State Street CEO on Dubai Reopening

Let me just start off with the the, the big launch for you. I believe you’re opening up your offices in Dubai tomorrow. What prompted this move? Why come back to Dubai? Well this region is growing so rapidly. State Street has been in the GCC for over 30 years and today has a very meaningful presence in Abu Dhabi, Riyadh, Oman and we felt that the Dubai was the right next space to open up. The focus around our business originally was servicing official institutions, but as you well know the breadth and the growth of the overall sectors, the number of IPOs that have been very successful in the region is one of the reasons why we’re just expanding and doubling the number of people that we have across the region in these various, well, I recently moved over to Dubai myself. So you’re preaching to the converted there about the increasing importance of the region. Let me just ask you this because many funds and asset managers are sort of torn between whether they set their headquarters in Abu Dhabi or Dubai. Was Abu Dhabi ever consideration? Abu Dhabi has been a very significant location for us and that’s arguably where we got our start. So our investor servicing business across State Street is very much concentrated there. We continue to add resources at the same time in Dubai, the focus will be a little bit more on the asset management side. So it’s very complimentary for us. Yeah, well let’s turn to just general global outlook views. We have just been on the show digesting at the non farm payroll Sprint from last week. But I would say for the most part of this year US, the US economy has actually surprised to the upside. It’s been more resilient than people had anticipated. How do you see things panning out the rest of this year? Well, we took away a couple of things from the Fed briefing. One, that the Fed chairman said policy rates are in the right place, meaning they’re prepared to hold or to cut, but not to hike. Secondly, there’s a great deal of focus around the strength of the labor force and we think that’s very good because the dual mandate is coming more into view for the Fed. And then importantly the reduction of the balance sheet that is supposed to start in June, which has LED us to feel that we believe and this is an out of consensus view that the Fed may begin cutting rates in July right earlier than perhaps what the market suggests just because the strength of the inflation print. Really if you focus backwards a year last March 4.8%, this March 2.8% notwithstanding some of the numbers we’ve seen, we’re very close to the target rate. So if that does actually materialize, what investment opportunities does it present? The market is not pricing in a June start, that’s correct. I mean I think for the near term we still are very much overweight equities, cash, even gold. Now as you move further out, we would tend to move much more towards fixed income and governments and high quality equities to sort of reflect that point of view. And when you say equities, is it a bias on US equities or are you thinking about other global markets as well? It is principally on the US market. We’ve seen a number of the S&P 500 companies report they beat earnings. Our expectations is for the S&P 500 companies to generate 10% year over year return. So while it’s a little bit expensive in the US, we still think it’s very high quality. And then to a lesser extent as we think about rates coming down, we think the emerging markets could be an interesting place. Yeah, I’m I also note that you are sitting on cash as well. Why is that the case? Is it because you want to have the gunpowder, so to speak to get back into these markets or is it just, you know, concern about some of the risks that may materialize, be they geopolitical or elsewhere, I think is all the above plus the fact that you’re being paid and rewarded to be in, right? Of course, yeah, interest rates are a lot higher. Now specifically on geopolitical risk though, is there enough geopolitical risk premium price then to global assets Right now it would appear that it’s not as priced in and that’s one of the risks to this scenarios, is it tensions really flare, there’s supply chain issues, energy shock that could obviously change a picture in terms of the overall growth of the global economy as well as the picture on overall inflation. That said, I would say where we focus the most is really looking at the quality of the labor numbers. And as much as we noted, obviously jobs were down from what was expected, unemployment slightly up. The quality of the jobs being created today are lower quality, tend to be part time workers, even full time workers are not able to get the full number of hours that they want. And so our expectation is that there is weakness there. The number of job openings have been declining and so we think that wage inflation story is going to be the the major story to focus on in the coming months. And and just a final question, because I’m getting the complete view of your asset allocation here, You also mentioned that you’re underweight commodities. What is the view underpinning that? It’s really that we’re looking at overall global growth. We’re generally in line with IMF for major economies with maybe the exception of the US where they’re looking for 2.7% growth. We’re closer to 2% growth. And so for that reason, just a global growth backdrop makes us less bullish about commodities X gold. Very clear.