Tim Graf (TG): This is Street Signals, a weekly conversation about markets and macro brought to you by State Street Markets. I'm your host, Tim Graf, head of Macro Strategy for Europe. Each week we talk about the latest insights from our award winning research as well as the current thinking from our strategists, traders, business leaders, clients and other experts from financial markets. If you listen to us and like what you're hearing, please subscribe, leave us a good review, get in touch. It all helps us to improve what we offer. With that, here's what's on our minds this week.
This week we're doing something a little bit different on the podcast. I'm actually on the road visiting clients across the Middle East. Today we're in Riyadh in Saudi Arabia. But rather than take a break and a week off, I thought it would be a good chance to bring someone on the podcast who I wanted to have on for a little while to talk about markets, but also to talk about recent broad market trends and not just in terms of price movements, but in how asset managers and our clients are all responding to the events and the news flow and the various effects that those are having in driving volatility or as we're seeing this week, dampening volatility.
Now, before you get too excited, no, my guest this week is not Donald Trump, even though he is actually due to land in Riyadh as I record this. And then of course, he's going to be following us to Qatar and the United Arab Emirates to close out the week. This week I'm joined by Dale Haver, who is the global head of FX sales at State Street Markets. Dale has worked in a variety of roles with us over the years. I've actually known him since the start of my time at State Street 16 years ago, and he's been traveling around with us all week as well. Well, Dale, thanks for joining me this week.
Welcome to the Middle East. It's your first time here. What are your impressions so far?
Dale Haver (DH): I've been very impressed. You can tell the change here has been tremendous. What's really changed from a custodian and State Street standpoint, you know, instead of banks coming here looking to get investors, I think now it's switched where you're seeing a lot of investment coming here. I think that's what's increased the interest, especially in us in the region. Now we're in multiple countries and really making inroads with the clients and the number of clients that are investing themselves here versus allocating it out is pretty impressive.
TG: Yeah, I think it's now we did. We market to 51 different countries for research, which is pretty amazing. Yeah, a few of those are here, of course. Let's dial back though.
How long have you been at State Street? What have you been doing for us over the years?
DH: So I've been at State Street 22 years, since 2003. I was a trader before for 10 years and started off in North Carolina, but then New York as well, and some of the large money center banks, but had the opportunity of coming to State Street to do sales. It was actually the research had gotten to the point where hedge funds were starting to trade with State Street and they were looking for salespeople with a trading background to talk to the traders at hedge funds. And so that's how I got recruited. Ended up running the desk for a while there in Boston and then took the opportunity to go out on the West Coast to start up a desk out there because the number of clients on the West Coast was there for six years running that and then came back to the US, ran North America and now running the global team since 2018.
TG: So that is a long period of time where a lot has changed, especially in FX markets. And I'm curious to hear about, especially the recent changes and what you've observed from clients, but also just the way the business works.
What you think have been the most significant changes the last couple of years that are worth noting?
DH: It's the rise of electronic trading. Right. I mean, you know, it was even starting when I started trading. Then we were using, you know, we had voice brokers, but we were using Reuters more and more. And then EBS came, but now with clients it's, you know, they have streaming prices. Algos, you know, we saw it recently with Liberation Day. The amount of FX that came out, came from that was, you know, I think we saw overall about a 10 percent rise in the markets in FX volume. But on our algos, it was 150 percent increase.
TG: Wow.
DH: So you could tell clients were using, you know, algos a lot more. So it's a balance now of covering clients. To be a good salesperson, you have to have the analytics behind seeing what they're doing in E to make sure you're showing the best prices there as well as the voice side.
TG: Yep.
DH: So I think in some respects it was a lot easier because they used to pick up the phone and you knew if you didn't talk to a client that day, you needed to get in touch with them.
TG: Yeah, that was a bit of a problem.
DH: Yeah. Now, now with E, sometimes you assume they're trading and you know, you look back on the week and they haven't traded much and something's wrong and you got to go figure that out.
TG: Yeah, yeah. And so what's next then? I mean there has been this evolution really starting I think early 2000, towards this electronification of markets.
What do you think is the next big thing that clients themselves have to really push for and worry about?
DH: I think for clients it's, it's having everything in one place. Whether that's having the research using AI as you're trading to tell you what's going on in the news, kind of be your copilot telling you, hey, you know, this is a good, you should use voice for this or. And knowing your banks, knowing the analytics behind where to trade, you know, your FX.
TG: Yeah.
DH: More having it all in one place, as is always natural compression in the number of traders at, you know, asset managers, they're being asked to do more with less. So we're trying to help execute some of the FX that is sort of the transit, you know, transactional effects so they can focus on the big trade where there's real alpha and they can have an impact. So it's a matter of getting rid of a lot of those small trades. They can spend time looking at the research, the news and figuring out, you know, what's the best way to hedge or the best ratios, things like that.
TG: Yeah. One of the things we're starting to do a lot of, and I know you're sitting at the forefront of this, is talking to private investors and working in private markets. And I don't have any real context on this.
And so I'm just curious what the approach to them is like and also how they think, like why, why do they care about global macro factors much more so. And why are we talking to them.
DH: More so it's a combination, I'd say one we've changed. Private markets clients are more like your traditional banking clients.
TG: Right.
DH: The relationships you need to lend to the lend capital, you know, be a partner with them across multiple, you know, touch points in the bank. So it's not just about like a hedge fund. If they like the research, they'll trade with you with these, with private markets, you have to lend to them. It takes years of building the relationships. For State Street, we're the largest administrator in the world, so we admin for them. But now it's a matter of lending to them when they need it, being there to help them walk through certain trades. I mean the thing that's changed in their market is just the amount of growth. I mean, it's been exponential since 2010. Yeah. When the GCF kind of pushed banks out of lending and these private creditors started rising up. They've had to learn to be more global and care about macro.
TG: Right.
DH: You know, I think in some respects the attitude was, well, if we like the country, we like the currency, we like the, you know, we'll hold on to it where, you know, all it takes is, is 15 percent move in a currency and you know, they've lost, you know, half their invest returns and so they know credit and it's a matter of, hey, how do we, you know, lock in the, the credit piece and not be exposed to that macro piece?
TG: And how do they do that? I mean, what sort of trades do they think about? What sort of tenors? Is it derivative based? Is it spot or forward FX? Is it all the above?
DH: All the above. So they're, they're looking at some of them doing shorter term trades where they roll, but I would say in general they're looking more minimum two year, maximum ten year. Right, okay. Where they're really trying to match their investment, the hedge, with their investment.
TG: Yeah.
DH: The other interesting thing that's that we've seen recently is with moves in currencies, you know, as it gets in the money, they'll look to take profit and use that capital. And so they strike the trades.
TG: Right.
DH: And take that money out and therefore they don't have to call capital and you know, they can raise money that way.
TG: Yeah.
TG: Before we get to the actual markets, which we'll talk about, and this is a big week in the Middle East because Trump's here and you know, politics is everything these days. Whether it's about this region or other regions or other products.
What are the other things you're thinking about for the next couple years in terms of business opportunities?
DH: I think for us it's, it's expansion. Right. We have 13 desks around the world. We've done very well, I think in APAC in Seoul and Taipei, in the deaths there and down in Latin America. We have a foothold in Brazil with the branch, so it's continuing to expand in Latin America. And then the other area is products. So we are, besides geography on the product side, we're looking to get into options and also looking at interest rate swaps a little further out. And a lot of that's being driven by client demand, both in our normal clients, but in this, in this new private market space. A lot of them are asking for these types of products.
TG: Cool. Well, let's think about how those products move around. And as mentioned, Trump is here. He's actually, I think, following us from Riyadh to Doha to Abu Dhabi, non-intentionally, I don't think. How would you characterize how clients just very broadly have responded to the start of his second term and all of this volatility? I mean, I think every episode I've done this year is about politics and Trump and trade.
You know, what are the big themes that come out to you as far as the client response to this?
DH: I would say confusion to begin with. You know, the amount of uncertainty out there has made this very difficult for clients. I think I had a meeting last week with an asset manager and he was saying, look, my job is to be a risk taker and manage risk. And you know, it was kind of like the Rumsfeld quote. I know the known knowns and the known unknowns, but he's like, now I'm in a unknown unknowns. And, you know, how do I manage risk in that? I go back to benchmark and, you know, really try to just focus on waiting for the trends and some of the more obvious tendencies to start coming through to figure out what are the trades, these trade negotiation means, et cetera. So a lot of it is uncertainty driving back to benchmark. We've seen it across our indicators, as you know, with the dollar equities, you know, everything's moving back to benchmark.
TG: Yeah.
Do you think that is a short, well, it has been a short run, volume burst is the worry that volumes then just flatline and are we seeing evidence of that yet?
DH: I'd say it's calmed down some from April, but I would say most asset managers, I think, are beginning to get their heads around the fact that we're in a, in a whole new regime.
TG: Right.
DH: Like, like Trump came in and as I heard somebody say, shook the snow globe.
TG: Yeah.
DH: And it's not going back. We're kind of in a 90s world where geopolitics matter. You know, you have divergence in, you know, countries, economies, you have divergence in their central banking policies. So you're really back where, you know, if you looked since 2000, you had the, the dot com boom, everything calmed down. All central banks kind of had the same low rates. Then you had the global financial crisis. Everything moved together again with central banks and economies and even with COVID. But now you're in a world of divergence and even trade policies that have been around for 50 years are changing. There's an interview with Carney and he made it very clear that no matter what happens going forward, the relationship has changed with the US And I think he's indicative of many countries where, you know, it may not be drastic, but they're going to certainly start looking to build other relationships outside their trading with the US.
TG: The 90s parallel you raise is interesting because that strikes me as that was like the classic global macro era. You know, at dinner last night, we were talking about the sort of legends of global macro trading like Tudor Jones, Julian Robertson and how they used to operate and how Tudor Jones still operates in the market, just being market animals. But in the risk cycle, we're at sort of the top. Maybe not the peak in a bull market in risk, but we've recovered back to the highs. And I'm just wondering if you have any thoughts on combining that divergence view with a broader risk view and whether that spells future volatility or if we just keep trucking on higher. When it comes to risk markets.
DH: It’s unbelievable how, you know, the buy the dip that has been around since 2000 continues to work. Having been in the markets for 35 years, I begin to suspect that we're coming to a point where it's not going to. You keep thinking it doesn't. We were talking about the pop that happened overnight with Trump's announcement around China trade and the dollar ripping back up and how many people that caught off. But I suspect some of the old school macro traders, they've, you know, positioned themselves in such a way that they, they're going to survive these type of pops and, you know, they're, they're just looking for the big trend to come. I mean, we're only two, three months into Trump's four years, so it's still early days in this game. You know, this is, this is the first inning.
TG: Yeah.
DH: I think, you know, a lot of traders and some of the big asset managers are, are looking at this like, okay, I just got to kind of get my footing. It'll open things up, you know, over the next four years for some pretty interesting trading.
TG: Yeah, well, the dollar is an interesting one. And dollar hedging and hedging by foreigners of dollar assets and domestic investors in the US hedging back to the base currency a little bit less has been something we've talked about a lot on, on the podcast, and it's something that's coming through a lot in our indicators. And I wanted to talk about that because speaking of first innings. When you think about the dollar depreciation that we've seen, well, and have no longer seen, it's, it's rallied back, you know, quite a lot. Just this week, I wanted to see, to close. If you could talk a little bit about that and kind of these changes in hedging patterns and what you're seeing and what, where you think things go for the dollar in particular.
DH: Yeah, I mean, I, I would say in the, in the first few weeks after Liberation Day, there were just a massive amount of hedges that were being taken off. Like I said, this, this move back to benchmark, overall, the view is the dollar is going to head lower. Trump's clearly made it a priority of his to expand US Trade, which should push the dollar lower. I think the second part of this is that some of the flows that we've seen across our indicators with domestic asset managers actually selling the dollar, but not foreign investors, so that could be the second leg, is that foreign investors begin to lose some of their confidence in the dollar and that this isn't just sort of an administration playing 4D chess and going to go back to normal. I think everybody's kind of gotten used to, oh, we just revert back to what's strong dollar policy and the way it's always been. And I think you've seen with this administration, they're willing to do very unconventional things, whether that's 4D chess or just reacting on the fly, who knows? But like I said, I think it's, it's still way too early to tell where they're going to take things. And so I, like I said, I think we're in the 90s where we're going to get some big moves. You're going to get unpredictable market changes. Taiwan was a perfect example where, you know, these currencies that have, you know, we haven't seen a move like that in Taiwan since the 80s.
TG: Yeah.
DH: Going back to the Buffett saying of when the tide goes out, you know, see who's wearing the swim shorts. We're still in that investment regime.
TG: Thinking about that Taiwan move and potentially other moves in currencies in Asia in particular, that have been so dormant for a long time. Do you think these moves are reactions to politics, or are they just simply reactions and reflections of this new world that we're in for macro, where these currencies have potentially been undervalued for a long time and have to adjust? Or do you think it's just mostly a political, not statement, but a reaction to what we're seeing in this new regime.
DH: Part of it is just that I think a lot of markets got comfortable for a number of years. Positions built up. Look at the US equity market with the overweights. There's a lot of it is momentum. The things that worked in the past, people continued to invest in and positions have built up the view of, you know, the exceptionalism in the US equity market, for example, or you know, even talking to investors the other day they were saying, you know, there really isn't an equity market that's as you know, sizable, that can take the investors the way, you know, the way the size of investment that the US market can.
TG: Yeah.
DH: And I think that some of that's going to get challenged when these positions build up. You don't know where it's going to the release valve coming out. That's what's sort of fun about currencies is when it's such a global market, you see that in the macro environment play out in ways that are unexpected. And I think that's always been what's kept me interested in foreign exchange is, you know, when we hit these environments it's, you know, trying to figure out what, where the, where the move behind the move is going to happen. And oftentimes it's the biggest one. I mean, who would have thought that, you know, with the moves in, in April, we're going to trigger a move like that in dollar Taiwan.
TG: Yeah. And ultimately that's where we are. And ultimately things are coming back now and we've got a couple more days of this trip. As I say, we'll see what DJT says while we're here. Things could change yet again by the time this comes out. Dale, thanks so much for sitting down. It was a very quick chat. Sadly too quick. But thank you so much for your time.
DH: Thanks for having me.
TG: Thanks for listening to Street Signals. Clients can find this podcast and all of our research at our web portal, Insights. There you'll be able to find all of our latest thinking on markets where we leverage our deep experience in research on investor behavior, inflation, media, sentiment and risk. All of which goes into building an award winning strategy product. And again, if you like what you've heard, please subscribe wherever you get your podcasts and leave us a review. We'll see you next time.
