointing to a high probability of recession. We're going to hear from Mark Kritzman a little bit later. This is an indicator that Mark Kritzman designed, along with Will Kinlaw, who's sitting in the front here, and Dave Turkington, who's Head of State Street Associates. The State Street recession likelihood index basically just looks at the pattern of four variables during past recessions. It looks at the yield curve. Okay, no surprise there. It looks at equity market returns because that's an interesting one. Alongside payroll growth and industrial production. The interesting thing here is that, so this time last year when all, I think Bloomberg ran this wonderful thing about saying that they thought the probability of recession in the coming year was 100 per cent. We never say anything is 100 per cent. Since then, it's fallen. Our model was quite low then, but has since gone up. I think part of that is because of employment growth in particular, obviously, is now beginning to slow. In other words, don't rule out recession just yet. In fact, of course, the other issue in the US is that we don't have the usual two-quarter definition GDP contraction. The NBER dates it based on these six variables primarily, so industrial production, personal income growth, payrolls, wholesale trade, PC, and employment. What I'm showing you there in that little yellow area is that's the average of these six variables as a percentile during the post-war recessions. Then the blue bar, which is almost like a little heart shape, is where we are today. The thing that's actually closest of all these indicators, interestingly, is personal income. Which is kind of interesting, isn't it, because actually the thing that's furthest away is consumption. If income is relatively close to recession levels, and consumption is still quite high, what does that tell you about one thing? It's credit growth and the reduction of excess savings. Of course, that's exactly what's going on. Right now, US consumers basically, they're not spending out of current income, they're spending out of excess savings. Which compared to their pre-pandemic trend, you were very close, depending on where you assume the trend is, were very close to, if not the end of them running down their excess savings after the pandemic. Even though the current news is really good, that might be why you want to be concerned about the outlook on the cyclical side for the US. Then when we go into the pattern of investor behaviour, we see that's exactly what investors are concerned about. What I'm showing you here - and again, it's a very typical chart that you'll see in our research pieces. We've got equity holdings on the vertical axis, and we've got flows on the horizontal axis. What that means is that if you're in the top left-hand quadrant, that's a sector that investors are overweight and selling. Typically, those are sectors you want to avoid. Look what's in there right now. You've got industrials. You've actually got consumer discretionary in there, even though you just had a gangbuster quarter for US growth. Materials is already there. Your materials investors are already quite pessimistic and are adding to an underweight. Then you've got all the classic safe-haven sectors where the flows are strongest. So staples, healthcare, utilities, where investors are building and overweight. Then tech, obviously, still a conviction trade, investors are overweight and adding. I think what this highlights is that even though the US growth story has been amazing this year, investors, to some degree, are ready for recession. Of course, I would just note that the US is probably the area where we've had the biggest growth upside surprises this year. Everywhere else has been much weaker. China, growth expectations have risen a lot after the reopening and then have fallen back. You're going to hear a really interesting story about China a bit later, so I'm going to just, I'll pause on that. Just to note that, okay, we're expecting growth in the US to flop a little bit, even though it's the best growth story. That, I think, is a little bit of a concern. What does this mean about the other factor that we should be thinking about, which is inflation? Inflation, we've been focused in the media, we've been focused even more on inflation than we have on recession, but like recession, it's come down quite a bit. What I would point you towards, so you're going to hear Alberto reintroduce his work on looking at inflection points. I can tell you, this time last year, and those of you that you were here this time last year will recall that his work on inflection points, at that point, was detecting a down trend and disinflation. So it's going to be very interesting to hear what it says today. In terms of thinking about inflation more broadly, we developed this framework for thinking about the inflation outlook in the US at the start of the year. Basically, there's ten different factors to gauge whether inflation was going back to trend, and they relate to, the first five are all about the current inflation trend. The second five relate to second-round effects, so labour market. Wage growth in particular. You can see on the chart on the right that when we started doing this, 'Is inflation normal?' scored three out of ten. We actually got as high as six, but we're back to four-and-a-half. The inflation outlook is still actually surprisingly quite uncertain, even though we think recession is coming. This idea of inflation being sticky is still problematic. What does this all mean for rates? Well, those of you will remember that a couple of months ago, Huw Pill decided that the new way for central banks to do forward guidance was simply to put it in terms of a mountain range. He said that the Bank of England preferred a Table Mountain profile for UK rates. Curiously enough, well, at least before the post-payrolls rally, the UK curve actually wasn't that far away. The tricky thing for markets though, all the way through, has been to gauge how quickly rates can come down. The one thing just to note, as you might think, okay, the market keeps making the same mistake about getting ahead of itself on rate cuts, but to be fair to the market - let's take the Fed as an example. After the Fed has raised rates, they stay on hold for approximately 160 days. That means if this was an average, a median tightening cycle, that means we should expect rate cuts by the March meeting. Of course, this has been anything but average. The cycle has been unusual, so it may well be longer, and there's a big range on that. You can understand the market confusion around the forward guidance because even Table Mountain has rates coming back exactly to where they were before. Of course, that's also another debating point, to question where the natural rate is going. The one thing we can say for sure though, so if we're thinking about the outlook for rates next year, I think there are two things we can be really confident about. The first is that the BOJ will eventually tighten. Alberto will talk to you about these structural shifts and the inflation indices, like I'm showing you here. You don't really need to draw any lines on this to show that there's been a structural change in the Japanese inflation trend, that was captured, price that I think was about six months early on this. So the BOJ very clearly will need to act. I'm going back to what I wrote in that book 16 years ago. This is still the case for the yen to appreciate because we've seen a structural change now in Japanese inflation. The other one, by the way, is China, where we still see, so we've got a new Chinese series, but it's still showing deep deflation. There's an interesting question there about what policy response that means. Again, you're going to hear a little bit about China later. Just to demonstrate this point on the structural shift, so you can see where we were pre-pandemic in the Japanese inflation trend. The slope of that line since then is over two-and-a-half per cent annual inflation and it's showing no signs of changing. Let me just quickly, briefly, touch on geopolitical risk because I said, so Elliot Hentov is going to be talking about this later today. What I just want to highlight here is that through our partnership with MKT MediaStats, we're able to measure media mentions of international conflict. Then, more importantly, look at the asset sensitivity to that. We did that around the war in Ukraine, and we're doing the same with the ongoing conflict in the Middle East. In addition to that - and this is just an example of the asset sensitivities we can calculate. There's actually a whole piece from Gideon Ozik that, one of the co-founders of MKT, behind this chart. What I also wanted to show you is, and we talked a little bit about contagion in the banking sector, but this is a measure that we get from GeoQuant, which again, this is a quantitative measure of political risk. We're looking at the change over the last month versus the level. Obviously, again, no surprise to see that political risk around Israel has gone up. It's interesting to see how measured political risk in other countries has not moved in the same way. In particular, obviously, during this period we had a very positive political shock in Poland. It's just the fact that we're able to measure this, and measure asset sensitivities to these changes in geopolitical risk. I'm just going to spend a few minutes now talking about market views and trying to pull this together. I think the first thing to note is that the environment that we've talked about, sticky inflation, higher-than-expected recession risk, it's probably no surprise to note that our top-down measure of risk appetite, which is our behavioural risk score card, which looks at 22 different factors, 55 per cent of those factors in the month of October were defensive. Again, maybe not too much of a surprise there. Probably what is more of a surprise is that investors have been leaning against risk-on all year, with the exception of one month. The outlook for investors has been pretty defensive. It's interesting that that's across asset measure. Actually, so far, FX markets have been pretty undisrupted. Interest rate markets have been the main volatility absorber of what we've seen so far. There will be interesting questions as to whether that can continue going forward once rate vol calms down. Another key topic this year has been one of de-dollarisation. This idea that, for various reasons, the dollar is losing its central role in the financial system. Here's a chart that disagrees with that. What we're showing here is the risk appetite index against dollar flows. The dollar flows are inverted on the right-hand axis for you. You don't need to throw up a correlation here. You can see that when investors are risk-averse, they buy the dollar. That has remained a consistent and pertinent theme. The big question though then is having been risk-averse for much of this year, what does that mean about dollar holdings? I think this is something to watch really closely actually in the next couple of weeks. This time last year - well, in fact it was 16th November last year - we got a very clear dollar unwind signal. Our holdings were in the top quartile, flows were in the bottom quartile. It's like a perfect alignment. We call that an aggressive dollar unwind. You can see that going back 20 years, we've seen these aggressive dollar unwinds only 6 or 7 times, but in each of those times, they've marked the dollar peak. Now, we're not there yet. Current five-day flows into the dollar, as of the start of November, were in the sixtieth percentile. That will lead where the 20-day flows go, obviously. Just to note that dollar holdings, so right now, we describe the dollar at long as a conviction trade. It's a big overweight that investors are still happy to add to. Just be wary that this could turn quite quickly, exactly as it did this time last year. Just broadening that out a little bit, obviously, the main, the dollar is one safe haven. Cash holdings are another. Just one thing to note on cash holdings. Cash holdings, which are the right-hand chart, they are now back, they've gone up from about six per cent, from their low a couple of years ago. Cash holdings are above average. The reality is that, and we see prior crises, so if this turns into a crisis - and obviously, Robin gave us a nice optimistic start today that essentially, it wouldn't. Cash holdings can and have gone a lot higher. I would say that the rise in cash holdings we've seen so far have discounted a recession, but nothing more. The other thing just to note in terms of balance of risks, investors are still overweight equities, and even though they've been buying bonds, are significantly underweight fixed income as well. Balance of risks actually are that we will finally get the rallying bonds that we've been waiting for. Now, we didn't get that in the survey that I started the day with, but I do think that's interesting. Just to sum up in terms of key views, and most of these views, by the way, will appear in our asset allocation piece. Again, there's a link to that in the top, right-hand corner. We prefer bonds over equities. Obviously, we think recession is coming. We don't think equity markets are fully discounting recession yet. In terms of the sectorial distribution, again, just like the flows that we showed you in that scatter, still very defensive. Anti-cyclical. Regionally, we still prefer the US over Europe. In fixed income, actually, as I noted, treasury flow, even the treasuries have been under a lot of pressure. We see long-term investor demand is there, and we'd stick with that. If you want to play fiscal vulnerability, we'd play it through BTPs, not treasuries. Then finally, just on the currency outlook, we would stick with the dollar for now, but we're just getting ready. Certainly, we've been long in the dollar for a while. We'd be very wary of that position turn. We're sticking with it. Look, that book from 16 years ago had me long yen. I'm still, we're still long yen today. That's primarily based on the BOJ really must act in the face of higher inflation. We would fund that primarily in European currencies, so both the euro and sterling. Again, there will be a talk dedicated to sterling right at the end of the day. Look, I'll stop there. I'll see if there is time for maybe one or two questions. Okay, we've got one here. The US interest expense this year is less than two per cent of GDP. My personal one is 20 per cent of my income. Am I bankrupt?! Well, I would assume that you might not have fixed your mortgage. I know my mortgage is rolling off at the end of this year, which I know is going to be very painful. Look, this question of solvency I do think is an interesting one. Like I said, I think we've got very robust, real money demand for treasuries. Which I suppose the thing to think about is that given long-term investors have not been the price-drivers in the treasury market recently, that's probably one thing to note. I suppose the time to be concerned would be when long-term investors actually finally do start selling treasury. That would be a real red flag for us, that that sector begins to sell treasuries. Interestingly enough because of the price action, so even though investors have been buying treasuries, investor holdings of treasuries are actually underweight because of the price performance. In other words, they've been fighting the price all the way down. I do think that's going to be a really important flow to watch next year, as to whether long-term investors continue to buy treasuries. Any other questions?

Yes, hi Mike, I've got a quick question. Just your recession likelihood index, so the traditional yield curve model, if you use two tens, that inverted in July '22, and the three-month ten-year, which was November, which the model says you should be looking for recession in twelve months. Well, here we are. When you've added in those economic variables, which make logical sense to me, do you think they're enhancing the predictability or changing the time framework that you should expect a recession to take place? Is it providing more information analytically for your sells, in terms of your confidence in calling for a recession?

Yes, it's a great question. Well, I'll start and, Will, if you want to - you literally have the co-author sitting in front of you. The model itself uses three-month tenure. I think what we observed in using it, how to sample - and look, it was released in December 2019 - is that adding the economic variables and the equity market returns, I think in particular, do add something over and above just the curve. The probability of recession at the end of '19 actually was a really good gauge of that. When they released the paper in Dec '19, it was 70 per cent, 72 per cent probability recession. At the time, none of the models based on the curve had that. Now, of course, then the pandemic happened. We're not saying, in any way, that it called the pandemic. Of course we're not. What it was detecting was there was something in the alignment of those variables. I think the nice thing about the methodology, it's not just like an events study, it's about the inter-relationships between all four variables. I would say looking at it qualitatively, there must have been something in the interaction between both the curve, and I think industrial production at the time, which was very weak, which was leading to that higher probability recession. Then I suppose in the same virtue is that when the curve inverted this time around, it's been much slower. While everyone was talking about recession this time last year, the recession likelihood model was actually below the consensus and has only since risen. I think some of that is construction. It puts a 12-month median average to the curve, for instance. It's interesting it's come later. I think the one thing we can say for sure is as good as Q3 was, fairly confident that's likely to be the peak in US growth. The question now is just how quickly we slow down. I don't know whether there's something you want to…

I had a quick question for you. I was thinking about it, and if you work off the hypothetical of the Fed's successful on a soft landing, so they get inflation down to their target, but it hangs there. Unemployment rate maybe gets into a four handle. The question is, does the Fed really need to cut much, if at all?

I think the key there is going to be expectations. One of the things in our, the ten tests of inflation normality, is we look both at the level and distribution of consumer expectation. I think, in an ideal world, if we're right and we get recession and inflation comes down, then the Fed could cut. Obviously, we're coming from a period where inflation has been above target for a long time. The Fed is really, well, all the central banks are in the job of trying to restore their credibility. I think it matters an awful lot as to what happens to expectations as to whether they can cut. Really interestingly, Powell and his recent comments was very benign on market-based inflation expectations. Which with the five-year, five-year over two-and-a-half per cent breakeven, that, to me, felt like quite a bold statement. I think it's going to be really interesting to monitor Fed communication in particular. Obviously, we can do that with our partnership with MKT and the hawkish/dovish indicator. That has captured the Fed becoming more hawkish as yields has gone up. I think how the Fed responds to changes in financial conditions, but more importantly, inflation expectations, is going to be really important.