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00:00WEEK. WE ARE JOINED BY THE PEPPER STONE HEAD OF RESEARCH. GOOD TO HAVE YOU. AS WE LOOK AHEAD, UNCERTAINTY IS THE BEST WAY TO CASH THIS BECAUSE WITH THE U.S. AND CANADA, TRADE TALKS UNCERTAIN, AND LOOKING AT THE U.S. AND CHINA, TENSIONS COMING UP, TARIFFS, HOW ARE YOU LOOKING AHEAD IN TERMS OF OPTIMISM, PESSIMISM AND POSITIONING IN THE MARKET? CHRIS: IT IS BUSINESS AS USUAL. THERE WILL PROBABLY BE AN EXTENSION THIS WEEK. EQUITIES WILL CONTINUE TO FIND BUYERS FAIRLY ACTIVE. YOU WILL SEE COMPANIES, THE BIGGEST THEMSELVES. THE S & P, IT CAN MAINTAIN 2900 AND CREDIT SPREADS, IT WILL GIVE BACKBONE TO THE EQUITY MARKETS AND CONTINUE TO APPRECIATE. IN THE RATES MARKET WE ARE GETTING TO A STATE WITH THE FIXED INCOME MARKET WHERE WE MAY'S THE SEASONAL BACKUP AND YIELD -- IN YIELDS. LAST WEEK, WE WILL SEE THAT CONTINUE. YOU ARE GETTING FAIRLY MESSING -- MESSY TRENDS, BUT WITH THE AUSSIE AND QE, YOU CAN SEE CURRENCIES. -- KIWI, YOU CAN SEE THE CURRENCY STAYING ABOVE. RAMY: I HAVE A CHART TO SHOW YOU AS WELL AS VIEWERS, 2901 IS WHERE WE ENDED FRIDAY. LOOKING AHEAD, ANALYST TARGETS HAVE BEEN CLIMBING. LOOKING AT THE NEXT FOUR QUARTERS AHEAD, THEY SAY IT COULD BE 3158. LAST WEEK WE WERE TALKING ABOUT 3000 BY THE END OF THIS YEAR. ARE YOU THAT OPTIMISTIC? YOU THINK WE CAN GET THROUGH THIS TENSION WE HAVE BEEN TALKING ABOUT? CHRIS: CHRIS: YEAH. IF YOU LOOK AT THE OPTIONS MARKET, THE FX AND IMPLIED VOLATILITY, WE HAVE A 12 HANDLE ON THEIR. WITH THE CHANCE TO AGGREGATE TRADE TENSIONS, POLITICAL NOISE COMING THROUGH, THE IDEA THAT WE NEED TO START PREPARING OURSELVES FOR ELECTIONS IN MANY DIFFERENT YOUNGER FEES, AND THEY SAY IMPLIED VOLATILITY AND S & P NOT EXPECTED TO PICK UP DRAMATICALLY. I LOOK AT THE U.S. TREASURY, THERE GERMAN BUND SPREAD, YOU CAN SEE THAT NARROWED CONVINCINGLY. THAT IS A GOOD SIGN THE S & P WILL FULLBACK OVER TIME. CONSUMER CONFIDENCE IS STRONG. THAT HAS BEEN GOOD FOR EQUITY GAINS. BEING BOLD -- BUYBACKS , VALUATIONS, THEY ARE LOFTY BUT NOT EXTREMITIES. PROFIT MARGINS ARE STILL REALLY HEALTHY IN THE U.S. SO I THINK IF WE HAD THIS CONVERSATION ANOTHER TIME, I WOULD SEE THE S & P HIGHER FROM HERE. HAIDI: I WANT TO GET YOUR VIEWS ON EM. IT HAS BEEN A TART SUMMER FOR EMERGING MARKETS, THE WORST YET TO COME. LOOK AT THIS, THE DEVELOPING PRETTY EXTREME NEGATIVE CORRELATION BETWEEN EM EQUITIES AND ALL EM EFFORTS AND THE U.S. DOLLAR. IT IS GETTING WORSE. IN TERMS OF WHAT WILL GET YOU TO CHANGE YOUR VIEW ON EM'S, WE COULD TALK ABOUT THE IDIOSYNCRATIC STORIES, BUT DOES IT REALLY COME DOWN TO THE TRADE STORY AND THE U.S. DOLLAR? CHRIS: I DO THINK ABSOLUTELY, THEY ARE THE TWO, IF YOU LOOK AT VARIABILITY OF THE MARKET, THAT IS CAUSING A LOT OF THE GAINS IN THAT SITUATION. SO YOU PROBABLY WANT TO SEE REVERSAL WHICH CHANGES THE PSYCHE OF TRADE, WHICH IS THAT WE BELIEVE THE DOLLAR IS ON JOE WORD TRAJECTORY -- IS ON DOWNWARD TRAJECTORY. I THINK THE TRADE SITUATION, IF WE GET CLARITY THAT MAKES US BELIEVE WE ARE PAST THE END OF THIS, GETTING CLOSER TO DIPLOMATIC RESOLUTIONS BETWEEN CHINA AND THE U.S. AND SUPPLY CHAIN COUNTRIES SEE REVERSAL AS WELL, THEN PERHAPS WE CAN HAVE CONFIDENCE TO DO OUR TOE IN. I THINK VALUATIONS ARE CHEAP IN THESE MARKETS BECAUSE IT IS DIFFICULT TO PUT A VALUE ON THEM BECAUSE OF THE ASSUMPTIONS YOU HAVE TO PRICE INTO YOUR MODEL CHANGING ALL THE TIME. MY VIEW IS TO CONTINUE TRADING WHERE THE TRENDS ARE BEARISH ON EMERGING MARKETS. WE NEED TO SEE A SECTION ABOUT THE U.S. DOLLAR GOING LOWER. WE NEED TO SEE CLARITY THAT MAKES US BELIEVE TRADE TENSIONS ARE COMING TO SOME SORT OF A CLOSE. HAIDI: ARE THERE ALMOST AS MUCH BEARISH FACTORS WITH THE AUSSIE DOLLAR, IF SOMETHING CHANGES IN THE TRADE PICTURE, ADDED TO THE UPSIDE OR WITH THE ADDITIONAL TARIFFS, HOW DOES THAT CHANGE YOUR POSITION ON THE AUSSIE? CHRIS: IF WE SEE DEVELOPMENTS, A LOT HAS BEEN PRICED IN , THAT HAS FACTORS IN DOMESTIC MARKETS AND DIFFERENT CLAIMS AS A WAY OF BEING EM PROXY. POSITIONING HAS BECOME STRETCHED . WE HAVE NON-COMMERCIALS, 44,000 OR PEOPLE SHORT THAT FOR THE THANKS. THE SITE IS BEARISH, BUT FOR THE MOMENT WE COULD SHE -- WE COULD SEE A RALLY COMING THROUGH. WITH THE RBA OR GDP, IT IS NOT CHANGING THAT DYNAMIC. IF WE GET CLARITY AROUND THE TRADE TENSIONS, PERHAPS WE SEE PEOPLE BUYING, BUT THAT WOULD MAKE US, GIVE US BETTER OPPORTUNITY TO SELL AUSTRALIAN

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'Very Bearish' on Emerging Markets, Pepperstone's Weston Says

Chris Weston, head of research at Pepperstone, talks about stocks, bonds and currencies. He speaks with Ramy Inocencio and Haidi Stroud-Watts on "Bloomberg Daybreak: Australia." (Source: Bloomberg)

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