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Month: July 2021

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Awash with Cash and Jay Powell’s Continuation, Markets Look Up

Tony Nash joins BFM 89.9 and explained where markets are headed in the context of rumors that dovish Fed chief Jerome Powell might stay a second term, even as corporate earnings and cash-rich US tech giants might boost gains with share buybacks. He was also asked whether the US market is bullish right now — and what sectors should investors look at? Also discussed is the EU economy amidst the recent lockdowns.

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/awash-with-cash-and-jay-powells-continuation-markets-look-up on July 22, 2021.

 

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Show Notes

 

SM: BFM 89.9. You are listening to the Morning Run I’m Shazana Mokhtar together in studio with Wong Shou Ning and Khoo Hsu Chuang as we always do in the early morning, we recap how global markets ended the trading day.

 

WSN: Yes, it was an excellent day in the U.S. The Dow and S&P 500 were up zero point eight percent. Nasdaq was actually up 0.9%. Nikkei 0.6%. Shanghai is up 0.7%. Hong Kong was down 0.1%. Singapore is up 0.3%. And week Abkhasia were down 0.2%.

 

SM: OK, then to get some insight into where global markets are headed, we have on the line with us Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Let’s start with the markets. They seem to be toggling between risk on and risk off. Which direction is it in? Is it a long bull or one that’s plateauing?

 

TN: It really all depends on the Fed. I think we expect to see things continue to rise through Q3. Well, they should continue to rise gradually. Doesn’t mean we won’t see volatility. We do expect to see further fallout. But by the end of the quarter, we expect things to continue to march higher, even through the volatility and some of the uncertainty. The Fed meeting in August in Jackson Hole really should give us a bit of clarity around what some of their future plans are. But beyond that, we do expect the Fed to be pretty calm and markets to proceed accordingly.

 

KHC: There’s some news, of course, unconfirmed at this point in time that Jerome Powell might seek a second term. What might that mean for markets and investors, given that he’s more of a dove than a hawk?

 

TN: I think it’s continuity, I think the White House has talked about other people to take that role, but I think keeping Powell right now is actually important for continuity because a really tricky situation. So I actually think I’m not a huge Powell fan, I’m not a huge detractor, but I actually think it would probably be a good idea to keep him in order to to reassure the markets with continuity.

 

WSN: Meanwhile, its results season. So far so good, except maybe for financials and Netflix. But we already see some strategists upgrading the S&P 500 year end targets. Do you think they’re a little bit too premature?

 

TN: No, I don’t think so. I think we’ll continue to march higher. We’ll have a few scares before the end of the year. But I think we will continue to march higher. The thing that I think is will be a little bit worrying for people toward the end of the year will be, you know, will the risk of keeping things in be enough? You know, will you get enough reward for keeping your money in the market?

 

Because I think things will get riskier the further way we go along in the year. All of this is assuming there isn’t more Covid aid and Fed stimulus and all this other stuff like increased rate of stimulus. But assuming everything is the same as it is now, we’ll hit toward the end of the kind of benefits of that stimulus toward the end of the year, at least the perceived benefits. And I think people really start to wonder whether the reward is there for them to to keep their money in the markets.

 

WSN: But, Tony, if I ask you to look into your crystal ball, what sectors do you think might surprise on the upside then?

 

TN: I think we’ll start to see things like travel and tourism do well. There are mumblings of efforts in the US that certain people want to close down parts of the economy. Again, we’ve seen California start to take some steps in that direction. But I just don’t think that anybody here wants things closed down again. Texas has said today that he will not reinstate a massive mandate in Texas.So Americans really want to get out. They want to travel. They want to see other parts of the country in the world. So I think we’ll see some things in tourism and travel do really well.

 

KHC: What you’ve just mentioned obviously reflects the economic fundamentals and a reflection in terms of those sectors. But JP Morgan, I think a couple of days ago talked about the S&P hitting 40, 600 points, is about 200 of the plus points from here on, and not because of the economy returning, but because of the share buybacks. What do you think about that particular development?

 

TN: Look, companies have a lot of spare cash and and how are they going to get EPS growth if they don’t buy back shares? The economy is awash with cash right now. If you’re the CFO for a publicly traded company and you have a lot of cash on the side, you really have to do that calculation to understand how is it going to hit your share price if you do buybacks. I think that’s definitely a part of the equation, at least of the end of the year, if not in the second half of ’22.

 

KHC: So names wise, who pop out obviously Berkshire with over 200 billion and Apple a notable cash hoarder’s, what are the names pop out to you.

 

TN: I can’t think of any right now to be honest, but I think it’s just a matter of looking at balance sheets and looking at who has that cash and then also, doing some research on the CFO and the board and look at their previous behavior. Some companies want to sit on cash or they want to say invest it. Others want to do share buybacks are typically technology companies do a lot of share buyback services. Companies do a lot of share buybacks. So I think those are the sectors that you would want to be looking at, banking, services, technology, those sorts of things.

 

SM: All right, Tony, let’s squeeze in one more question. Looking across the pond to Europe in 2020. Europe’s economy struggled with the pandemic. What’s your outlook on the E.U. this year, particularly in terms of an export led recovery?

 

TN: You’re getting a lot of pushback among EU citizens around lockdown’s, especially with the current variant that’s going through. And there’s a lot of discussion about the efficacy of the virus. And, you know, all this a lot of public health debate. But the problem of Europe has is well, on its on the plus side, China will likely keep the CNY strong into 2022, so that should help European exports. But when you look on the down side, Chinese PMI and consumer spending really haven’t been aggressive in recent months and we don’t really expect that to come roaring back in the next six months or 12 months.

 

So China is going to have some real pressure. Europe is going to have some real problems with goosing exports into China. I think the U.S. is fine and number two, export market for Europe. But I think there are some difficulties between the U.S. and Europe right now. And it may not necessarily outside of maybe automotive, it may not necessarily be a roaring market for Europe. So I think they have some serious headwinds and I think they’re going to struggle.

 

SM: All right, Dan, thank you so much, Tony. That was Tony Nash of complete intelligence, giving us his outlook for European exports and not looking particularly rosy at this point.

 

WSN: Yeah, but still very bullish on the U.S. markets. Right. He does suggest that S&P 500 might inches we up, but the risk of what may be the easy money has been made. So it’s not going to see some stellar jumps. But he likes tourism and travel. He thinks that Americans don’t stay home anymore.

 

KHC: No brainer. I mean, people have been stuck at home for 15 months, right? They want to go traveling.

 

WSN: But I don’t know if your infection cases rise. I mean, will you curb your own behavior? You might write especially I think in America, Delta is now 80, 80 percent of all the infections.

 

KHC: Don’t forget, America is the land of the free and the brave, the brave.

 

WSN: I like that word.

 

KHC: be the first of the Marcellus. And then, you know, Bob’s your Uncle Gene. I mean.

 

WSN: OK, well, we’ll watch this space, but I think its results season.

 

SM: That’s right. We’ve got a few results on our docket to look at this morning. Let’s start with Coca Cola’s. Coca Cola reported a second quarter revenue that surpassed twenty nineteen levels, prompting the company to hike its full year outlook. So Coke reported a net income of two point six billion dollars. That’s up forty six percent on year. Of course, there was a low base last year. Net sales rose forty two percent to ten point one dollars billion, topping expectations of nine point thirty two billion dollars.

 

WSN: Well, the. Good news is that the company said that the away from home channels, so like restaurants and movie theaters were actually rebounding in some markets like China and Nigeria. However, India and Southeast Asia were the only areas that did not see any sequential volume acceleration on a two year basis this quarter. Surprise, surprise, because I think India, particularly by covid-19 in Southeast Asia, was still in some form of lockdown, especially Malaysia. But all is doing segments reported double digit volume growth for the quarter.

 

Sparkling soft drinks units, including, of course, its namesake soda did particularly well.

 

KHC: I saw net sales rise by 42 percent. That is incredible. You know, this is a 245 billion dollar company, right, for net sales in one quarter. The rise with 40 percent. You know, I think lest we forget, a lot of people, they don’t care about diabetes. You know, they don’t care about high blood pressure.

 

WSN: No, but I think that’s why Coke is venturing into other drinks. So you do see high drinks. They do like growing five percent and even coffees significantly.

 

KHC: So there’s a developed market bias, which is obviously to grow more healthy. And there’s an emerging market base which is aspirational. Coca-Cola is aspirational. You cannot I mean, for people who have grown up on Cichon and warm water, right. They want to have Coke.

 

WSN: By the way, for those who are wondering what says is Chinese to eat.

 

KHC: Yeah, the chips drink you can find in a coffee shop.

 

I should know I’m from Penang.

 

WSN: But the street clearly loves it, right? I mean, when I’m looking at Bloomberg, the consensus price target is sixty U.S. dollars and twenty six cents. Current share price is fifty six dollars and fifty five cents. Still nineteen buys nine holes five times current earnings.

 

SM: Well when you think about it, this is probably super cash generative. So not surprising. It’s perfect. Right.

 

WSN: All right. I’m looking at another company that has its earnings out. Johnson and Johnson reported earnings and revenue that beat Wall Street’s expectations. Revenue rose up twenty seven percent to two point three billion U.S. dollars, beating the twenty two point two billion expectations.

 

Well, this is the pharmaceutical industry business, right? They developed the single shot covid-19 vaccine generating twelve point six billion in revenue, a seventeen percent year on year increase. Global sales just this quarter, 164 million. And I think that’s just just the beginnings of it, right?

 

KHC: Yeah. I mean, I recall a few weeks ago Pfizer talked about how they’ve seen they expect billions and billions of decades of billions of dollars in top line. And Pfizer’s it’s a very long tail. Pharmaceutical sales.

 

SM: There we go, 719 in the morning. Up next, we’re going to bring to you the major headlines in today’s papers and portals. Stay tuned. BFM eighty nine point nine.

 

Categories
QuickHit

OPEC+, JCPOA & Delta Variant: Strength or weakness for oil & gas prices?

Energy commodities experts Tracy Shuchart and Sam Madani joined forces in this special #QuickHit episode to talk about crude, OPEC+, JCPOA, and how lockdowns will affect the market this year. Most importantly, how investors should plan?

 

Tracy writes for a Hedge Fund Telemetry, where she is the energy and material strategist. She also manages an energy and materials portfolio for a family office. Meanwhile, Samir Madani is the co-founder of TankerTrackers.com. They’re an online service that keeps track of oil that’s being shipped around the world. His specialty is the tricky tankers, the ones that like to play according to the rules.

 

 

 

 

 

 

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This QuickHit episode was recorded on July 17, 2021.

 

The views and opinions expressed in this OPEC+, JCPOA & Delta Variant: Strength or weakness for oil & gas prices? QuickHit episode are those of the guest and do not necessarily reflect the official policy or position of Complete Intelligence. Any contents provided by our guest are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

 

TN: We’ve seen kind of an uplifting crude prices. We’ve seen things like copper prices come down, natural gas prices really start to see some upward pressure recently. At the same time, we’re seeing talk about the JCPOA and some other Middle East type of changes with OPEC+ and UAE and Saudi. What’s your thoughts on the crude and natural gas markets? We can talk about commodities generally.I know that’s a big, wide open question. Tracy, do you want to give us generally your view and some of your positioning at the moment?

 

TS: Well, I’m very bullish on commodities, particularly industrial metals, base metals and minerals needed for this energy transition. So copper and things of that nature.

 

COMEX Copper forecasts for 2021

This is CI Futures July forecast for COMEX Copper this YTD.

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We have seen a little bit of a pullback in a lot of commodities, which is not surprising. We had such a large move up. However, everybody’s looking at this as a group like the CRB index rate has pulled back. But if you look at individual commodities, you’re still seeing iron ore still at highs. So it’s not like a whole commodity collapse. You’re still seeing strength in a lot of different areas.

 

So my positioning is instead of index, I’m positioned in individual stocks and particularly on the minor side, because minors are going to have the same capex problem that oil is having.

 

TN: OK, that’s a great point. Sam, what’s your view like generally with with energy?

 

SM: I remain bullish when it comes to oil in particular, and I pat myself on the back for having gone long in at the end of March last year, when the the mutual funds were at the all time lowest in regards to oil. And that’s come up quite a lot since then.

 

I do believe that we will probably find a good footholding now in the 70s. And in order for that to remain, I think something drastic is going to have to happen on the upward probably scathe $100 and come back down so that the OPEC can look like the good guys in the mid 70s. So I think also because of the fact that there’s a capex shortage in the oil sector, they need this revenue to come in order to sustain production as well.

 

My original intended investment horizon was around three to four years. I’m going to be cutting that short until September of next year because the issue that we have now is that the lockdowns are still in effect in many areas, but also when it comes to Europe where I’m situated, most of the inoculations have only gone through the first phase. So we’re still waiting for the second shot and therefore this summer will be delayed. We’re not going to be traveling everywhere like we were in 2019. Instead, that will happen most likely next summer.

 

There’s still one big run up towards the three-digit oil price and that would be most likely to happen next year rather than now.

 

WTI Crude Oil Forecast for 2021

This is CI Futures July forecast for COMEX Copper this YTD.

Discover the forecasts for nearly 1,000 other assets.

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TN: So you brought up OPEC. There’s been news this week around OPEC+ and a deal with Saudi and UAE and some other Middle East dynamics. What’s your view on that? How much downward pressure will that put on crude markets?

 

TS: Because of those factors in the Middle East, because I am of a belief we will see a deal and we will get some more barrels on the market, the market is actually very tight right now. But we’re also having lockdowns in some places in Asia. So right now, we already are seeing a pullback in crude. Until we get a little bit more certain that 65-75 range will probably hold us for a while, I see some consolidation there and after $115 move from the lows last year, it makes sense for oil to chill out, consolidate here a little bit.

 

TN: Sam, what’s your view on the kind of OPEC+, Saudi, UAE and other kind of OPEC countries wanting to tag along on the UAE?

 

SM: I think one issue that they themselves want to know is status of the JCPOA. They really want to know how much of an issue Iran would be if their balance come back to market. Now, that’s a big if.

 

But if we look at what happened during the Trump administration, the United States pulled out of the deal and that was not good optics for the U.S. side. But now what’s happened is that Iran is not complying with the deal. So the ball is now in their court instead. So the Biden administration is saying, yes, the United States wants to be part of the deal, even though it’s not a very popular deal in the US. I don’t see any popular support for it. It’s more of a let’s just get back in there so Iran can improve its compliance. But they’re not improving their compliance. Instead, what they’re doing is going the other direction and they’re increasing their enrichment. They’re becoming more brazen about how they move around the world with Navy vessels and so on.

 

And now, of course, there’s an Iranian president that’s going to take office in August. So I think the deal will play fall apart instead because of the fact that Iran is not complying.

 

TN: If the deal falls apart, does that chaos help oil prices, meaning rise or does it create the perception that there will be a dramatically larger supply in the market?

 

SM: I think the initial reaction will be that, “Oh, these barrels are not going to be reentering the market, therefore the price will go higher.” So that’s the first automated response. But then, you know, the dust will begin to settle after a while when there’s an understanding of what kind of barrels are not entering the market.

 

So in Iran’s case, they are shipping sour crude. Whether it’s light or heavy, it’s sour. In order for that oil to become sweet, which is more attractive, you have to de-sulfur the oil. And so Iran, what they do is they give you a discount if you want to buy light sweet oil, but then they’re buying like sour oil. Iran gives $10 discount, for instance, and then they just remove the sulfur at the refinery at their own expense. And that’s what’s causing, for instance, West Africa to lower their exports. So moving out a lot less oil now out of Africa than before on account of China buying more Iranian oil instead.

 

TS: I think what people forget, there’s already a lot of Iranian oil on the market. So even if they came back at production of 4 to 4.5 million, it’s not really a lot of extra added barrels that are not already on the market.

 

SM: Exactly. And it will be absorbed by the demand that’s coming of course.

 

TN: But it seems to me the kind of perception of legitimacy that would come through JCPOA may calm prices down a bit through the kind of perception of legitimacy of that supply?

 

TS: Yeah. I mean, if it came to fruition, which I don’t foresee it, I have to agree with Sam on this point. But yeah, the market would think, oh, OK, we have all these barrels coming on even though there isn’t, and that it would be a numbers game from there, then you’d have to see supply and demand numbers from the various agencies monthly reports.

 

SM: And the thing also does not happen overnight. So even if the process of JCPOA happens and Biden finally signs, for instance, initially a waiver, the whole process takes forever to reboot again. We saw it last time. Remember Tracy back in years ago, it took many months.

 

And also in the case of Iran, most of their domestic national fleet is tied up containing gas condensate. So they have around 70 million barrels of gas condensates floating. And that used up nearly all of the VLCC supertankers, the ones that can carry two million barrels. So what Iran has done is they put additional vessels, vintage VLCC. So now they have 200 vessels as opposed to 70. And those are the ones, the foreign flagged vessels that are moving the oil mostly to China.

 

TN: You both mentioned lockdowns earlier in the conversation. And I think the tone here is that we have a pretty strong basis for rising crude prices. But we’ve seen some moves over the last week in the Netherlands and California and other places for maybe not full lockdowns, but more severe compliance with masks and other things and that seems to be leading toward potentially some lockdowns. First of all, if there are lockdowns coming, what would be driving that? And we all know about the Delta variant and stuff. But are there political factors that would be driving that? Second of all, if there were, how would that impact the six to nine month view of crude markets for you guys?

 

TS: The United States is so big, I don’t believe that they’re going to lock down the whole country again. It just won’t happen. You would literally have riots on the streets in some places. So I don’t foresee that happening. I could see some of the states like California just reinstated their mask mandates. I’ve been watching those states that kind of had more severe lockdowns to begin with like Michigan. If they’d lockdown again in the fall, that would probably be more politically motivated, but we’ll have to see what the numbers are and whatnot.

 

As far as my crude view, I’m very bullish on crude. But that doesn’t mean like I’m expecting a $100 tomorrow. How I’m invested is longer term. So I’m invested for at least the next five years or so.

 

And I do believe that if we get through the fall and we don’t have lockdowns in the United States, Europe and Asia, then I definitely think six to nine months, we’re back in the swing of things, because that’ll put us right to basically next spring when oil demand really starts.

 

TN: Sam, what’s your view in Europe on lockdowns? Do you see that stuff coming back and how do you see that impacting consumption?

 

SM: I would think that it would be mostly in the countries with the high population density. Germany is obviously one of those countries and the UK is another. In other countries, not so much the case. I live here in Sweden. We never had lockdowns. So we had seniors living in retirement homes and so on. But then, we pretty much met the same statistic level as every other country — 10% population suffer through it, 1% or so perished as a result. But I don’t think that we’ll be seeing any big efforts on locking down countries again.

 

And what’s more interesting now is schools are coming up in a couple of months or at least a month and a half. Here in Sweden, life will pretty much continue as is. I have four kids and none of them missed more than a week of school, throughout the entire ordeal since 2020.

 

TN: So it sounds to me like you both see there may be some lockdowns at the edges, but it doesn’t sound like it’s something you expect to affect the mainstream. Maybe we see a slight dip in the rate of rise of demand. But it doesn’t sound like it’ll have a huge impact to the downside on energy prices generally, whether it’s crude or natgas or something like that. Is that fair to say?

 

SM: Yep.

 

TS: Absolutely.

 

TN: When it comes to natural gas, Tracy, I know you’ve been talking about that a lot lately. Can you tell us a little bit about your observations and your thesis and and what you’re seeing there?

 

TS: For natural gas, the reason I like it is it’s the great transition fuel especially for emerging markets, because it’s very inexpensive than to go straight into something like solar or wind just because the cost of those minerals and metals can make those are skyrocketing right now. So natural gas is abundant. It’s a great transition fuel. It’s cleaner burning than oil.

 

We just saw the EU green deal, they just stepped back and now are including that gas, whereas before there was no oil or gas, because I think they’re also realizing that it’s inexpensive, it’s a good transition fuel. If you look at Germany, there’s still a lot of coal going on in Germany. So for Europe, it’s not like fossil fuels are gone.

 

I think they realize also it’s an inexpensive transition fuel. In particular for the United States, what I like right now is we’re seeing European natgas ETF and JKM, which is the Asian natgas, are trading at significantly higher than the United States is right now. And so I think there is opportunity there because the US can export and still come in at a lower cost, even with the cost of transportation to Europe or to Asia.

 

TN: Interesting. Living in Texas, I have to say that I love that message. Sam, what about the tanker fleet? Is the global tanker fleet ready to to provide the capacity needed to power EMs with, say, American natgas or Middle Eastern natgas?

 

SM: So natgas, I haven’t checked too much. But tankers in general, the demand is not that great right now. When I say that, I mean that usually, they really step up to the plate whenever there’s a floating storage opportunity to talk about. So you had that case in Q2 of last year, and that really drove up the prices from the growing normal rate of 20,000 barrels a day to 500,000. That spike.

 

And it’s come down so much. Complete occupancy is far lower than what I normally see if I talk about the tonnage and it’s around under 40%, which is very little. We were looking at April of last year, it was around north of 55, close to 60%. So that’s a big swing. And that really crushed the prices for tanker rates. They’re even negative. Below zero. But when I look at the transfers of illicit oil, it’s around $38,000 a day. So there’s a lot lot of money to be made in those transfers, unfortunately. But for nat-G, I’m not entirely sure. So I can’t say for sure.

 

TN: OK, very good. Guys, thank you so much for your time. This has been really helpful. I’m really intrigued by kind of the long bull thesis for energy because we hope that we’re going to start recovering much quicker than we had been, which is fantastic. So thanks for your time. I really appreciate. Always, I really appreciate talking with you guys. Thanks very much.

Categories
Podcasts

Manage Your Expectations, Valuations Are Stretched

Tony Nash joins the BFM team, giving them his views on the equity markets, fixed income market, Fed Reserve, and oil prices. What’s his recommendation to investors now that Dow, S&P 500, and more equity markets have reached a new all-time highs? And what about the consensus on oil? With all the changes in the markets, are we seeing a new economic model?

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/manage-your-expectations-valuations-are-stretched on July 8, 2021.

 

❗️ Check out more of our insights in featured in the CI Newsletter and QuickHit interviews with experts.

❗️ Discover how Complete Intelligence can help your company be more profitable with AI and ML technologies. Book a demo here.

 

Show Notes

 

PS: Really good day in the U.S. The Dow and S&P 500 were up 0.3%. The Nasdaq was flat. Shanghai is up 0.7%. But the rest of Asian markets were down negative. Heng Seng was -0.4%. Nikkei down 1%, FTI down 1.5%. And back home, FBI culture was also down 0.01%.

 

WSN: So to help us make sense of where markets are going, we speak to Tony Nash, CEO of Complete Intelligence. Now, Tony, Nasdaq, S&P 500, Dow, all hit all-time highs. Does this make you actually nervous? Markets looking a bit toppish?

 

TN: I don’t know about toppish today, but I guess what people have to be aware of is how big is the gain from here? So whether you’re toppish now or toppish in October, you really have to be careful about the risk calculation right now and what your expectations are as things turn over in the coming quarter or two.

 

PS: But time to switch for anything. What asset classes or markets look attractive now?

 

TN: You know what. I think you just got to be careful all around. The expectation, evaluations, levels of investment, profits and so on seem pretty stretched as we’re in the middle of wage pressures, inflation pressures and stressed consumers. So I think there seems to be more risk than opportunity out there. So I think we’re in a pretty stretched market and short of more support from global governments. It’s really hard to justify significantly higher valuations.

 

SM: And everyone is, of course, looking at the Fed, where last night’s FOMC minutes, what financial markets expected from the Fed or or do you think they could have given more clarity on their monetary policy?

 

TN: Well, they can always give more clarity. I mean, there’s always kind of reading the tea leaves with the Fed. But I think what really came out of it was what was expected. It was pretty noncommittal. They said tapering is coming, but they didn’t say it’s coming soon. There’s no expectation of a rate hike hike soon. So it’s really the current status quo, whatever that is. But it’s kind of more of the same for more time.

 

We don’t really expect much to change in the Fed through 2022. Markets have sufficient headwinds as it is as the world re-normalizes. We don’t expect much exciting happening. We didn’t expect that this month. We don’t expect it for some time.

 

WSN: Is that why the 10-year bond yields in the U.S. dropped from a four-month low, 1.3163? I look at the bloom at the moment. DO you think…

 

TN: This could be. But it’s also, you know, the current Fed chair may not be renominated by Biden. And if Jerome Powell is out, we’re likely to see Lael Brainard come in, who is very much a monetary policy activist. So we could see a really active Fed, not a conservative and extremely dovish Fed if Lael Brainard comes in. So I think that could be part of the reason we’re seeing expectations change in some of the bond markets.

 

PS: Can we shift your attention over to oil? Because as you know, the lack of consensus in OPEC+ and with the failure to negotiate production quotas has really put pressure on oil prices again. Is this conflict going to introduce more short term volatility in oil markets?

 

TN: Sure, yeah. Until there’s agreement between the U.S. and Saudi Arabia, I think we are going to see volatility because as the UAE creates a gap in expectations, other players like Russia and other folks can potentially violate the OPEC+ agreement. OPEC doesn’t necessarily have a history of agreeing uniformly very often. OPEC+ agreement has been one where they’ve really abided by it pretty well. And so OPEC is more fractious than it is kind of universal. I think we’re going to see volatility for at least a short time. But I do think there is underlying strength in oil prices. We don’t expect the $100 oil any time this year. Some people are calling for that. But we do see continued build in the strength of oil prices through the end of the year marginal bill.

 

SM: All right. And looking at other indicators, I mean, the US economy is booming, but the US ISM non-manufacturing figure for June came in below market expectations. Could you give us some explanation on what were the reasons for that drop?

 

TN: You know, the main reason really is unemployment or employment. Companies have had to cope with fewer workers as these federal government subsidies have kept workers on the sidelines. Effectively, they’ve paid workers to sit at home more than they’d make in hourly jobs. And so small companies particularly have had to figure out a way to work without additional workers. So now a lot of those workers are coming off of the federal stimulus packages. But a lot of these small and mid-sized sized companies have kind of learned how to cope without as many workers.

 

So they’re not trusting new workers until wages really come down. So it’s really kind of putting an impediment in the path for especially small and mid-sized companies. And that’s where there’s a little bit of doubt in the ISM.

 

WSN: So are we seeing a new economic model then, Tony, where there’s a lot of what we expect in terms of the full and employment numbers will change?

 

TN: It’s a great question, I certainly hope not. Over the last year and a half, we’ve seen immense government intervention in markets globally. Was the stimulus too much? Was it misallocated? We can argue that all day long. But the fact is, we’ve seen immense government stimulus and it takes a long time for stimulus that large to wash through the system.

 

We’re seeing the back side and the down side of stimulus. You know, we’ve seen things like inflation rates rise, you know, all this stuff over second quarter, but that’s really just a year on year number. We’re seeing what’s called base effects there. We’re seeing the same in things like wages and impacts on markets from government activity. So Q2 was a huge anomaly for markets and for government because of what’s happening globally with Covid in Q2 of 2020. As we kind of come back to a relatively normal-ish market, maybe by Q4, you know, we’ll start to see more normal readings across wages across, profits and other things.

 

So there really is a slow build. And as more of that government stimulus gets pulled out of the market or at least slows down, we’ll start to see things normalize. I don’t necessarily think it’s a new model unless the government insists on continuing to intervene and subsidize markets.

 

WSN: All right. Thank you for your time. That was Tony Nash, CEO of Complete Intelligence, giving us his views on the equity markets and even the fixed income market. But what was really surprising is that he thinks Jerome Powell will be replaced as the Fed chair. I was like, “this is news to me. I thought he was doing an OK job.” And usually I would imagine Joe Biden leading them to do their thing.

 

PS: That’s right. I wouldn’t expect Joe Biden to have places, political perspectives in the appointment of the Fed chair. But I think there are a lot of key decisions that has to be made. And that whole link between the tapering of his asset purchases and adjustment of interest rates, how do you have that delicate balancing act will be very critical.

 

WSN: Janet Yellen and Jerome Powell worked well together and Janet Yellen is his appointment. So I’m a little bit surprised by this news. But other news that I was like kind of focused on was also the fact that he thinks at the energy market upside is limited. So I think all of us as investors have to adjust our expectations in terms of the returns, because if you talk about the rally from March 2020 lows to now, it’s about 90%. And that’s staggering.

 

PS: And Tony is alluding to the fact that the stimulus was too broad, not targeted enough, I think, which basically resulted in a wash of cash, I think, creating a lot of frothy markets. And this is the challenge now.

 

WSN: So how does the bubble kind of burst, right, without creating chaos? Absolutely. You kind of want to deflate it, but not so much.

 

SM: And can I also draw your attention to something else that Tony said that caught my eye, the fact that he thinks oil isn’t going to hit $100 per barrel. We’re actually going to be discussing more on oil later at seven thirty after the bulletin with Sally Yilmaz of Bloomberg Intelligence. So stay tuned for that conversation on what the oil market’s going to look like.

Categories
Podcasts

United Airlines’ biggest ever order

Back in the BBC Business Matters, Tony Nash shares his thoughts on matters like United Airlines order of Boeing planes and how important is this order for the US economy? Also, will travel be back to normal and how soon will that be? How about pork prices becoming super cheap, and what’s the outlook for the agriculture commodities in general? And is the work-from-home people be lured back to go and work in the office?

 

This podcast was published on June 30, 2021 and the original source can be found at https://www.bbc.co.uk/programmes/w172xvqdn58y6vl.

 

BBC Business Matters Description:

United Airlines makes its biggest ever order of aircraft in a bet on a post pandemic travel renaissance; the BBC’s Theo Leggett gives us the full details and how safe the bet might be. As many people abandon the office for working from home, property companies say they need to lure us back to the office by making us want to go back – Liviu Tudor is the President of the European Property Federation and tells us how he plans on making office spaces more alluring. As some companies introduce leave from work for women in menopause, the BBC’s Ivana Davidovic speaks to women about why it’s so hard to talk about menopause in a corporate landscape. Plus, cheap pork has flooded the market as China’s pigs recover from the African Swine Flu – Kirk Maltais from the Wall Street Journal explains how the oversupply of pork has forced US producers to cut their prices to very low levels. We discuss all this with guests Shuli Ren, Bloomberg Opinion columnist in Hong Kong, and Tony Nash, chief Economist at Complete Intelligence in Houston, Texas.

 

Show Notes

 

JR: How are you, Tony? Before we get on to the sort of impact on the trumpet or the importance of the travel industry, I just want to think about the importance of this order for Boeing. And I’m remembering that old phrase about GM. What’s good for GM is good for America. I mean, you can’t say about GM anymore. You could perhaps say that about Boeing, couldn’t you? I mean, that’s why this order is important.

 

TN: It’s important. And I’m pretty sure there’s some sort of subsidy for United to buy it, especially since a lot of it’s being spent in the U.S.. It’s in listening to some of the analysis, it’s pretty easy to be critical of United since they’ve been on government support. But really, the market was pulled by the government, the travel restrictions and everything else. So it’s really hard.

 

And I’m no defender of United for sure, but it’s really hard to blame them when their market was really pulled because of public health restrictions. So I do think that they’re making the right call here. I do think that travel will come back faster than the fears of many. I don’t think it will immediately react by September. But I do think that they’re making the right call.

 

JR: You’re not one of these people who thinks that travel will never quite go back to where it was. Actually, there have been certain changes in the way we regard moving around this planet in terms of we can do video conferencing, we don’t have to go to business meetings, we don’t have to go to those international conferences anymore. Is it not a permanent change or is it a temporary one?

 

TN: I think it’s probably permanent for maybe 30% of people. But if you think about the people who have to see each other face to face, the 30% who it won’t be required for, they will aspire to do that because they want to be like their peers who are actually getting deals done and who are actually meeting people that they need to meet face to face. I used to travel, you know, twice around the Earth every four weeks or something. And if I don’t ever get on a plane again, I am a happy man. But I don’t think I’m most people. I think most people are very happy to get on a flight and go for for a holiday or for business.

 

JR: Okay. I just want to know, have you traveled actually, and spend time in the last year or two by plane?

 

TN: I haven’t. But it’s not because there haven’t been business opportunities. I just really don’t like to fly anymore. So I’ve done way too much of my life.

 

JR: Yeah, Tony, the United’s last order actually involved Airbus aircraft as well as Boeing. And that has been this truce between the US and the EU on Airbus and Boeing over the trade war between the two. Do we feel that actually aircraft production is going to get back on track now?

 

TN: Well, I think that European and Asian airlines will be slow to make capital commitments. I think American Airlines in the U.S. have old fleets and so they have to renew them and their tired fleets, too. So but I think in Europe and Asia, the Asian fleets generally a little bit newer, of course. But I think they’ll be a little bit slower to order. I think we’ll have to say some European countries that subsidize their airlines, like I don’t know if United was subsidized, but I wouldn’t doubt if they were. But European countries that will subsidize their national airlines to help out Airbus, I mean, that’s its fiscal stimulus. It’s all over the place. It wouldn’t surprise me in the least.

 

JR: We can come to, you know, about the impact it’s had on the American producers and also on Chinese US trade relations, because that’s where it really starts to get interesting, because the China was importing a huge amount of hogs and also corn and soybean in order to be able to support their industry, which was really under in dire straits.

 

TN: Right. So there are three layers here. So first, you have the news about the hogs. And I think the the commodity prices sold off on the news, I personally don’t believe it. I think the herd is improving in China, but I don’t think it’s back to normal. You also have commodities like corn and wheat that are elevated on really bad corn crops in China and bad feed crops in China. So there’s been a lower corn crop in the U.S. than usual this year.

 

And Chinese pig farmers have started to feed them wheat, which is not a normal feed for hogs in China at least. So that’s affected with corn prices and wheat prices, which are which are continue to be elevated partly on the demand in China, but partly on, say, weather and supply and other things in the U.S..

 

So I do hope for China’s sake that the herd is healed and back to normal. I’m just skeptical of it. But I do think that we are seeing pretty hot and dry summer in the Dakotas and other parts of the U.S. that produce significant part of the U.S. corn crop. And until we start to see rain in the Dakotas and elsewhere, I think there’s going to be pressure on those prices. So U.S. farmers are you know, they’re struggling just to grow. Of course, the ones who are growing are doing well. Those who have crop to sell are doing well because the prices are elevated.

 

But it’s put pressure also on U.S. consumers because what we saw in the U.S. was a lot of accumulated frozen meat, pork, beef, chicken. And with the shutdown of the meat processing plants in the U.S. with the pandemic, it wasn’t manufactured in the U.S. So we had a large stock of frozen meat in the U.S. that’s now drawn down. And so the supply chains around meat are are pretty tight, actually. So we’re seeing real upward pressure in the U.S. on meat prices. And so that’s part of the reason I don’t necessarily think that the news in China is what they say it is, because there’s still there’s still draw of pork to China now.

 

JR: That’s really interesting. A whole lot of confluence of different influences that are pushing in different directions. We have seen these very dramatic falls. But you think they may actually be just temporary and just the sort of the market volatility of the last couple of weeks, you think?

 

TN: Well, I think part of it is weather, part of it is supply chains. I think we’ll see things come back to normal in probably four to five months in terms of U.S. commodities. But I think the summer is going to be pretty volatile still. So if China does continue to have the demand, it’ll put more pressure on the volatility in the U.S..

 

JR: OK, Tony, what about in Texas? What’s happening there? I mean, you still got supply chain problems, still got sort of the difficulties of actually getting stuff or is there no problem in that?

 

TN: I don’t think there’s a problem in actually getting stuff, I wouldn’t say it’s the supply chain itself. I think it’s the after effects of the supply chain problems. We also had things like I’m sure you’ve heard of the freeze that we had here in Texas in the spring. That freeze actually killed three generations of chickens. It killed the the chickens that would be sold to market and it killed the eggs.

 

So we had a several state area where where all of the chickens died because of the freeze that happened in this part of the U.S.. So while people made fun of us for our windmills not working, there actually was real impact. And, you know, we really had an impact here. So we’re seeing an impact on chicken prices. And, of course, meat is substitutional generally. So it’s really pressuring all of the all the proteins. But again, we are seeing vegetables and other things. It’s not necessarily availability per se at the cash register. It’s really the pressure on the price. So whoever pays the most will get it. At least that’s Texas.

 

JR: Has it got to the point of the poor people it’s a problem. I mean, it’s of a wages keeping up. I mean, is this a real issue or is it just one of these things people say, oh, gosh, prices are going up. It’s, you know, what a nuisance.

 

TN: Well, because of the the programs that the federal government has had here, I think the minimum salary of someone who actually stays home and collects unemployment is something like 48000 U.S. dollars a year. So for the past, I think 15, 16 months, the people who would be the poorest and who are unemployed are actually making almost 50,000 dollars a year based on a kind of the federal kicker because of the virus. And so while it’s hitting, the people who would normally be the most affected are actually getting more money from the federal government. So the hope is that they’re not feeling it.

 

JR: Okay, Tony, thank you.

 

I was talking to my colleague, Rob Young. Now, what I think is really interesting here is the sort of power play between the various people involved, the employee, the employer, the property company. And basically, if the employee has to come back, has to come back to the office, no one’s going to bother to give them fantastic facilities and sort of going to gyms and all the rest of it, if they’ve got to come back. And it’s really depends on that part played between the two. So do you think actually, Tony, we’re going to see any change in the way property companies or employers actually treat their employees?

 

TN: No.

 

JR: I’m quite doubtful, too. I mean, it always sort of blue sky thinking about how marvelous our offices are all going to be in the future. I don’t think it’s going to be different.

 

TN: No. And in fact, I’ll go even further than that. All of the talk over the last year about how work will change. I don’t believe that’s going to happen. You know, here’s what it really comes down to. People need to be in the office. Why? Because work is a couple of things. First, it’s about achievement and what you do. It’s about how much you know, but it’s also about how you politic. OK. You have to be in the office to politic with people. Otherwise, when the next retrenchment comes around, your head is you know, you’re out the door. So people will have to go back to the office and the ones who scream the shortest about not wanting to go back will be invited eventually to go elsewhere.

 

JR: The only thing I would say possibly is that actually if there is a demand and there’s a shortage of supplies, it’s supply and demand. There’s a shortage supply of certain workers. Employers will put better facilities in place to lure them in and treat them better and give them these kind of privileges, some of which will be the privilege perhaps of working from home if they want to.

 

TN: Interesting. I actually spoke with the U.K. demographer last week talking about this very issue, and he said there will not be a shortage at all. In fact, over the next 10 years, in 10 years time, there will be something like 600 million people who cannot get a job. Sorry. 420 million people who cannot get a job globally. So there will be people will be competing very aggressively for those jobs globally.

 

JR: Tony, isn’t that really important for them to be able to see stuff, hands on whatever job that doing really?

 

TN: Especially for you, surely because the Bloomberg office in Hong Kong is spectacular, according to the office, everything. So I’m surprised you didn’t just move in.

 

JR: Yeah. Do you get free food at the Bloomberg office as well? I remember that was one of the things where I used to work for Bloomberg a long time ago. And you did get free food in the office. I remember that.

 

SR: Yes. Bloomberg is very generous. So so these days, like there is free lunch, they have like that the vegetarian option that the vegetarian option with the calorie counts, very healthy food, absolutely free food.

 

JR: They are making an effort to lure you back in from your pajamas until your comfortable bedroom. Thanks for joining us. Business matters.