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00:00What's going on. I was hoping you would not question actually. Well obviously the narrative is very well known and people are concerned about interest rates and the threat of recession and everything. There's something particular I think going on in U.S. equity markets because the U.S. equity market yesterday was at one point pricing in an 80 percent probability of recession 8 0. That's compared to about 30 percent in the rates market. Now I don't think equity guys are actually that smart to be able to decipher when a recession is going to start. But what they what they on the brink of doing is actually pushing the economy into a recession. If if know it's like talking yourself into recession. But absolutely. Yes it's sort of you know as we saw the equity market fall especially on Wednesday night we saw the credit spreads starting to widen out. You're starting to see that sort of circular contagion actually happening. But you know we thought the same thing happening last Thursday and we did see some liquidity support that wasn't public. But if you look beneath the surface you actually saw that liquidity support coming through today. We think we should have a good chance of getting close to 4000 on the futures once again at most. The other thing here is there's so many moving parts in this recession being priced in by some markets stagflation as well. Graduate in little little pockets too. It's it's reminiscent of that Mark Twain quote which is that the calamity that one prepares for is not the one which actually comes to pass. I thought you were going to actually quote me you know how do you go bankrupt gradually. Then suddenly I just did. And that was Hemingway. I know. But I think that one of one of the reasons why we remain constructive on the markets here at the moment is that what is happening in the U.S. equity market is not being reflected in other markets. We're not seeing for example other European equity markets for example 10 percent off the March lows. You know imagine if you're going into a recession. There's no way that oil is going to be in triple digits. Aluminium looks too high. Copper looks too high. Rates are too high. If we are going into a recession. So it's only the U.S. equity market that seems to have that particular concern. We think that might be something interesting going on the. And to that point you point out that equity volatility across Asia is quite subdued. So what kind of puts are you looking at there for some kind of opportunity. Well I think the thing is that equity volatility globally has been very subdued to the first 10 percent down move in the U.S.. We did see a rise in equity volatility the last 10 percent down move. There's been actually no rise in volatility whatsoever. So if you get this scenario of a continued equity sell off which is not our core scenario at the moment we think that HCI puts look quite interesting because of the positioning that there is in there. But we do think that going long futures and long volatility here actually makes a lot of sense. The war not withstanding in Ukraine you make an interesting point that if we are going to see a recession you're not going to see oil in these triple digit figures. Where do you see the commodity space move from here as we continue to see a lot of upward pressure on the likes of oil and also base metals. Well I think the thing is that over the next few months our view is that the market will be basically in some form of descending triangle as the Fed does. KUTI Really depends on your view on the dollar. And my view on the dollar is that we've probably reached a short term high. We're probably going to go maybe we might even go back down to around 100 on the on the VIX. Why that will support risk in the in the short term. I think the real decision point may come in September October time when market when we'll be getting towards the end of the Fed's hiking cycle or at least the most aggressive part of it. And then we'll have to decide whether we really are going into a recession or not. But I don't think that point is right now. I don't think there's enough information for us to say either way whether the Fed is going to actually push us into a recession or not. And I hope it's not going to be the equity market that's responsible for that. OK short term perhaps a bit of dollar weakness is what you're suggesting. But you know if we did see a resurgence which is the car which of the currencies which are most vulnerable. Clearly it will be the Aussie dollar. That would be the most vulnerable. I think the yen would be would be quite vulnerable to strengthening actually. And in fact if the yen strengthens that would really be good for inflation. You know if you get a 6 percent strengthening in the yen here you're gonna get us one year break. Even inflation rates back down to around 3 percent. So there's this auto corrective mechanism that there is within the financial markets at the moment which is why it's so surprising that the U.S. equity market is just giving out such a bearish signal almost unilaterally.

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Citigroup: Expect Much Higher Equity Implied Volatility

Citigroup Global Markets Head of Asia Trading Strategy Mohammed Apabhai says he expects to see much higher equity implied volatility in the stocks sphere. He speaks with Juliette Saly and Rishaad Salamat on "Bloomberg Markets: Asia." (Source: Bloomberg)

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