Month: July 2022

The Week Ahead – 25 Jul 2022: Europe is a mess. What’s next?

Post author By admin
Post date July 23, 2022

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We had a big week, with a lot going on globally. The president’s got COVID. Europe raised rates to zero, and so on and so forth.

First, we talked about Europe. It’s a mess, everyone knows that, but we talked through some opportunities there.

Next, we talked about aluminum. Industrial metals have been really interesting on the downside of late, but Tracy found something around aluminum that is really interesting.

And then we talked about tech, about Snap’s earnings, and what that could mean for other tech earnings coming up.

Key themes:

Europe is a mess. What’s next?
Aluminum supply shock
Tech SNA(P)FU
What’s ahead for next week?

This is the 27th episode of The Week Ahead, where experts talk about the week that just happened and what will most likely happen in the coming week.

Follow The Week Ahead experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/samuelrines
Albert: https://twitter.com/amlivemon/
Tracy: https://twitter.com/chigrl/

Time Stamps

0:00 Start
0:50 95% on markets forecasts using CI Futures
1:44 Key themes for the week
2:34 What’s happening in Europe and what are some opportunities there?
6:37 Why did the European equity indices in the wake of the ECB meeting?
8:32 What can the ECB do moving forward?
9:40 Metals: what’s going to happen in the aluminum markets?
13:14 Will we switch back to goods in September?
16:50 Snapchat’s earnings and other earnings of tech equities.
21:06 Ad inventory element to tech earnings
23:16 Is there an opportunity for Meta to buy something like Snapchat.
24:21 The week ahead: Fed meeting next week

Listen to the podcast version on Spotify here:

Transcript

TN: Hi, everybody. Welcome to The Week Ahead. My name is Tony Nash. Today we have Albert, Tracy, and we have Sam doing a remote from his car because the Texas power grid can’t handle his house. So thanks, guys, for joining us. Before we get started, if you could please like and subscribe to the channel. When we’re done, and while we’re talking, please make comments, ask us questions. We get back to you during the week, and we really want to hear from you.

Also, I want to let you know about a promotion we’re having for our subscription product, CI Futures, which is a forecast platform for equity indices, currencies, and commodities. We are offering a $50 a month promotion for CI Futures. That is a short term promotion. So please check it out on the link right now and take advantage of that promotion. Okay?

We had a big week, a lot going on globally. The president’s got COVID. Europe raised rates to zero, and so on and so forth. First, we’re going to talk about Europe. It’s a mess, everyone knows that, but we want to try to find some opportunities there. Next, we want to talk about aluminum. Industrial metals have been really interesting, I guess, on the downside of late, but Tracy found something around aluminum that is really interesting. And then we’re going to talk about tech, about Snap’s earnings and what that could mean for other tech earnings coming up.

So first, let’s talk about Europe. Albert, you retweeted this tweet from HedgeEye earlier this week, talking about the 50 basis point rise by the ECB, and we’ve talked about it for months about the problems that Europe has if they raise. The problems they have if they don’t raise. And it was kind of a middle ground that they did. What are your thoughts on what’s happening in Europe, and are there opportunities there?

AM: Are there opportunities? Yeah, of course there are opportunities everywhere, Tony. You just got to be able to sit there and sift through the wreckage of what Europe is at the moment. Their economy is struggling. The 50 basis point rate hike, I kind of like, shrug it off. Surprise they actually did 50, but I kind of shrug it off. Their biggest problem is the dollar being elevated at the moment. It kind of helps them in the manufacturing sector for exports. But realistically, without China importing their products, what are they going to accomplish in the coming, like, two, three months? Probably nothing.

Aside from Europe speaking about the dollar being up, I’m kind of looking at Brazil and India’s next problem places.

TN: Okay.

SR: Yeah. And to that point, Albert, it’s a really interesting one, given it really doesn’t matter if you have great export markets if you can’t actually make anything.

AM: Yeah, I mean, the Europeans right now can’t make anything. They’ve got a labor problem worse than the United States at the moment. They have kind of COVID crazy policies still lingering. As soon as the tourist industry dies down a little bit for tourist season, they’ll probably come back in full force. So, I mean, it’s kind of a gloomy outlook for the Europeans at the moment.

SR: Power prices for the manufacturing engine in Germany.

AM: Yeah.

SR: If you’re not manufacturing anything, good luck selling something.

AM: Yes. I mean, even the stuff that they are manufacturing is going to be an inflated price that the world is not going to be able to even buy at the moment. They got food prices to deal with, not let alone energy prices. But didn’t European?

TS: It was a mixed message. No. Right. Yes. On one hand, they said, we’re raising rates to zero, meaning they’re not going to charge you anymore.

TN: Right.

TS: They don’t have negative rates. But on the other hand, they’re talking about bond buying program that they don’t want. They actually said, this is going to be kind of untransparent bond buying, which is fine.

SR: But that’s important and actually kind of a good thing, if you think about it.

TN: But the BOJ did right. The BOJ did that in 2014, 15, 16, where they bought up all the government debt and it just disappeared. And so is this a way for the ECB to disappear a bunch of government debt within the Eurozone?

SR: That’s what QE is.

AM: Yeah, of course. That’s like a standard thing, especially specifically for the Europeans. They love to hide debt and reissue it elsewhere, longer dated and whatnot. They love to kick the can down the road because they know that the United States is going to bail them out anyways at some point.

TN: Sam?

SR: Yeah, it’s exactly what they’re going to do. In my opinion, it’s kind of brilliant because in a way, you don’t want everyone to know how much Italian debt you’re buying, and they’re going to buy Italian debt, they’re going to buy Greek debt. And then, believe it or not, if we continue to have these kind of problems in Germany, guess what? Germany is probably going to be a huge beneficiary of the debt buying program. So it might be the first time in a long time that we don’t hear Germany complaining about it.

TN: Right. So I just want to be clear, they’re not hiding that they’re actually buying it to retire it. Right.

AM: Tomato, tomato.

SR: They’re not necessarily directly retiring it. They’re just buying it and holding it to maturity.

TN: Exactly right. Which is exactly what the BOJ did in Japan five years ago and they continue to do, actually. Okay, very good. So one last question on that. Why did European equity indices rise in the wake of the ECB meeting? Was it because of this debt issuing?

AM: I think..

TN: was distracted by Tracy. Was it because of the debt program?

AM: Yeah, the non transparent bond buying, and seems like the ECB is going to try to keep the market at least elevated, but, I mean, it was crushed so much that bottom feeders just started to come in in my opinion.

The only companies in the European Union right now that I would even think about are the ones that have ADRs in the US that have more revenue based in the US than anything else.

TS: I think what got them excited is because you saw a spike up in the Euro temporarily, so people started buying into the equity market. However, that’s going to be very short lived, I think still we are going to see inflows to the US market from all of these other markets, but there’s really no other place to go right now.

TN: Right.

SR: There’s also the problem of markets are forward looking and it’s so bad in Europe and it’s all priced in that at some point you get a mechanism where it’s not as bad as it could have been. And that to a large degree, looks to be what’s going on right now.

You’ve got the Euro almost at par. You’ve got an economy that is absolutely in the toilet. Everyone knows that. And it’s all priced into the equities. So if you begin to see a bright light at the end of the tunnel, there’s the potential for a significant rally there that could be kind of face ripping.

TN: Oh, yeah, great. Yes. So the position that the ECB’s in, what can they do going forward? Do they continue raising at small increments or are they kind of one or two and done? What possibilities do they have?

AM: I think they’re only one and two and done. I don’t think they can really keep raising rates like the United States right now. That would decimate them.

TN: Okay.

SR: 100%. One or two and done. And by the way, that kind of lines up with where the US is probably going to be done.

TN: So let me ask you one final question on this. If you’re an American company and you have a vendor in Europe and you’re paying Euros, would you long those contracts, get them locked in and euro prices as long as you can right now, do you think the Euro at Parity is a short-term anomaly?

AM: I think it is, yeah.

SR: Yes. And by the way, you can’t no European companies that dumb. That’s worth doing busines.

TN: I think you overestimate. Okay, that’s good. That’s good. Okay, perfect. Great.

Let’s move on to metals. Tracy, you posted a great graphic on and had a great discussion about aluminum and some aluminum factories that are shutting down largely because of power prices. Can you help us understand that situation and help us understand what’s going to happen in aluminum markets?

TS: Yeah, I mean, if we sort of look at the aluminum markets right now, the big thing is that because of the power crisis in the EU, right, we’ve seen almost 50% of their smelter market come offline because they just can’t afford it anymore. We’ve also actually seen this drift to the United States. We just had Alcoa shut down one of their lines in Indiana. So this is a global phenomenon.

The problem is that we’re short of aluminum by a lot. Because if we look at this energy transition, and I think I stated, particularly if we were looking at because the drivetrains are so heavy, you need a lot more aluminum to produce these vehicles, we’re looking at a deficit.

We’re already in a deficit. We’ve seen a 30% pullback in this market. We’re in a deficit. We’re going to be headed to worst deficit in H2 of ’22 and into 2023. And actually, if we look forward all the way until 2025, what I’m thinking is this pullback in the market has been a little bit overextended, over recession fears. Right. Huge pullback in the metals markets. Huge pullback and slightly pullback in the energy markets. But really, if we’re looking at these based on industrial metals, especially ones that are particular to energy transition, I think this move is a little bit overdone right now. I think there are opportunities to be had because we are looking at structural supply deficits across many of these metals, aluminum in particular.

AM: You know it’s interesting. It’s interesting. That just came to my thought of Tracy talking is utilities have given up every gain that they’ve had for the year, come right back down. Even some of the wheat and commodities just came down. Unbelievable. Dollars surge, futures crushed. It’s stunning. But I believe, just like Tracy says, I believe it’s all oversold at the moment.

TS: It actually is. Even if we take in a scenario where DM markets go into somewhat of a recession, we’re still in a structural supply deficit. So even if we’re in a recession and that takes a particular amount of demand out of the market, we’re still at a deficit.

TN: Okay. So I want to be careful with recession and not to kind of push back on you, Tracy.

TS: I’m just saying because everybody’s throwing that word around right now.

TN: So we can have a slowdown without having a recession, right?

TS: Correct. Absolutely. And I wouldn’t say that we’re necessarily in a recession, but things could get a lot worse in Europe or whatever. But even with taking that demand out of the picture, if we look at it as in we do have a recession in the market. “If”. Right.

TN: Right. So Sam has written quite a bit about the kind of switch to services over the summer from goods and Sam, do you see us switching back to goods, say, in September, October, from service says is that kind of a pretty dramatic switch from one to the other?

SR: No.

TN: Okay, so what happens? We switched. Goes to services over the summer, does that end what happens there? Because I’m curious.

SR: Yeah. No, you continue to have services be the dominant factor, and the services tended precovid to be the dominant factor.

TS: We talked about this a few weeks ago.

SR: Exactly. It’s one of those where goods probably don’t fall off a cliff because at some point you do have to have a comeback outside of the US. In goods. So that’s somewhat of a tail end. You have a reopening in China, you have a reopening in Europe, you have some sort of resolution to the Ukrainian conflict. You begin to have some tailwinds for Goods, but it’s simply not what I would say is kind of back to the coveted, like, goods model that was goods driven, everything was great, blah, blah, blah. No, it really does look like it’s kind of a summer of party, summer of vacation, summer of get out there. We didn’t have vacations in 20 20, 20 21. We’re going to go in 2022, and we’re going to go back. That appears to be the case, and it appears to be playing out. The question is, does that continue as kids go back to school? Probably not. Does it continue as people go back to work in the office? Probably not.

In the fall, you get kind of the current trajectory in Goods, which is back to normal somewhere around a 1% growth rate, and in services back to normal one to 2% growth rate, maybe a little bit more. It’s not a bad thing, but it’s certainly not the boom in goods that we saw over the past year and a half and the boom that we’ve seen services over the last six months.

AM: No, I was thinking about what Sam is saying. There’s a risk here because if the Fed pivots a little bit too early, which everyone thinks they will, and then goods start coming back online and demand still elevated, we could have another inflationary event going into 2023.

It’s like you make policy mistakes and the economy is still red hot at the moment in all sectors. As much as they want to try.

TN: To cover, it’s not red hot because people use the recession word all the time.

AM: Why?

SR: The only pushback I’ll give there is that I would say the interesting thing is that goods come back online in a pretty big way, and if you just have steady state current consumption levels, it’s not a boom. Right. It’s still going to be deflationary or disinflationary on the margin. If you don’t have a surge in the demand for goods, and it’s hard to see where you’re going to have that demand surge for goods in an elevated services environment. Right. So that could actually be the fault signal that makes the Fed back off as we go into the back half of the year.

TN: Interesting. Fantastic. Okay, great. Speaking of signals, let’s look at tech for a minute. Sam, you have the most mysterious newsletter in the US. And newsletter today talk about snaps earnings. And I put a snapshot of your newsletter on the screen looking at average revenue per user for Snap. Can you talk us through some of that? Some of the earnings work for, say, Snap and Twitter? What does that mean for tech generally?

SR: Yeah, it’s interesting. We all kind of know that tech, particularly smaller tech, the startup VC type act companies have been struggling, right? You’ve seen Layoffs, you’ve even seen the big guys. Microsoft, you’ve seen Meta, you’ve seen parts of salesforce have hiring freezes. So we know that there’s been a little bit of underlying problems with the overall tech world in terms of employment.

There are only two ways that you can really solve the problem of slowing revenue growth if you want to drop money to the bottom line, whether it’s or earnings. And that is you can lay people off and you can cut advertising spent. And so Snap and Twitter are kind of, what?

TN: PG and E? Travel and expenditure as well. Travel expenses.

SR: Well, yeah, travel and expenditures. We’ll get there because I hit that later on the night. Perfect. As you know.\

TN: Yeah.

SR: The problem with Snap and Twitter is basically what you saw was great user growth, right? Better user growth than I think anybody really was anticipating. The only issue was that they didn’t monetize it. There was nobody really backing up on the advertising front. Right. We all know that Peloton and all those guys were cutting back on ad spend, carvana basically bankrupt crap company. These guys were cutting back on ad spend, and they were the big marginal drivers of growth for those platforms.

So when you cut back on people in ads, you begin to actually be able to drop something potentially to the bottom line, or at least survive a downturn in VC spent. That played through with Snap and Twitter in a marvelous way. But then to your point on travel and entertainment, you get to the earnings of American Express, which is a great way of getting kind of a peek at upper middle and upper class spending and business spend. And those could not have been better earnings. I mean, if you’re telling me that the consumer is in a recession, it is the bottom half of the spectrum that’s in a recession, if anyone is in a recession. Those were massive earnings numbers, massive spend numbers on a year over year basis. The chart that I sent out was of the spend by bracket of age, and millennials and Gen Z are the biggest spending boost.

AM: Luxury items still are unbelievably hot right now. All the earnings are just beating all estimates.

SR: But it’s the pivot. It’s the pivot, right. Peloton all that crap that we had in Silicon Valley that was overvalued, that everybody bought and everybody thought was cool, everybody bought it. They’re already done with it. You don’t need to buy three peloton bikes, right? It’s the problem with keurig. We all remember the whole Green Mountain coffee thing. It’s the same problem, right? Once you buy it, you don’t have to buy five Turks. You don’t have to buy five Pelotons.

The ability to monetize that over time is something that I think people kind of get a little iffy with. That’s really what I think is smacking right now, and it’s smacking in a pretty real way, and it’s not going anywhere anytime soon.

TN: Okay, so we also have new ad inventory coming online in a big way with Netflix, right. So can you talk about that side of the ad inventory element a little bit?

SR: Sure. You have a ton of ad inventory, right? If you want traditional media, you can go to traditional media. NBC, CBS, whatever. If you want online, you have Facebook, you have Instagram, all part of Meta. You have TikTok. You have snapchat. We can go down the list forever.

Netflix is basically trying to save their business with the greatest dumb quote in their earnings release where they said, our great content is going to have a premium CPM. The way that we measure advertising reps, they’re amazing content. Are you kidding me? No, I mean, they’re going to be competing with Twitter and Snapchat, which is the bottom of the barrel in terms of advertising revenue.

TS: Took that model and extrapolated on it. Right. So now you have maybe they were the first, but now you have everybody else doing it, especially very independent media. Right. That is starting to gain traction.

TN: Exactly. Things like plumbing and that sort of thing. And Hulu’s done that really well as well, inserted advertisements. So the only thing worse than new Netflix content is new Disney Plus content.

SR: Unless you have kids, it’s a lifesaver.

TN: Yeah, it may be a lifesaver, but the old content is good. The new content.

AM: I don’t know, the content on Disney nowadays is kid friendly. Okay.

SR: I didn’t say it was kid friendly. I said it was a lifesaver.

TN: Yeah, but you’re right. I mean, there’s a huge amount of ad inventory and they will be competing with Netflix. They are already competing with Hulu, those sorts of guys. Is there an opportunity for somebody like Meta to buy someone like Snapchat? Would they want to do that?

SR: They tried years ago to buy Snapchat. And why would you like…

TS: Why would you buy it?

SR: Yeah, I mean, that’s the key. And I think that it’s the reason why you can have a 30 plus percent down day and call it a company that has something interesting and something that nobody’s done before. Because I’m sorry, it’s only fans, but without subscription revenue.

TS: They have no real model to make money. That’s the problem. Without subscription, no solid revenue model.

AM: I’d buy an only fans IPO all day long.

TS: I wasn’t talking about only fans, I was talking about Snapchat. No idea about ole fans. Never been on there.

TN: All right, guys, very good. Now let’s just segue to the week ahead. What are you guys looking for in the week ahead? We’ve got the fed meeting next week, right? So that’s going to be all the talk all week long. So what’s going to happen there?

AM: I think they try to get us to the bull bear line of 40 20 or 40 30 in that range and linger us there until the Fed meeting. I think Jerome Powell is pretty much his last chance to be hawkish, because I don’t think there’s not another meeting until September at that point, like, the Fed already are talking about pivoting by then. So this is probably their last chance to be real orkish.

TN: Okay. No, go ahead. Sorry.

TS: I think as far as the energy market that’s concerned, we’ll probably see oil, gas pretty much sideways for the week, just as we have been seeing. And I think I’m very interested in the metals complex the first time in a very long time. So I think we might see a slow kind of interest in that market next week.

TN: Interesting.

SR: I think it’s going to be interesting to see how the market interprets the feds forward view, honestly. We all know they’re going 75. It’s already there. It’s already priced in. I think it’s going to be very interesting to see how the fed begins to look out to September and beyond, and the market is going to begin to really price that in. And so you could see some pretty big whipsaws in the dollar. You can see some pretty big whipsaws on the long end of the curve. And equities in general, I think equities could see the most volatile week, even though it’s the most predictable Fed raise in a couple of meetings, I think you could see some incredible volatility and some really interesting outcomes.

TN: Yes. Very good. I can’t wait to watch. Guys, thanks very much for your time. Have a great weekend. And have a great weekend. Thank you.

TS, AM: Bye. Thanks.

TN: Okay. I forgot to put you on mute. I apologize, Ready?

Tags ADR, boj, Brazil, China, ci futures, DisneyPlus, ecb, Euro, Europe, european union, Europeans, Fed, germany, Netflix, Peloton, Silicon Valley, snapchat, The Week Ahead, TikTok, Twitter, US, week ahead

Podcasts

USD-Euro Parity Offers Opportunities

Post author By admin
Post date July 21, 2022

This podcast first appeared and was originally published at https://www.bfm.my/podcast/morning-run/market-watch/usd-euro-parity-currencies-euro-monetary-policies on July 21, 2022.

Currencies have been in a flux with the US dollar gaining strength on the back of the rising Fed fund rate. Our CEO and founder, Tony Nash tells us if there are actually investment opportunities from this.

Show Notes

SM: BFM 89 nine. You are listening to the morning run at on Thursday the 21 July I’m Shazana Mokhtar with Wong Shou Ning. In half an hour, we’ll discuss the emerging market economies that are at risk of going the way of Sri Lanka. But as we always do, let’s recap how global markets closed overnight.

WSN: While I haven’t seen this in a very long time because every market that we’re going to report pond is actually in the green. So the Dow was up 0.2%, the S&P 500 up 0.6%, Nasdaq up 1.6%. Meanwhile in Asia, Nikkei was actually up 2.7%, hong Kong up 1.1%, shanghai up 0.8%, Singapore street times up 1.7% and our very own FBM KLCI was up 0.6%.

SM: These days are far and fewer between indeed when the board is completely green. But for analysis on what’s moving markets, we speak to Tony Nash, CEO of complete intelligence. Tony, good morning. Thanks as always for joining us. So another choppy session on wall street, but the SP 500 posted its first back to back gains in two weeks. Do you think markets have bottomed and is there a sense of relief that results season so far has been pretty decent?

TN: I think the result season has been okay. It’s still a slowdown from the previous quarter. I think it’s really people taking a sigh of relief about the Fed. They’re was fear last week that the fed was going to raise 100 basis points for a few days and that really led to dramatic falls. And what we’ve seen is a sigh of relief that that’s unlikely to happen. We’re likely to see 75, which although that’s elevated, it’s less than a 400 basis points. So I think it’s more that than earnings right now because there’s not a specific sector that’s necessarily doing dramatically better or dramatically worse. Of course tech, we have some tech gains, but we also had other areas where things gained, so it’s more broad than anything else.

WSN: Tony, what did you think of Netflix? Sorry, Tesla’s results that came out just a few moments ago. Did it surprise you in terms of how well they’ve done considering the shutdown that they experienced in China?

TN: Yes, it did. And they banked a billion dollars on bitcoin. So I think that I’m hoping that Tesla starts to get more focus on their performance and their actual market rather than speculating on cryptocurrency. I think every business, at least in America is having to come back down to earth and focus on their own operations now and Tesla is one that really needs to do so. The results were good and that’s great, but I think more focus is needed, especially with the opportunity they have right now in the US.

WSN: And another thing I want to ask you about is some of these leading tech companies. So we see in Google, we’ve seen Apple actually coming out to say that they’re stopping. They’re hiring. At this current juncture, does this make you nervous about the state of the US. Economy or is it actually pretty good because the job market was too high and inflation was a major concern?

TN: Does it make me nervous? Yes or no? I’ll tell you what’s been happening here in the US. If you’re under 30 and you work for a tech company, you know that if you work for a company for twelve months and you jump to another job, you’re going to get a 20% to 30% pay rise. So for the last few years, if you’re under 30 or say under mid thirty s, you would work for a tech company for a year, then switch jobs and get a significant pay rise. So because of that, these tech companies have over solicited jobs. We’ve heard about these millions of unfilled jobs in the US. Those aren’t real jobs, okay? Those are jobs that tech companies have been waiting for people to move on from because they know their employees are going to move on after twelve to 15 months. And so they’re prepacking the employment queue so that they don’t have disruption in their business. That’s what that’s all about. So Microsoft, Google, Netflix, all these guys saying, we’re taking all these jobs out of the market. It’s really just them seeing that the market is slowing down and their staff aren’t going to jump jobs as much as they have been.

WSN: And one other thing I want to ask you about is the aviation sector. So last night, United also reported numbers that were below street expectations a lot due to capacity constraints across the industry. Do you think it’s time to buy this if we really believe in the reopening theme, because these are just temporary blips.

TN: Oh, the time to buy airlines was like three, four months ago. I would be really careful right now if I were to go on airlines. I’d want to know the summer travel season, it’s halfway behind us. So I think if you were buying airlines, you should have done it excuse me? You should have done it a few months ago and then seen the rise as we went into the summer season and sold just before earnings. But as we’re seeing some of their earnings come in somewhat disappointing, I think that’s the real kind of warning for, say, Q Three. So these disruptions, they’re not necessarily getting any better. Disrupted flights are not necessarily getting any better. So corporate earning or stock market prices are about expectations. They’re not about actual performance. So we saw the expectations in Q Two disappoint. So that’s going to really erode expectations for Q Three. So I would be really wary of looking at airlines right now.

SM: Okay. And if we take a look at Europe, the European Central Bank meets today to decide on whether or not to raise rates. What do you think they’re going to do?

TN: Look, Europe is pretty rudderless the ECB is pretty rudderless. They’ve got negative real interest rates and they don’t have a way out. So they’re kind of either already entered or about to enter a recession. So if they raise rates or tightened too much, they’ll steepen the negative slope of the recession. They’ll make it worse. If they don’t raise rates, then the recession will be a bit easier. But they’ll weaken the euro. And as they’re importing all of this power gas and oil and same natural resources, it’s just making those things more expensive in euro terms. So if they tighten, it’s likely about the purchasing power of the Euro more than anything else. The other part that they’re likely to do is look at things like demand destruction, which is what the Fed has been focusing on for about four, five months. They’ve been raising rates so fast that people feel less purchasing power and they stop buying as much. And so if the ECB raises, say, 75 basis points, which I doubt they will, what they’re really signaling to people is they want them to stop buying so much. But we really think the ECB is going to kind of have a moderate tone to the meeting and really not surprised the upside.

WSN: Okay, I want to stay in Europe and I want to talk about the week euro. I mean, at one point you said parity with the US. Dollar. But do you think that actually a weak Euro does provide some stock picking opportunities?

TN: Yeah, it can. I mean, if you look at those European companies that export a lot, let’s say to the US. That would give those companies opportunity to expand their margin in local currency terms while keeping their US. Prices either constant or raising them right. So I would look really hard at European countries who are exporting to places, dollar nominated locations to where they can absorb some of the same gains. For example, not a European company but Pepsi, okay, they make snacks and drinks and this sort of thing. Last quarter they raised their prices by 12% and they had a 1% volume expansion. So American consumers are accepting price rises, double digit price rises and they’re continuing to buy. Okay, so European companies could look that European companies that export a lot to the US. Could really look at this market and put that into their strategy for US. Exports. The problem in Europe right now, a big part of the problem is the expansion of energy prices. German producer prices rose by 30% last month and so they have a real problem with productivity or with profitability. Their costs are rising so fast they have to find a way to raise prices.

And they can only do that into a strong dollar market. It’s very difficult for them to do that elsewhere.

SM: Okay. And speaking of energy, currently, how much correlation is there between oil and natural gas prices and which one do you see undergoing more price volatility in the coming months.

TN: It’s almost zero, actually, over the last month. The correlation is zero point 607, to be precise. Okay.

WSN: It’s a real number.

TN: No, I actually did the calculation. I did the math. So that’s what I do all day long. So normally that’s kind of a zero seven to eight, which is a significant correlation. Right. What we’ve seen is that we’ve seen crude prices, downward pressure on crude prices over the past month. There’s been a lot of pressure, especially in the US. With the Biden administration really kind of bullying crude prices down now that gas prices have been pushed up because of the issues of gas exports out of Russia. Okay. And so you’ve had a disintegration or disconnection sorry. Of those correlations. Where do we expect more volatility? Well, we expect crude oil to be kind of range traded, say, between 95 and $115 for the next few months, that gas can continue to rise, especially if Russia does not turn the gas back on the pipelines. Which decision is, I think tomorrow or the next few days? If they decide not to turn those prices back on, the price of gas continues to rise pretty dramatically.

SM: All right, Tony, thanks very much for speaking with us. That was Tony Nash, CEO of Complete intelligence, giving us his take on some of the trends that he sees moving markets in the days and weeks ahead. Ending the conversation there with just a look at how natural gas and oil prices are expected to trend in the coming months. Crude oil to trend within the range of natural gas. Now, that’s where we could really see some price volatility if geopolitical situation in Russia and Europe doesn’t, I guess, stabilize.

WSN: Yeah. All this is going to feed into inflation. Right? And we are already seeing that in UK numbers. So it came out yesterday, hit a new four year high as food and energy prices continue to so. The consumer price index there rose 9.4% annually. It’s a lot, and it’s mainly due to fuel and food prices, which were the most significant contributors to the rising inflation rate that we’ve seen. So as a result, the bank of England might actually consider a 50 basis point high at its August policy meeting.

SM: Something to keep an eye on, and I’m sure something that the incoming prime minister, whether it’s Rishi Suna or Liz Truss, will need to start strategizing from now 718 in the morning. We’re heading into some messages and when we come back, does the antisexual harassment bill that was passed in parliament yesterday pass muster? Stay tuned. BFM 89 nine.

Tags Apple, bfm, bfm 89.9, bfm malaysia, bfm morning run, bfm podcast, bfm the business station, China, ecb, England, European Central Bank, Google, Netflix, USA, USD

Week Ahead

The Week Ahead – 18 Jul 2022: Biden’s Saudi Arabia trip 🛢️

Post author By admin
Post date July 18, 2022

https://www.youtube.com/watch?v=HpcWVeE8mPY

Biden’s Saudi trip ended up being a disappointment and there really is no immediate spare capacity, which is a surprise to no one.

What does the appreciated USD mean? We’ve already seen a fall in Sri Lanka and other places which we’ve talked about for weeks, but where is that going and when will that end?

We also talked about the FOMC expectations. What will the Fed do, especially given CPI PPI data? We have to also keep in mind that we have an election coming up in November, so it’s really hard for the Fed to keep the heat on.

Key themes:

Biden’s Saudi Arabia trip 🛢️
USD🚀 rocket ship and fallout
FOMC expectations (CPI/PPI)
What’s ahead for next week?

This is the 26th episode of The Week Ahead, where experts talk about the week that just happened and what will most likely happen in the coming week.

Follow The Week Ahead experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/samuelrines
Albert: https://twitter.com/amlivemon/

Time Stamps

0:00 Start
0:49 Key themes for the episode
1:55 Biden’s trip to Saudi Arabia
3:23 PR game and disastrous foreign policies
5:00 The US President looks like he has no power?
6:17 US can be a marginal price setter for oil, but…
7:34 what happens to crude prices?
10:08 Why is USD pushing higher?
11:22 What’s happening in the Euro Dollar and why?
13:51 FOMC
19:00 What happened to the gasoline prices?
20:07 When will Yellen give up on the 2% inflation?
23:45 What’s for the week ahead?

Listen to the podcast version on Spotify here:

https://open.spotify.com/episode/4cvisj39soBnXdia0S9bXv?si=4c2c9ffb0f6f4717

Transcript

TN: Hi, everybody, and welcome to The Week Ahead. I’m Tony Nash. I want to thank Albert and Sam for joining us to take a look at The Week Ahead. Before we get started, please, please like and subscribe on this channel and please comment, ask us questions, let us know additional information you think we should have. We get back to every single one of those and we want to make sure that you guys are happy with what we’re talking about today.

So today there’s a lot that’s happened over the past week and even over the weekend that we want to get into. We’ve got three topics here, but there’s going to be a lot of overlap in these. So I’m just going to introduce these and then we’re going to have a pretty open discussion.

The first is Biden’s Saudi trip, ended up being kind of a disappointment and there really is no immediate spare capacity, which is kind of a surprise to no one, but it happened and we’ll cover it. Next is the US dollar, and what does the appreciated US dollar mean? We’ve already seen a fall in Sri Lanka and other places which we’ve talked about for weeks, but where is that going and when will that end? Next is FOMC expectations. What will the Fed do? Especially given CPI PPI data? And we have to also keep in mind that we have an election coming up in November, so it’s really hard for the Fed to keep the heat on when we have an election coming in November or that would be a normal election year.

So Albert and Sam, thank you so much for taking your Sunday afternoon to talk through to us. Let’s first get into Biden’s trip. Albert, can you give us a little bit of a kind of geopolitical backdrop for us? Help us understand what were the expectations and what actually happened?

AM: Well, I mean, the expectations were that Biden goes into the Saudi Arabians in the Middle East and cuts a deal for them to increase production and capacity and name your whatever little policy that they’re talking about. The reality was Biden wanted to get away from the PPI number and the CPI. They’re just atrocious. So he decided it’s a normal thing that politicians leave and go overseas so they don’t have to deal with it.

So he went over to Saudi Arabia meets MBS, which was already a problem considering the comments that he had for the election. But his goal for upping production by the Middle East and OPEC, it was a fantasy. It was nothing more than a PR gimmick in my opinion, that the Fed has been playing in futures and crushing the price of oil. So it was one of these, look here, this is what I’m doing on the grand stage and oil prices are falling, but in reality they weren’t really connected.

TN: So were there really expectations in the administration that there would be additional immediate capacity? Do they really think that that would be on the table?

AM: I don’t think so to be honest with you, Tony. Like I said, this is a PR game that they’re playing now specifically because, like you mentioned, elections are coming up and their intent is to save the Democratic majority in the Senate. The House is lost, but the Senate is what they’re eyeing up. So in my opinion, this is all PR games.

TN: Okay. But the PR game that is really hard for me to understand is the President, regardless of who it is, okay. The President going to a place that is an ally. Saudi Arabia is pretty much an ally to the US. And coming away with nothing. One would think that the Secretary of State and the Nat Sec guys, other guys would have gone in first to make sure that we could announce something positive and nothing happened.

So it seems to me that there is foreign policy disaster after foreign policy disaster with this administration. I don’t want to be putting my own view on it, but is it that, too?

AM: Of course, we’ve had just multiple disasters and foreign policy. But even from the Saudi Arabian perspective, who’s their biggest client? At the moment, it’s China. Why do they have to listen to Biden, who’s made the Biden administration has made unbelievable mistakes in foreign policy and actually risk their security more than anything else. He’s taking the foot off of the Iranians. The Saudis have to deal with that. The Russians are in their own little world of adventures, but there’s no real stability in the Middle East, and the United States under Biden doesn’t really show that there is anyone stepping up to the plate.

TN: Right. And that’s kind of a leadership issue. Whether or not the US is their main customer, the US has been their main advocate in the Middle East and around the world. Or one of their main advocates. Right.

AM: Yeah.

TN: So that’s the big loss that I see is you have a president going in, not getting an agreement with a huge entourage for agreements that should have been done before they arrived, and it just makes them look like they have no power. Sam, is that how you read it?

SR: Yeah. There’s two things that I think the US. Generally gave to Saudi Arabia, and that was global clout and weapons, right? Yes. And the second part is probably very important to the Saudis going forward because there’s only so many places that manufacture weapons that are decent, and that’s the US, to a certain degree, Russia, China and basically Turkey. So you can kind of buy weapons from those places. Guess what? That was a tool that really wasn’t flexed at all.

And if you’re going to flex policy power, that probably should have been flexed a little bit. And honestly, it doesn’t appear to have been at all. So I would say to Albert’s point exactly, we’re not the largest customer when it comes to oil by a mile. Right, that’s just true. But we are the largest supplier for their national defense.

TN: Here’s the thing that I don’t understand is, with US production, we can be the marginal price setter for global oil prices, but we pull that card off of the table by disabling our domestic manufacturers. Is that a fair thing to say?

SR: Well, I would say that that’s the muscle that we’re kind of flexing right now, right? To a certain extent

TN: Okay, tell me more about that. How are we flexing that?

SR: Well, we’re flexing it. I’m not saying it’s good flex. Right. We’re flexing it by not doing anything. So we are basically the ones holding up global price of oil. OPEC honestly has pumped exactly what they said they would pump with a little variability, and they don’t have much marginal capacity.

The marginal capacity was passed to fracking a long time ago. This is not a shocking revelation. So when you’re the global incremental supply that can flip on in a relatively fast manner and you say, we are not going to do that, period, and we’re not going to in any way supplement the regulatory overhangs and the capital overhangs, and guess what? You’re going to end up with a global shortage of oil and distillates, etc.

TN: Right. So what happens to crude prices with the Saudis saying, okay, maybe capacity in 2027? What do we see in the short term with crude prices? I mean, with a recession looming, supposedly, whether that’s real or not remains to be seen. Right. And we had a good retail sales figure on Friday, pretty strong.

So what do we see happen with crude prices in the short term? Is there upward pressure on crude prices or are we kind of in this range?

AM: I think we’re in this range of 90 to 115. Just simply because of the reality. I want to differentiate pre election versus post election. Right. Pre election, we’re definitely in a range of 90 to 115. The Feds not going to let the price of oil gets to the point where people are paying six, $7 a gallon to the tank. So that’s first and foremost.

After that, hands up. Who knows what’s going to happen then? Because Europe’s going through an energy crisis with gas. The price of oil is probably going to go up just because the green deals that the Biden administration are intent on passing are going to ramp up right at the election and just afterwards. So after the election, I could see 130, 140.

TN: Okay. Sam, any near term change in crude prices because of this? No?

SR: Well, near term, Albert’s point, $90 a barrel seems to be kind of the low here. I don’t think we’re going to go much lower. And that’s a combination of DXY at 108, which DXY at 108 is atypical to oil remaining elevated.

So if you begin to have a dollar breaking into the back half the year, that’s kind of the post election story. I think Albert would back me up on that part. You begin to see that breaking. Guess what? The scaling, that makes 130, 140 is relatively reasonable. But you call it 90 to 115. Absolutely not a problem here. And you probably creep back towards the upper end of that 150 because you’ve seen two things.

You’ve seen gasoline prices come down, which means demand is going to remain resilient, if not pick up on the margins. And guess what? That flows downhill. So I would say oil prices, gasoline prices, they look good right now. I saw a free handle on gasoline close to my house. That’s not going to last. That’s not going to beat the system.

TN: Right. Okay. So, Sam, you mentioned the dollar at 108. We hit 109 last week. Why is the dollar pushing higher, guys?

AM: I can tell you why. I’ve been adamant about this. Yellen tell the European counterparts that she was going to drive the dollar up to 110 and above. She’s done this in 2013 before. There’s nothing new under the sun. It’s part of her playbook. She knows what she’s doing. She can even go up another 10%. Now, what that does to emerging markets? Oh, God help them at the moment. But still, the dollar is the most effective tool in their eyes for inflation busting, at least short term.

TN: So how far are we going?

AM: I think we go up to 112 to 115.

TN: Okay, over what time horizon? The next month? The next three months?

AM: Yeah, I think it’s in the next month. I think they want to get this over and done with so they can pivot starting September. Stop the rate hikes. And on top of that, this is something for Sam that could talk about the Fed is I think that Powell probably loses the majority of votes in the Fed for Fed members come October.

TN: Okay, hold on, hold on, hold on. I want to talk about that. But let’s finish up with the dollar first. Okay? This is good. Okay, so with the dollar, help me understand what’s happening in the Euro dollar markets right now. Okay. We’ve seen the Euro dollar fall as the dollar rises. What’s actually happening there, and why.

SR: Not me?

AM: Okay.

TN: Yes.

AM: I’ve been adamant about this. Also, as global trade slows down, the need and use of Euro dollars becomes less so. And a lot of people sit there mistake that as the dollar is dying and gold is coming back and whatever name your crypto, that’s supposed to be the next reserve currency. But that’s just the reality of the moment, is they are purposely trying to kill demand. When you kill demand, the Euro dollar starts to fall because there’s less need of it. That’s just the most simple basic explanation that I can give you at the moment.

TN: Okay, so, Sam, that is non US demand in US dollars, right?

SR: Yeah. Dollar denominated non US debt.

TN: Okay. And so the largest portion of the euro dollar market. Is that still in Europe?

SR: No, it still flows through Europe. Right, okay. But it’s a much larger market than simply Europe.

TN: Okay. It tells me outside of the US, there’s a slow down generally. Is that fair to say?

SR: Yeah.

TN: And we’ve talked about this before. Europe has big problems. We saw China’s numbers last week, which are obviously overreported anyway, so Japan is having problems. So all the major markets are having issues. So the Euro dollar is just a proxy for what’s actually happening, those markets through trade and through the demand for actually US dollar currency spent outside of the US.

SR: Correct.

AM: Yes. Very simplistic terms, yes, that’s exactly right.

TN: Good. Anything else for the viewers here? Like, anything else that you guys want to add on Euro dollars just so they can pay attention to things?

AM: Not really. It’s a very good just simplistic, basic understanding of Euro dollars. I mean, we can get into the whole mechanics of your dollars, but it’s so big it’ll take up an entire episode.

TN: Okay, good. Very good.

SR: Very into the weeds very quickly.

TN: Good.

AM: Yeah.

TN: So if anybody’s watching has questions about Euro dollars, let us know. We’ll get Sam and Albert in on this and help them answer the questions. All right?

Okay. Finally, FOMC, okay. We saw CPI hit to the high side. We saw PPI hit to the high side last week. A lot of talk about 100 basis point hike. Sam had a newsletter out that said could be 100, could be 75. And Albert obviously thinks that there’s going to be a pivot in September. So Sam, do you want to kick this one off?

SR: Yeah, sure. I do want to point out that I said there’s a difference between should and will in the newspaper, and the notion was, should the Fed go 100 now? Will they? Probably, unless the University of Michigan survey comes in light. And it came in light. So you’re 75 basis points now. It’s that simple.

TN: Okay.

SR: Very straightforward. The Fed probably wanted to have flexibility for 100, but when they tied themselves to something so stupid as the University of Michigan survey and it falls I mean…

AM: You know what, Sam, the funny thing is that you say that is, that is exactly what they look at, for making their policy decisions. The only thing they look at.

TN: University Of Michigan.

SR: I know they look at it. The problem was they said it out loud. Like, you don’t say that out loud. That’s the mysterious parts of it. It’s a survey of a very small subsection that is basically never been tied to reality at all across any time frame whatsoever. And like yeah..

TN: It’s like making policy based on Atlanta GDP now. Right. It’s like a lot of these things are proxies of small survey sizes of whatever.

SR: Error terms that interact with each other, yes.

TN: Right. I think a lot of people who watch markets see these indexes, like the University of Michigan index come out and they think that it means something, but it kind of does, but it kind of doesn’t. And so I always recommend people, you have to understand these indexes. You have to understand what these releases mean. You have to understand the methodology. If you’re going to make investment decisions based upon these things, you have to understand what they are.

And as you dig down beneath these things like University of Michigan was put out what 30 years ago initially. The methodology hasn’t changed much since then. So if you imagine the technology and the capabilities 30 years ago and they carried that forward, it’s pretty light. It’s pretty light. A lot of these things are pretty light.

AM: Yeah, but they want it like that though Tony. They don’t want to update their stuff because they don’t want transparency. Seriously.

TN: It’s true.

AM: If you want to massage the numbers, you go with what you know, what you know is flawed and that’s what you go with.

TN: Right.

AM: I had a quick question for Sam. Like I said, I think that they’re going to pivot in September after 75 basis point rate hike now and whatever CPI coming in in August. But I don’t think this is the right decision for them to pivot this early because they’re expecting demand to come down and I see no demand coming down anywhere at the moment. So what happens if they sit there and try to pivot for September, October, November, election time and then January, December comes along and demand is sky high again? What does that do to inflation for 2023?

SR: I think it’s complicated, right? Because it’s kind of the goods versus services problem going into the back of the year. Right. We’ll have plenty of goods, print, crap on store shelves and Target for toys and whatnot because that part of the supply chain is solved.

What’s going to be persistent on the CPI price is going to be shelter, which we all know is six months lagged and is going to be a problem for the rest of the year. And there’s nothing they can do about that because their methodology is, again, stupid. So there’s nothing they can do on the prints from here out.

They’re going to have prints that are sitting at 30 basis points plus just because of shelter and it’s weight in core, that’s going to be a big problem for them on the CPI front. So if they pivot, they’re basically going to have to say that, you know, look at headline, it absolutely plummeted. Gasoline.

TN: Will we get a core rating, x Energy, Food and shelter? Will we start quoting that?

SR: Yeah. That’s what I started looking at for the exact reason of trying to find a pivot. Because eventually that will be the metric that they are forced to go to if they want to pivot. It’ll be SuperCore and guess what you call it supercore.

SuperCore doesn’t look that great right now, but it could look pretty interesting if you begin to have gasoline coming down 40% month over month with what the next one is going to say or 25% month over month. So you’re going to continue to have some volatility on the headline CPI front, which is basically what the Fed is going to have to look at in order to pivot.

TN: Okay, so can I ask what happened with gasoline prices? We still have 94% or whatever utilization. Crude prices haven’t come down that much. So why have we seen a 30% fall in gasoline prices over the past three to four weeks?

SR: Recession fears?

AM: Yeah.

TN: That’s it. Okay.

AM: Yeah, pretty much exactly. It’s just the narrative of recessions coming and trying to kill demand based on that. It’s just like I said, PR games, nothing more.

SR: The one thing that I want to point out that I think is really important to kind of consider for Albert’s point of a pivot is equities tend to move in a six month precursor. And what you’ve seen since July 1 is an absolute rip in home builders and a relative squashing of utilities.

And if people were betting on a longer recession in a longer Fed cycle, XLU would be the buy and homebuilders would be the short. And that has simply not been the case so far.

TN: Very interesting, Sam Rines.

AM: When do you think that Yellen this is for both of you, when do you think that Yellen gives up on the 2% inflation number and says 4% is the goldilocks level?

TN: Sam Rines you first. It’s a great question.

SR: I don’t think they go 4%, but I think they say, and they’ve begun to do this, if you go back over the last six months of speeches that 2 to 2.5 is fine.

AM: Still it’s going to be higher.

SR: They’re creeping it up. Right. I don’t think it’ll be 4%. I think between two and 3% is a reasonable target, blah, blah, blah, given and they’ll go into things like because of the way that we measure CPI, 2 to 3%, blah, blah, blah. There’ll be some.

AM: Fun times.

TN: I think if they did that, Albert, I think it would be after the election.

AM: Oh, of course. They’re not doing anything that’s going to trip up Operation Save the Democratic Senate, you know what I mean? They’re just not going to do that. Right?

TN: Yeah. I think people are already really upset about inflation. Companies are starting to report or expected report numbers down, their earnings down, and so it’s hurting everybody.

AM: Yeah, but everything they’re doing is just going to make inflation worse in 2023. But it’s going to come back with a vengeance because unemployment is still unemployment is going to start ticking up, because…

TN: It’s not an election year. Nobody cares because it’s not an election year.

AM: Stimulus checks will flow again. It’ll be fun.

SR: The one thing, again this goes to Albert’s point on, will a potential September pivot be a mistake? Pepsi’s report this week showed a 1% organic volume growth and 12% pricing. They put 12% pricing and consumers and had volumes creep up 1%. Guess what? If companies can get away with that, they are going to all day long, and they will in fact, make a fortune on the back side of this.

AM: Of course.

SR: Paying attention to that demand destruction has not crept through yet. If you can push that kind of price and not have volumes fall, guess what?

TN: Well, the biggest thing, of course, and this is a no brainer, but prices are not going back to where they were. They are not going back to where they were. This is not a temporary inflation thing. And it may have started that way, but the way we responded to it was completely wrong. And it just baked in these supply side things that flowed all the way through to the retail side.

AM: Wage inflation alone. Wage inflation alone.

TN: Yeah. But I think we’re going to see more on the, say, low, medium side of wages. I think in order to keep up with a 12% price hike in Pepsi, you’re going to have to see more action on the wage side.

SR: Granted, that was mostly free online. That was mostly salty snacks. And it might have had something to do honestly, it might have had something to do with more frequent gasoline stops. You buy more chips. But I wouldn’t read too much into that. Right. I do think that their ability to push price is pretty good.

TN: Great.

SR: Yes. To your point, it’s a step function in pricing and therefore it’s a step function in inflation. Great. Okay, guys, 60 seconds. What do you see for the week ahead? Albert, go.

AM: Commodities. Rebounding commodities. I’m long wheat. I think there’s problematic globally for wheat. I want to see wheat prices start to track back up, to be honest with you. Same thing with oil.

TN: So soft and energy.

AM: Yeah.

TN: Okay. Sam?

SR: Yeah. Watching the inflation trade, honestly, and I think it’s very similar to Albert’s point on oil. And wheat, I’ll be watching the relative sector distribution pretty closely here, looking for those like XLU versus the housing guys versus some of the other trades to see what people actually putting money to work are really thinking, not just by them.

TN: Very good, guys, thank you so much. Thank you so much for taking your Monday afternoon. Thanks, everybody, for watching our late week ahead. And guys, thanks. Have a great week ahead.

AM: Thanks, guys.

Tags biden, Biden administration, China, complete intelligence, DXY, Euro, Europe, Fed, FOMC, GDP, joe biden, MBS, Michigan, Middle East, November, PPI, President Joe Biden, Russia, Russian, saudi arabia, Spotify, The Week Ahead, tony nash, Turkey, Twitter, University of Michigan, US debt, USD, week ahead, XLU, yellen

News Articles

Startups Helping Businesses Understand What Customers Want

Post author By admin
Post date July 9, 2022

This article first appeared and originally published at https://blogs.oracle.com/startup/post/startups-customer-experience.

The concept of personal customer service is nothing new. Good bartenders have always remembered their regular patrons’ favorite drinks. Shopkeepers are trained to anticipate their customers’ needs.

The skill of identifying customers’ wants and desires to drive sales remains important to businesses, and now there is a raft of high-tech tools to help them gain new insights.

Here’s how companies in the Oracle for Startups program are helping their clients deep dive into analytics so they can understand customer needs better than ever before.

Helping companies listen to customers

How we speak gives listeners all sorts of clues about what we really want. DataKlout uses Voice AI to analyze customers’ intentions. Its next generation analysis software provides consumable insights for decision making and results. For example, it can be used to identify customers’ positive reactions to marketing and sales calls, allowing a sales team to focus on closure, or be used to train employees to deliver more delightful customer service, among other use cases.

Using the tool helped a client cut the cost of customer acquisition by 75%, leading to a 500% increase in opportunities for closure in a tele-sales and tele-marketing campaign, while it also increased opportunities for a car insurance company, which used the tool to identify prospects from a cold calling campaign, resulting in a jump from 2% to 8%.

While DataKlout’s Voice AI gives its customers a new technique to understand their customers’ deepest desires, it intends on going further, by equipping its clients with another in-depth tool by integrating the facial expressions in a video calls.

Understanding the whole customer

Customers are complex creatures, making predicting our actions and needs difficult. FirstHive uses a machine-learning driven algorithm, allowing its platform to ingest data from nearly every kind of customer interaction and transaction, including ERP, CRM, website, social, PoS, app, and customer care groups.

It can even absorb offline and unstructured data like social comments. The tool then builds unified customer identities and makes recommendations on what the next best action should be to enhance the customer’s experience.

The startup has worked with companies like Singapore Airlines and Unilever and has shown its tool can help enterprises earn a sixfold increase in their marketing ROI, with the right content being sent to razor sharp customer segments at just the right time.

Similarly, Pryon helps employees of enterprises find important information easily so they can do their jobs, including customer service. The startup behind the technology that powers Alexa allows users to ask an assistant a colloquial question and receive an answer in just a second. The solution applyies natural language processing to unstructured content automatically ingested from a vast range of content types.

Using AI for super forecasting

As any good service provider knows, the best way to meet a customer’s needs is to anticipate them. (Just think of that brilliant bartender or stellar hotel worker.)

Complete Intelligence runs more than 15 billion data points through an AI platform, making trillions of calculations across 1,400 industry sectors. This allows it to provide its customers in industrial manufacturing as well as the oil and gas, chemicals, electronics, food and beverages industries with a fully automated, globally integrated artificial intelligence platform to help purchasing, supply chain planning, and revenue teams make accurate forecasts.

https://open.spotify.com/episode/1U9haAa5gc7pgBjl7tojyw

Helping startups meet customer needs

Oracle for Startups exists to support growing companies and help them serve their customers’ needs. We know startups need reliable cloud services; that’s why we offer them a 70% discount on OCI.

We know young companies need to embrace new tech tools and scale, which is why we have a dedicated CAT team to help with migration and other goals.

We also know marketing support and introductions to enterprise customers are invaluable, and we strive to make these perks of our program a reality.

We’re also hoping to know even more about our customers by launching a global customer survey. After all, who better to inform our strategy than the startups we serve?

Tags CAT, complete intelligence, CRM, DataKlout, FirstHive, OCI, oracle, oracle cloud, oracle for startups, oracle in texas, oracle partnership, oracle startup, Oracle startup idol, Pryon, ROI

Podcasts

No Let Up in Fed Rate Hikes

Post author By admin
Post date July 9, 2022

This podcast first appeared and was originally published at https://www.bfm.my/podcast/morning-run/market-watch/us-federal-reserve-interest-rates-hike on July 7, 2022.

Despite weaker economic data, will the Federal Reserve continue their hawkish stance? Do the FOMC minutes offer any hints of their stance? Our CEO and founder, Tony Nash tells us whilst telling us the impact of rising rates on the banking and property sector.

Show Notes

WSN: BFM 89.9. You’re listening to the morning run is seven o’ 7, Thursday, the 7th of July there and keeping you company till 10:00 a.m. Is Shazana Mokda in an undisclosed location far, far away. And I’m Wong shining in the studio now in half an hour, we’re speaking to Manpreet Gill on fixed income and commodity the investment strategy for 2022. But let’s recap how global markets closed yesterday.

SM: So if you take a look over in the US, markets actually closed up despite Fed meeting minutes coming out signaling a more hawkish stance. The Dow was up 0.2%, the SP 500 and the Nasdaq was also up 0.4%. Looking over in Asia though, it’s mostly red. No, it’s all red really. The Naked and Hansi were both down 1.2%, the STI was down marginally by 0.01%, and the Shanghai Composite and FBM KLCI were both down 1.4%.

WSN: So for more on where international markets are hitting, we have on the line with us Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Now so far the economic data coming out of the US shows a slight deceleration of the economy. So do you think that the Fed will then hold back on their hawkish pace of rate hikes despite June’s FYMC minutes indicating that they intend to keep raising rates?

TN: I think they’re definitely going to keep raising rates, I think until we see a marked slowdown in particularly commodity price inflation, but also other things like wage inflation. I think they’re going to keep accelerating. So it’s unlikely they’ll continue with a 75 basis point hike, but they will almost certainly have a 50 basis point hike and continue for the next couple of meetings at least.

WSN: I have another question though, Tony, in that when do you think interest rates will peak or when is the peak of the tightening cycle? Will it be early 2023 or you’re looking maybe later in 2023.

TN: Well, some people are saying that it’s possible they continue to hike until the end of the year, and then in 23 they have some rate cuts similar to what happened in the early 90s. That’s possible. I think it all depends on where the economy is at the time. But I think for now they’re just worried about inflation and the downsides of inflation and they’re looking at asset prices and where asset prices are, and it’s really troubling for them given yeah, the economy has definitely slowed down, but we still have wages rising, we still have very high commodity prices, and we also have an appreciating dollar at the same time. So anything imported should be cheaper on a relative basis, but those prices keep going up as well. So Fed continues to be worried, although they’re getting pressure from the outside because it is an election year and the party in power does not want there to be a recession going into the election. And so they’re getting huge pressure from the treasury and from other people to moderate their stance so that there is not a recession going into the election.

SM: Well, what do you think then, Tony? We know that economists at Goldman Sachs have put the risk of a recessionary slump in the US. In the next year at 30%. So they’re still looking at next year. Some consumers feel it’s already here, I guess. Where are you standing in this debate?

TN: Yeah, I think we have unemployment still falling in the US. So you don’t usually have a recession at a time when unemployment is still falling. We also have high inflation. So on a real GDP basis, you may have a negative real GDP number. Well, you have a positive nominal GDP number. And I know that’s a little bit confusing, but what that basically means is that the rate of inflation pulls the economic growth into a negative number simply because of inflation. So we’re in a place where it’s kind of hard to identify a recession because of the real and nominal difference. But when we still have jobs growing, when we still have investments and other things happening, it’s really hard for us to hand on heart say that we are in or entering a recession.

WSN: Okay, let’s get into the weeds then, with regards to the recent set rate hikes and how that might play out in certain sectors. And I want to look at the US. Banks. So how do you think they perform this quarter? Are you a bull or bear?

TN: Well, it’s a tough time for banks. They had mixed results in Q2, and I think higher interest rates obviously help their net interest margin. But borrowing cools off, and it’s things like mortgages. Other things have cooled off dramatically over the last same month or so. Banks will likely have a very tough Q3, and then when things stabilize, they’ll be better. But I think Q3 is going to be rough for them. I wouldn’t say I’m necessarily bearish on banks, but I would say I’m neutral on banks.

WSN: What about the property sector, Tony? I mean, we’ve heard, of course, a few months ago that whatever you put up in the market, it gets snapped up within the day. But is that trend continuing? Are you a bull or bear for property?

TN: You know what? It depends on where you are in the US. Where I am in Texas, things are really strong. But a lot of other places in the US. Things have slowed down dramatically, and mortgage applications nationally have come to a standstill as interest rates have risen. So I think a couple of weeks ago we may have talked about how a house that was purchased in January, the median price house purchased in January, if it were purchased today, it would cost $800 a month extra. And so the interest rates just had a dramatic impact on house prices. So mortgages have really slowed down.

SM: And can we turn to oil, Tony, because oil prices have dropped below $100 per barrel for West Texas. Does this level accurately reflect supply and demand for crude? And does this then invalidate the bullish forecast of $150 and above that analysts were predicting not too long ago?

TN: Yeah, I think we’re in a really strange place for oil right now. And if you look at the later months of crude oil futures that are being traded, they’re actually trading higher than the current month. So there’s something happening in the current month, like maybe somebody’s books blown up or something. But there’s something happening in the July future that rolls off in a couple of weeks. And I expect that we’ll see higher crude prices going into August and the rest of Q three, early Q four. So it’s going to be pretty choppy for the next few months in energy and commodities generally.

WSN: One last question for me, and it’s more long term economic question, and that’s about Biden’s infrastructure bill that was passed in November last year, but it’s gone really silent. Do you know what’s happening on that front?

TN: Nobody does. There’s been very little news about it. What’s happened partly is inflation has taken a bite out of it and it’s really caused a lot of projects to stall. So the problem with federal appropriations is the longer the money sits, the less money that gets spent, which is good for taxpayers. Right, but I think inflation is really forcing local and state governments to pause on their investment plans because they do have budget, but they don’t have enough budget to get the projects done that they want. So can they appropriate can the US. Congress appropriate more for the next fiscal year? It’s possible. It depends on who’s in power. So if the Republicans come into power in November, then they may not raise the appropriations level and we’ll be stuck with the level that we have, which it’s $500 billion, a massive amount of money. I don’t want anybody to mislead anybody, but the Democrats will likely want to raise that level if they remain in power after the November election. But to date, not a lot has happened. There has not been a lot of movements. We haven’t seen a lot of major announcements of new projects, these sorts of things.

And if it was successful, we would see a lot of major announcements of new projects.

WSN: All right, thank you for your time. That was Tony Nash, CEO of Complete Intelligence, giving us his views on global markets, in particular the US. And whether the Fed will continue to raise rates until 2023. He says maybe, and then maybe they might even cut rates like they did in $2,000.

SM: That’s right. I guess one thing to note is the question is whether we’re going to see a recession sooner rather than later. Yeah, and Tony did point out the fact that labor unemployment is still at really low levels. Unemployment is decreasing so that’s really at odds with a recession and that’s what everyone is looking to see. I think if we start to see unemployment go up, that heralds that a recession is either here or coming.

WSN: I suppose we are living in really weird economic times. None of the normal correlations that we see are making any sense. I think that’s a lot to do with the fact that during COVID-19, governments basically just took the let’s do whatever it takes attitude. There was so much money pumping into the system by every major central bank and the recession was extremely V shaped, sharp recovery. But then that also caused supply chain disruptions and we had the war in Ukraine. It was like the perfect storm of Black Swan events which has resulted in this current situation that we are in now. Very quickly, we’re looking at the Fed minutes that just came out now. Indications are that they are signaling another rate increase of between 50 to 75 basis points lightly in the July meeting. And this is the interesting part, they are willing to accept the price of a slower economy in order to tame inflation.

SM: And this is sort of a change from their soft landing rhetoric, right? So earlier they were trying to say oh, it’s not inevitable that there will be a recession, we can still avoid it, we want to get that sweet spot. But I think now they’re trying to navigate those expectations to go like hey, I think we need to kind of expect pain. There is going to be pain, but it’s better to have this short pay now rather than long term pain later. So I think the Fed is really trying it’s got itself in a pickle essentially in terms of trying to prime expectations of the public.

WSN: I think that’s on the back of the fact that they spend the whole of 2021 telling everyone that inflation is transitory, hey, no problem. And it didn’t turn out to be transitory, so there’s a need to rebuild back that credibility. But up next we’ll be speaking to Carmelo for little on malicious overnight policy rate. Stay tuned for that.

Week Ahead

The Week Ahead – 11 Jul 2022: Energy Backwardation

Post author By admin
Post date July 9, 2022

We had a pretty volatile week last week, with crude selling off pretty sharply early in the week. In this episode, we looked at energy backwardation, and Tracy educated us on what’s happening in those markets.

We also had some comments from Putin about a multipolar world. Albert talked through that.

And then on Friday, unfortunately, we saw the assassination of Japan’s former Prime Minister Abe. We talked about the Japan post-Abe and what that means for the region.

Key themes:

Energy backwardation
Putin’s Multi-Polar world
Japan post-Abe
What’s ahead for next week?

This is the 25th episode of The Week Ahead, where experts talk about the week that just happened and what will most likely happen in the coming week.

Follow The Week Ahead experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Tracy: https://twitter.com/chigrl
Albert: https://twitter.com/amlivemon/

Time Stamps

0:00 Start
0:54 Key Themes for the week
1:28 Catalyst of the energy sell-off on Tuesday
5:44 Will we see more action in energy prices?
6:57 Is it cost-ineffective to make hydrogen with natgas prices?
8:11 Diesel
9:20 Vladimir Putin’s multipolar world.
13:44 Japan post-Abe
20:29 What’s for the week ahead?

Listen to the podcast version on Spotify here:

Transcript

TN: Hi. Welcome to the Week Ahead. I’m Tony Nash. Thanks for joining us. I’m with Tracy and Albert today. Sam is away, but we are talking about a pretty volatile week this week. Before we get started, actually, please like and subscribe. Please ask any questions below, make any comments. We want to make sure this is interesting for you, so just let us know any additional info you want or comments. We’re happy to address those.

We had a pretty volatile week this week with crude selling off pretty sharply early in the week. So we’re going to look at energy backwardation, and Tracy is going to educate us all on what’s happening in those markets. We also had some comments out of Putin about a multipolar world. We’re going to have Albert talk through that. And then on Friday, unfortunately, we saw the assassination of Japan’s former Prime Minister Abe. So we’re going to talk about the Japan post Abe and what that means for Japan and the region.

So first let’s get into energy. Tracy, obviously, we had a big sell off in energy early in the week, and then we saw it come back later. What was really the catalyst for that energy sell off on Tuesday?

TS: What happened is that we started on July 5, right? We opened with low liquidity in the market in general. Then we saw a sell off in the general markets and commodities and risky assets that kind of exacerbated that trade. And then on the 6th, we saw a liquidation of a couple of very large positions in that market. And so fundamentally, basically, there is no reason for this sell off other than technicalities.

In fact, if we’re looking at this market, this spreads, the calendar spreads, which means month to month, were exploding higher during this entire move. That implies that the physical market at least, is very tight right now because you’re seeing backwardation increase significantly when we’re seeing a $10 move in ZZ, which is crazy.

TN: Can you tell us what that means? A $10 move in ZZ. What does that mean for the rest of us?

TS: If you’re talking about calendar schedule, we’re talking about monthly. So we can talk about the current front month is August. So we look at August, September, September to October, October to November, et cetera, et cetera. And once these spreads start exploding higher, that means that we’re seeing people want to dump oil in the front month market because that’s more lucrative than keeping it in storage.

So if I’m an investor and I’m looking and I want to invest in a backwardated market, I’m looking at a convex market that goes from right to left, and I’m going to invest in, say, a back month, and I want my investment to move higher…

TN: I’m investing further in the future.

TS: Right. That’s what it backwards. If you’re in a contangable market, we’re looking at the opposite situation, where you’re looking at a convex structure going from right to left, whereas if I invest in December, by the time my investment reaches Frontline X free, I’m losing money. I’m losing value in my investment.

TN: Right.

TS: And so that’s how we kind of have to look at that situation.

TN: Yes. You had a great tweet this week explaining that with visuals.

TS: I did. It’s on Twitter, if anyone wants to see it.

TN: Exactly. We saw this in crude. We also saw it in a natural gas. Right?

TS: Yes. We’re kind of seeing a major pullback in many of the commodities markets. Right. We’re seeing a little bit of a bounce this week because we’re looking at China. China has recently announced we have one last announcement with $200 billion bond sale rate. So we’re looking at a lot of stimulus out of China that’s giving commodities the boost. Right now, we have to see I think the markets are still going to wait on, particularly the industrial and base medical markets are going to wait until we actually see some action in China to really see investment back into these markets after this huge goal.

TN: So nobody believes the China stimulus story right now. It’s kind of a show me the money period. Right. But once they do start to show the money, do you think we’ll see much more action in energy prices?

TS: I think you’ll see more action in metal prices than you will equity prices.

TN: Copper’s way off compared to, say, the last 18 months. But it’s not way off, given historical copper prices. If we go back before, say, Q1 of 2020, it’s kind of where it had been previously in the ballpark, at least. Right. So we haven’t necessarily reverted back to pre-COVID, necessarily. We’re just in the start-stop manufacturing world, and that’s what’s affecting base metals like copper. Is that fair to say?

TS: Oh, absolutely. If you look at, like, a monthly chart rather than looking at a five-minute chart, and the market has kind of just been consolidating, really, for the last two years, until we see a really big break above, say, $5, a really big break below $3, we’re still kind of in that consolidation zone.

TN: 3.50 to 4.50 kind of range. Interesting. Okay. Sorry, Albert.

AM: Yeah. I got a question for Tracy. Nat gas, as we’re talking, since we discussed it a little bit, that’s used to make hydrogen, if I’m not mistaken, and since the nat gas price seems to be elevated, isn’t that going to be a little bit too cost-ineffective to make hydrogen, which causes a diesel problem, if I’m not mistaken? I’m not sure about that. That’s what I’m asking.

TS: No, absolutely. I think that would be a problem. Looking forward. I think there’s a lot of problems if we’re looking at the hydrogen market. There’s still a lot of problems when we’re talking about taking this idea to actual fruition. Right. Because if you look at the hydrogen market, there’s like a rainbow of green hydrogen, blue hydrogen, this hydrogen, this hydrogen. But we really haven’t gotten to the point that can overtake, not gas the allure of the situation is that you can take hydrogen, mix it with nat gas, you can send it down the same pipeline, and that saves a lot of money.

AM: Yeah.

TS: The situation is this is not a great idea in theory, but we’re just not there yet.

TN: Okay, got you. Albert’s, question about diesel. Diesel is not any less tight than it was a week or two ago. Right? In fact, that’s just as tight or tighter than it was, say, a couple of weeks ago or a month ago.

TS: Yeah, I think the diesel market is still very tight.

TN: Right.

AM: Maintenance season starts, isn’t it? From September to November?

TS: Yes, we will start maintenance seasons.

TN: Okay.

TS: I would actually look for some of these refineries to maybe put off maintenance season. So that’s what I would watch to the maintenance season happen. And it’s happened before. If we have it such a tight market, we could see them putting off maintenance seasons. It’s not unheard of.

TN: Okay, so hurricane season and maintenance season are upon us, but we may see at least maintenance season for all of us.

TS: Oh, not I just moved to Florida.

TN: Good luck with that. I’m in Texas. We don’t get as many of you, but it’ll be a fun season for you.

Okay, let’s move on, guys, to some comments out of Putin this week. Vladimir Putin had some comments about us, the multipolar world becoming more and more of reality. We heard this ten years ago. We heard this 20 years ago, and it came up again this week. So, Albert, can you kind of let us know what’s going on there?

AM: Tony, I’ve used this multipolar example for the US. Dollar dominance I got for years now. And the fact of the matter is, we are not in a multipolar world. We are not even going into multipolar world.

People are confusing a little bit of weakness in the US. Leadership and errors and decision making, foreign policy for multipolars, it’s just a multipolarity, and it’s just not the case for the world to be in a multipolar scenario, you would need multiple countries with equal militaries and economies. We are nowhere near that.

The Russian economy is 2.5 trillion. The American economy is pushing 30 trillion. This is just a joke by Vladimir Putin. Simply undermine the US dominance both in the world stage and the dollar.

TN: Aside from some dumpster pundits who write for The Atlantic or whatever, who believes that nonsense?

AM: A lot of Europhiles that want to see the United States take a step down, they can do it. A lot of crypto guys, a lot of gold guys. These guys have to make that argument, because without multipolarity, you cannot have a neutral reserve asset to settle trade. And that’s just the fact of the matter.

The problem becomes, if you have a multipolar world, you’re on the verge of another world war, because there always has to be one alpha that takes hold of the system. You just can’t have equal people.

TN: And the cost of the transaction? Cost? The cost of trade, everything goes up. If you have multiple rights go up, everything goes up.

AM: It’s completely unstable.

TS: Inflation from other countries to other countries.

AM: Yeah.

TN: The world is built on China exporting deflation. Has been for 15, 20 years. And it will continue. If they could just keep their ports open, it will continue. And it makes people happy. Right.

AM: No, you’re right. That’s just the way our system works right now, with the dollar underpinning all of it. It’s the lifeblood that makes trade work. And people are not going to like it. But I promise you, no one alive today is going to see anything other.

TN: So let me just take a step back. Who does he think the polls are? Russia, China and the US? Or Germany or something?

AM: He’s trying to make an assumption to say that Russia and China are the new contenders to the United States. The problem with that is they don’t have military power projection globally like the United States does. They can’t even invade Ukraine. China can’t even invade Taiwan. Otherwise they would have taken it if they’ve it could have. This is the world we live.

TN: Yeah. Russia can stir up problems in Libya or the Middle East or whatever.

AM: There’s no question that they can stir up problems and they can fill in gap vacuums that we leave right, unintentionally, unintentionally. But they cannot hold that territory. They cannot force changes in governments like the United States did.

TN: And every time I hear somebody talk about the Belt and Road as a sign of China’s dominance, it reminds me of Napoleon’s march to Russia. Right? I mean, they’re spreading themselves so thin. They can’t keep that up.

AM: They can’t. That’s perfect example to do that, to make that thing actually successful, you need to back that up to secure your trade line, trade with the military. Right. China has like, what, two military bases outside of China? Like one in Djibouti and something else. I mean, they can’t send ships over to their armor.

TN: Myanmar.

AM: Yeah. This is beyond a joke to me. I don’t take anybody seriously that even brings this part up, right. Vladimir Putin included.

TN: That’s good. So anybody watching this, if you have an alternative view, let us know in the comments. Honestly, we’d love to hear it. We just want to hear some credible.

TS: Put your notes in the comments.

TN: Yes, absolutely. Okay. Now, finally today I woke up in the US to the really tragic news of Japan’s foreign Prime Minister Abe, being assassinated.

I saw Abe in his first stint as PM in the mid 2000s. And then when he came back in, in 2013, and with the Abenomics plan, which was really difficult to pull off, ultimately successfully. The guy was smart. He was all about Japan. He’s all about Japan recovering, all about Japan being competitive. I put a picture up of Abe shaking hands with Prime Minister Modi of India. Japan and India were very tight. A lot of Japanese investment going to India, a lot of partnership across those two countries and in Africa, both to defend against China in Asia and other parts of the world. So Prime Minister Abe will be missed.

I think what Abe did partly was bring back Japan’s ability to defend itself by passing a constitutional change that allowed the Japanese military to defend itself where previously it wasn’t even allowed to do that. So there’s a lot of dignity that Japan kind of got back, and we can rub Japan’s nose in World War II for eternity, but it’s not going to be constructive. What happened, happened. They’ve paid their dues, and that’s kind of what Abe said, look, we paid our dues, we’re going to move on now and join the 21st century. And that’s what Japan did.

So I’m just curious to get your thoughts, guys, on Japan post Abe. What do you see as of course they moved on to another prime minister. Japan has already moved on from the Abe government. He wasn’t a sitting prime minister. But what do you see kind of the challenges of Japan’s role in Asia particularly, but also in the world post Abe?

AM: I think the most pressing issue for Japan would be contending with China, both militarily and economically. Abe was, like you said, brilliant statesman and patriot for the Japanese people. So he’s going to be sorely missed. And it’s not just he’s going to be missed, but his cabinet and the people that his network is going to be missed because they’re losing a big part of what he brought to the table in terms of strategy and ideology. It was a big shift.

I think that the Japanese are probably going to struggle for strategy in the next five to ten years. And it’s a sad thing, but I’m sure the Japanese, they’re resilient people and they’ll move on and they’ll recover.

TN: Tracy?

TS: No, I absolutely agree with what Albert said. I think the thing is that people are painting him, the media right now, in particular the Western media, painting them with some villain, which is very interesting to me. And I think that people should really just look at his legacy and respect what he’s done instead of jumping on the bandwagon.

TN: So they’re portraying him as some ultra nationalist, but he’s as ultra nationalist as Modi as in India, or Jokowi is in Indonesia, or Lee is in Singapore, you name it. Tsai Ing-wen in Taiwan. It’s an Asian direction now. Right. And has been for the last ten to 15 years.

AM: Yeah. The media also, Tony, is desperate to not allow any center right or even right nationalist figures be murderers or looked up upon. They just can’t stomach it. They just can’t help themselves to demonize a person that is absolutely unjustifiably demonized by being called an ultra-nationalist and even worse, by the NPR.

NPR had two other headlines that they had to delete because it was just so atrocious. This is a.. And Modi, Abe, I don’t want to put Victor Orban into that, but all these right leaning leaders just get attacked and the media can’t help it.

TN: Right, yeah. I think from an economic plan, if we look at what Abe did with Abenomics, of course, the Japanese Central Bank is kind of “independent,” right. But they really took the JPY from kind of 76 to the dollar to, say, 120 to the dollar, and it really allowed Japanese manufacturing to be competitive again. Right.

And it took somebody with that clarity of economic vision, as well as the clarity of, say, the military vision and political vision, to be able to pull off what they did. And in terms of, say, energy sustainability under Abe, they also created much deeper relationships in the Middle East with places like Qatar, UAE.

TS: And they also looked forward to nuclear, where you looked at the west was looking to shut things down, Abe was looking to invest in nuclear projects. You’re looking for energy security, energy going forward. There are a lot of things that he did to advance that sector in Japan, which is admirable.

TN: Right. Albert if we take a US perspective on this? The US has worked hard to kind of hold a line against China. Do you think with the mediocre leadership we have in the US right now, do you think it’s possible that some of that US say coalition falls apart a little bit? Or do you think we just kind of take a breather and then it resumes based on the institutional stamina of parts of the Japanese government?

AM: That’s a great question, Tony. That’s actually a really good question. And I think where we have to look for we have to separate the Biden foreign policy cabinet with the Pentagon. Because the Pentagon is actually leading this charge for the Pacific with Japan and Australia in charge. I really don’t think that the Japanese are going to take a step back or the US is going to take a step back. I think the system is pretty much, the train has already left the station and it’s rolling.

There might be an argument from the opposition in Japan, but I don’t think. That it’s going to take hold to derail this new initiative by the US and the Pacific.

TN: Great, that’s good to hear. Okay, guys. Hey, on that somber note, we’ll end it, but let’s look at the week ahead. Guys, what are you looking for in the week ahead? We’ve had this real turnaround this week. What do you see going into next week? Do you see things calming a bit?

We saw it coming into Friday. Things really turn up in US markets and in commodity markets. Do we see things stabilizing a bit going into the Fed meeting after we’ve had some Fed comments late this week?

AM: I want to see the comments of where they might signal a 50 basis point rate hike versus a 75. I absolutely believe 75 points is coming just from the jobs data that they posted. It was obviously massaged a little bit.

TN: Just a little bit.

AM: Of course it is. Yeah, but this was a good one. And then the revision too, and it just seems to me that they want another 75 basis point rate hike.

TN: To really kill it?

AM: They got to tackle inflation. I mean, they’re looking at 8.8 on the next CPI, which is just.. And you’re staring on the barrel at 9% and 9.2 and 9.3 in the coming months, which is absolutely a political nuclear bomb that goes off.

TN: Okay, Tracy, what are you looking for in the next week especially in commodities?

TS: Yeah, I mean, I agree we probably will see 75 after non farm payroll this week, which I was looking for a clue kind of are we going to get 50, are we going to get 75? It looks like 75 for sure.

So looking in the coming weeks, I’m really looking to China right now and to see what comes to fruition with these sort of stimulus plans. What does that do to the base in industrial medals markets? And I think those are the two things that you should be focusing on right now, particularly if you’re invested in commodities markets.

TN: Very good. Okay. Yeah. I’m kind of hoping they give in to 50, but I’m not hopeful. I do think they’ll on the kind of conservative hawkish side and go 75. But if they can pick up the bat phone and talk to China, and the China guys will unload a dump truck of cash over the next week or so, then I think they’ll be a little bit lighter and do 50 basis points. But I think a lot of it depends on China ECB. They can’t get their act together, so there’s nothing ECB can do to really help.

And Europe is in so much trouble that it doesn’t really matter what they do. They have huge problems anyway. So. I think you’re right. And tell me what you think about this. But I don’t necessarily think we see massive chop. I think we see just a lot of fairly sideways moved for the next week or so.

AM: I would be wary if we jumped up to 4000 or even, like, 3970. I think a rug pull would be in an order right after that. That’s what they do. They bowl everybody up and then pull the rug out.

TN: Tracy?

TS: Yeah. After this big move down in the oil market, in particular, because we did have sort of a flow event coupled with a couple of large funds kind of workforce to liquidate. So I could see that we still could go a little bit higher next week. Sideways to higher next week.

TN: Very good. Okay, guys, be interesting to see. Thanks for joining us. Thanks very much. Have a great weekend. And have a great week ahead.

TN: Very good. Thank you, guys.

AM: I struggle with the headache through that whole thing.

Podcasts

More Cryptocurrency Firms in Danger

Post author By admin
Post date July 2, 2022

This podcast first appeared and was originally published at https://www.bbc.co.uk/sounds/play/w172ydpfbz0vnx1 on June 30, 2022.

As markets tumble, users are left unable to withdraw from some exchanges, and a leading hedge fund prepares to enter liquidation. Is crypto in terminal decline? Scott Chipolina, correspondent for the Financial Times, says investors are well used to challenging conditions.

Sri Lanka is among the countries to be worst hit by inflation, and living standards are falling. Joseph Stalin of the Ceylon Teachers’ Union, and Steve Hanke from Johns Hopkins University, tell us why a solution may be some way off.

It’s a host’s worst nightmare: an out-of-control party in your Airbnb. As the platform cracks down on gatherings, we hear the story of a rental gone wrong in the Bahamas.

Also on the programme, a boss at H&M explains why leaving Russia was a tough decision; and it’s happy 15th birthday to Apple’s iPhone.

We’re joined throughout Business Matters by financial consultant Jessica Khine in Malaysia, and economist Tony Nash in Texas.

Show Notes

BBC: Tony Nash, the CEO at the finance forecasting platform, complete intelligence in the US. State of Texas. How’s your day been, Tony?

TN: Great, thanks very much.

BBC: Good to hear. All right, well, thank you for joining us too. Tony Nash in Texas. I wonder what’s your overview of all this? I mean, it’s obviously bad news for crypto investors, but is it also a warning for other people who might have been entertaining the idea of getting into the crypto market?

TN: Yes, it is. The whole kind of crypto fallout that’s happening right now, it’s not the funds that I worry about. It’s the individual investors who have been investing in crypto that really worry me. And that’s the really kind of sad part of this crypto kind of drama is you have crypto assets that have fallen by 70%. People have put their savings and their hard earned money into crypto. And so I do worry about those guys because there are a lot of people, individuals who have lost a lot of money because they believed the narrative about crypto.

BBC: And I think during the pandemic, we saw a lot of people sitting at home starting to think, oh, maybe I’ll give this a go. They’re the most recent entrance into the market. I guess they’re the biggest losers.

TN: They are. So I did have a crypto journey where I invested in something called dogecoin, and I bought it at like four cents, and I ended up selling it at like 68 or $0.70, something like that. So it was just a small amount of money I didn’t want to put very much at risk, but I did, I wanted to understand what that was like, so I put like $50 into it or something like that and then just saw it go up to $70 or something and then sold it. But I think a lot of people thought that it would continue going up not just dogecoin, but a lot of the cryptos. So it’s not like your guest said, I don’t think this is the end of crypto. It is what they call crypto winter, and it’s probably going to last a couple of years. I don’t think we’re going to see crypto bouncing back immediately.

BBC: Presumably that experiment was enough for you. You’re not tempted to get back in, given the latest news?

TN: I don’t like volatility that much. At least with those assets, like your guests said, there’s nothing underlying those assets. There’s not a company, there’s not a physical commodity. There’s nothing underlying them. It’s just trust. And so I can sell sales in my excel workbook and have the same amount of assets underlying as any crypto asset does.

BBC: Listening to that in Texas, do you agree? Did governments like the US. Government make a mistake with all those support programs?

TN: I think they did, but I respect Steve. Thank you a lot. I follow him on twitter. I think they did make a mistake, but I honestly think that governments at the time were just afraid. I don’t think it was necessarily intentional that they overstimulated. I think they were not aware of what was going to happen around the corner, and I think they panicked. They were just afraid. It’s easy to look back from this point in time and say what they did was wrong and other stuff, but I actually think giving them the benefit of the doubt and saying they just panic, they were afraid and they didn’t want people to starve or suffer or lose jobs or whatever, and they stimulated way too much in hindsight.

BBC: Tony is this enforceable from Airbnb, do you think? Can they really stop people having parties? What if they just clean up really well the next day?

TN: Well, I think part of what happened through the pandemic is a lot of Airbnb hosts started charging exorbitant cleaning fees. And no matter how clean or dirty you left the place, the cleaning fee was applied to your Airbnb fee. I stay in Airbnb, or did stay in Airbnbs pretty regularly, but the cleaning fees became so large that I won’t stay in them anymore.

BBC: I didn’t realize the cleaning fee was at the prerogative of the host. I imagine it was like a blanket 10% or something.

TN: No, they’re huge. And so I have no issue with Airbnb enforcing a no party’s rule, but they really have to have a trade off and put a cap on the cleaning fee for Airbnb hosts because they in some cases are as much as the nightly rental.

BBC: Oh, wow.

TN: And these are things that you don’t see when you do a search in Airbnb and you see a nightly price, it does not include the cleaning fee. So if Airbnb is to put on this ban on parties, they really need to put some pressure on their hosts to reduce the cleaning fees.

BBC: It is a kind of fine line, though, isn’t it? I mean, I’ve had friends rent Airbnb and there’s been a few of us and there’s been drinking, but I guess what they’re talking about is when you invite strangers, or not necessarily strangers, but people who are not staying the night or booked in to stay, that’s when it becomes a party. Is that how they’re going to define it, do you think? Tony

TN: Yeah, I don’t know. If I’m staying in an Airbnb and I want to have some people over for dinner, is that a party if I want to cook for some friends and have them over? I don’t know. I think it could be, obviously loud music, drunk people, that sort of thing. Of course that’s a party, right? So they have to define it. I’m not a lawyer. I’m sure they can find a way to define it legally so that fees can be kept or whatever.

BBC: Tony you’re in Texas, not far from California. Have you heard of this issue before of land being seized from African American owners? I must admit it’s the first time I’ve heard of it.

TN: I’ve probably seen it in movies. I’ve seen it elsewhere. I think I’ve run across it, but I don’t remember it. But when I read this story today, it was great. It was great to hear and really interesting to dig into the story. And it was terrible that people had to suffer with that for 80 years.

BBC: It does say a lot, though, doesn’t it? If neither you nor I, you’re there in the States, have heard of this issue, I mean, from what Alison was saying, this wasn’t the only case. Has it been underreported, do you think?

TN: I don’t know. I don’t know how much property African Americans were allowed to hold before a certain point in time. I’m just not really sure. My family that settled in New Amsterdam when the Dutch still ruled America, had some property that was seized by the British in 1671. So it happened.

BBC: How did you find that out?

TN: We know our family history pretty well, but this was land in lower Manhattan, right around where Wall Street is, and so it was seized. These things happen. I’m not in any way trying to take away from the racial injustice that was done in California, not at all. But these things happen occasionally, and I’m just glad that these guys could get their land back and benefit from it eventually.

BBC: Tony, you’ve been looking at hmmm. We’ve been hearing there about its planned expansion into Latin America, but at the moment you’ve been looking at where their product is sourced. And we were just speaking about Myanmar. It’s Myanmar, sure.

TN: Yeah. Asian sources quite a lot in Myanmar. And part of the problem they’re facing is a lot of the manufacturers in Myanmar are being driven to insolvency because of energy prices. And so H and M doesn’t only have a problem generating revenue to replace Russia, but they do have a supply chain sustainability problem with matching the costs they can get in Myanmar, but also replacing that manufacturing pretty quickly as those manufacturers are driven to insolvency.

BBC: Tony, listening to that, how much has the iPhone changed your life, do you think?

TN: I have never owned an iPhone.

BBC: Smartphone. Do you own a smartphone?

TN: I do. Yeah. Of course I do.

BBC: So do you think iPhone opened the door to that?

TN: Of course it did. But I just never got into the Apple ecosystem. And I just haven’t owned an iPhone anti Apple. I just haven’t been I’m just waiting for it to get a little better. But of course, it’s influenced phones and it’s influenced the way we engage with technology. And it was a great product at the time. It was revolutionary. I remember I was using a Nokia phone at the time. Keep in mind, this is 2007, and you could play your music on that phone and have conversations, and I thought that was pretty cool. But that was before the iPhone came out. The navigation the interface. Everything just really changed the way people interact with phones. It’s great.

BBC: I think that’s all we have time for on this edition of business matters. Thank you so much to Tony in Texas and Jessica in Malaysia. And thanks to Joanna Stern from the Wall Street journal, who brought us up to date on iPhone’s 15th birthday as well. This has been business matters with me, Vivian Nunes. Thanks for listening. Bye.

Tags African, airbnb, American, Apple, BBC, bbc business matters, bbc podcast, bbc sounds, bbc world, bbc world service, California, Crypto, crypto currencies, Crypto currency, cryptocurrencies, cryptocurrency, Dutch, Myanmar, texas

Week Ahead

The Week Ahead – 04 Jul 2022: Metals Meltdown

Post author By admin
Post date July 2, 2022

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We’ve all seen many chops in the markets, especially on the energy side, with the fuel and oil shortages. That was a little bit unexpected to people. Equity markets are struggling and there are a lot of talks this week about recession and trying to move the Fed into being more accommodative, which is 180 degrees from where we were two weeks ago.

Copper is hurting and down 28% since March. What is this telling us about metals, generally, and drivers of metals demand? Is this telling us that China – the largest buyer of industrial metals – won’t really bounce back? Does the market doubt China’s stimulus announcements?

We also discussed Europe, its slowing economy, rising unemployment, and gas shortages.

Lastly, is the Fed anchoring inflation?

Key themes:

Metals Meltdown
How badly is Europe hurting?
Fed inflation anchors
What’s ahead for next week?

This is the 24th episode of The Week Ahead, where experts talk about the week that just happened and what will most likely happen in the coming week.

Follow The Week Ahead experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/SamuelRines
Albert: https://twitter.com/amlivemon/

Time Stamps

0:00 Start
1:45 Key themes for this episode
2:23 Metals meltdown – what are they telling us?
3:48 Will there be a comeback of automotive?
5:09 Does the market believe China’s promise of a stimulus?
7:25 How much is China’s manipulation be beneficial for China?
9:26 What about Japan?
12:00 Europe’s economy and inflation
15:21 Europe’s concentration risk on the sale side
19:42 Europe’s problems stem from this
20:32 Fed and anchoring inflation
25:50 What’s for the Week Ahead?

Listen to the podcast version on Spotify here:

Transcript

TN: Hi everybody, and welcome to The Week Ahead. I’m Tony Nash. Today we’re joined by Sam Rines and Albert Marko. Tracy is out for the long holiday weekend. Before we get started, please don’t forget to like and subscribe the video and please comment on the video. We look at them, we engage. We want to hear your feedback. Also, while you’re here, we have a promo for CI Futures. This is our markets forecasting tool. Our promotion is three months free on a twelve-month subscription. That promotion ends on July 7. So please take a look at it now and get our best promo ever.

So, key theme for this week. We’ve all seen the markets a lot of chop as we talked about. We saw a lot, especially on the energy side, kind of negative with the fuel shortages and oil shortages. I think that was probably a little bit unexpected to people. Equity markets are struggling and there’s a lot of talk this week about recession and trying to move the Fed into being more accommodative, which is 180 degrees from where we were two weeks ago. So a few things we’re talking about.

First is the metals meltdown. Second, Albert Marco, although he’s been in an undisclosed location, he has been in Europe. And we’re going to talk a little bit about how badly Europe is hurting right now. And then we’re going to look at inflation and how the Fed is potentially anchoring inflation.

So first, let’s look at the metals meltdown. If we look at copper. Copper has been a lot of buzz around copper over the last few days and copper is down 28% since March. But I think we could speak to metals more broadly. We’ve got the copper chart on the screen right now. So Albert, if you don’t mind, what are metals telling us generally about markets and the drivers of demand?

AM: Well, I mean, it’s pretty clear that the manufacturing sector across multiple industries is hurting at the moment and has taken a toll in the metals market. There just simply isn’t any demand for consumer products. There’s not going to be any demand for metals probably until the Chinese really start to stimulate.

It’s pretty clear. And then on top of that, they have pressure from the dollar that just keep on charging along trajectory to 110. So those things are really weighing on the metal market. I mean, copper specifically, like you mentioned, aluminum taken some hits just across the board.

TN: Right. So if we look at things like automotive, automotive is held up because of semiconductor supply chain issues which are working out, but automotive manufacturing slowed pretty dramatically. If we see, say, the chip issues get worked out for, say, automotive, do you expect to see more like a comeback of automotive, of car manufacturing, which will pull metal prices along?

AM: No, I don’t. And I don’t think that’s even going to be the case for the next 18 to 24 months. I mean, the auto sector is actually in a really bad shape, And it’s not specifically just because of the chips, like everyone assumes, but you have rubber shortages, you have polyurethane shortages, you have shortages across the board for the entire auto sector, for the manufacturing process. So until all of those supply chain issues get settled, there’s just no hope at the moment, which is interesting because there hasn’t been really any layoffs yet.

I know they’re artificially keeping these people on payroll and doing whatever they want to do with the shifts and manipulating that. But at some point and i’ve been arguing about this specifically the auto sector, there will be layoffs because of all this.

TN: Just for the people who don’t know. Albert is from Detroit, so he pays attention to the auto sector pretty closely, and he knows he has pretty close relationships there. So we’re talking to a man who really does kind of pay attention to what’s going on. Sam, as we see metals prices fall, we’re also seeing china become more aggressive in making statements about economic stimulus and other things. Are the metals prices right now telling us that the market doesn’t believe that china is going to put in the stimulus that they claim to be?

SR: I would say it’s a show me game with China. There’s been way too many people that have been burned way too badly, listening to the rhetoric and trying to get ahead of things on the ground, and then nothing actually happens, or they do something a little different than what they said they were going to do, and you end up with an investment profile that’s completely different.

I think that’s one of the big things to keep in mind is, yes, China is probably going to have to do something into or around the party congress this fall in terms of stimulus. They have to look at going into it. So there’s going to be some stimulus. The question is, what is it and when does it hit and what does it look like? Is it a tax cut? Because in that case, who cares, right?

It’s not going to be that big of a deal for picking up the manufacturing side in a meaningful manner. Is it going to be reopening? Right. Because if they’re sending out checks but not reopening, that’s not going to allow their manufacturing sector to get back to work, which is going to Albert’s point, going to continue to clog the supply chains for autos and auto manufacturing significantly, whether you’re us. Based manufacturer or your South Korean manufacturer, et cetera.

This is a longer term problem where I think you’re not necessarily going to have the pop and metals until people actually see the real data from either Australia or the us. Or even in Mexico. But that’s a significant amount of the auto sector assembly. You’re going to actually have to see the data before people.

TN: Right. And so what I hear about metals in China and I’ve mentioned this before, but what I’m told by people, especially in the copper sector, is that the warehouses in China are actually full, although we’re told that they’re not. They are. And words that warehouses empty out from time to time is simply to manipulate the market up. But there’s ample, say, copper and other industrial metals in warehouses in China, given the demand that the world has.

AM: Let me ask you both little question here. How much is China’s manipulation of their stimulus on and off due to them trying to force the Fed into lowering the rate hikes or putting them into a position where it’s beneficial for China overall?

TN: Sam, what do you think?

SR: I would say they definitely have a calculus instead of the ECB, instead of a certain extent the BOJ when they.. they all have to take that into account and they all have to either front run or attempt to talk their markets one way or the other. That’s why I’m saying it’s definitely part of the calculus. I don’t know how much of the fiscal side is directly related to counteracting with that and how much is directly related to keeping the people happy. I would say those are the two primary catalysts.

TN: Yeah, I think that’s right. I think any Chinese stimulus that’s going to be effective in the short term has to be cash in, say, local government accounts, people’s accounts, company’s accounts. As Sam said, that tax cuts not going to cut it, indirect payments are not going to cut it. Announcing a new rail stimulus, which they do every other year, is not going to cut it. They actually have to just churn cash out in markets. But with the US dollar and rates, I think they’re really careful right now about how quickly they devalue CNY. And I think that is one of the things that they’re being careful of. They don’t want to devalue it too quickly because Chinese exports have surged over the past six weeks. And so if they can continue to make money at the rate they have, they’ll put off the DeVal as long as they have to. But if the dollar continues to appreciate, they may have to accelerate the evaluation and they’re in a tough spot. China is not the all seeing, all knowing planner that many people think, well.

AM: Part two of that would be what about Japan? Because they devalued the Yen and they’re kind of combating whatever China is trying to try and propose and stimulus. So how does that all come into the equation?

SR: And I’ll just pop out that one of the interesting pieces to kind of throw into the puzzle is not copper sending one signal that China is maybe not going to stimulate, et cetera. But you look at Chinese Equities X, the state owned entities, and guess what? You had a plus almost 7% second quarter for those equities. So the market is sniffing something out there. There might be a little bit of a hedge of, well, if you’re not going to build a bunch of stuff, you might hand out checks, like you said. And if you hand out check, it’s going to benefit the Internet and Chinese tech companies more than it’s going to benefit the metals industry.

TN: Right. And if they want to stimulate the top echelon of Chinese society, they could just goose equities and focus on a trickle down theory, which is very anticommunist, but it’s something that they can do pretty quickly. They did it in 2015, they’ve done it at other times, and they can do that. But going back to your Japan question, Albert, it’s an interesting one because China is such a supply chain risk going forward, the uncertainty there, that Japan is selling itself as a secure alternative to China. And that’s why one of the reasons why they’re devaluing so strongly is so that it’s just a no brainer to get stuff done in Japan. Right?

AM: Yeah, of course. That’s a great explanation. It’s very concise and simplistic, and I had known this, but I wanted you guys to explain this to the viewers because it’s a critical thing that most people don’t really take into account. They always see China. China. And they ignore Japan and South Korea.

TN: Yeah, Japan and South Korea have been devaluing. It’s more depreciating than devaluing. I know there’s a nerdy difference between those two, but they’ve been pushing depreciation because they wanted to be seen as a safe alternative to China. But then you also look at Southeast Asia, places like Vietnam, other places, things in Vietnam, all those exports are done in dollars, not in dong, so they can’t really play the currency card to do values.

SR: It’s also worth remembering that Japan exports a lot of machinery to China, and so if they don’t, if they strengthen their currency while China is devaluing, that puts them in there.

TN: That’s right. Great questions, Albert. Thank you for that. Okay, let’s move on to Europe. Albert, so you’ve been there. Let’s start by looking at inflation. So we’ve got on the screen right now a comparison of inflation rates in, say, the US. Europe and China. And PPI, especially in Europe, is blistering hot. It’s 40%. And CPI, of course, is accelerated as well. It’s ten plus percent, if you believe that. I think it’s higher than that. But as you’ve been there, can you walk through some of your observations of what’s happening in Europe right now and how it’s affecting companies and the way people spend and so on?

AM: Well, from the bottom up, for the general public, that’s just pure desperation. The media just doesn’t want to cover it because it’s just bad news for every single political party out there. Inflation is running rampant. Food, it’s running rampant. And every single product they have, they’re used to high gas prices to begin with, but like the United States, there’s a certain amount where the strain is just too much for families.

I believe the UK. One out of four people were skipping meals because of food inflation prices. One out of four? That’s stunning. And that will have long term health effects down the road. But we’re talking about the year now. Europe’s manufacturing sector is an absolute shambles. Their export engine into China is just nonexistent. They haven’t built out any overseas networks into Africa or other emerging markets to be able to compete. They have no military to sit there and actually push the trade issues their way. They’re secondary. Not secondary. They’re behind Russia and China in that aspect, not to Mention The United States. So, I mean, I complain about the auto sector in the United States. The manufacturing and the auto sector in Germany is absolutely dead.

TN: Okay, I want to pull that Apart a little bit. Okay, so the manufacturing in Germany is dead or dying, largely because of concentration risk in Russian gas as a feed fuel, right, for electricity.

AM: The energy prices have skyrocketed. Corporations And Private businesses are struggling to keep up with margins to cover their costs. And the governments are just like. They’re just making things worse in Germany, I believe they’re handing out money to every single person, refugee or youth person, that think that will vote for them in the future. That makes inflation worse. I can go down the list of different things that they’re doing an error, but I don’t see how Europe pulls out of this specifically in the fall and going into 2023. I mean, their gas shortages are such a problem here right now that I can’t even fathom what the problems are going to be in Germany and Italy and France going forward.

Actually, in Germany and Austria, they’re running out of wood to heat their homes because people are stockpiling that already, and this is July. So I mean, there’s going to be some serious repercussions of Europe. And this is why I targeted Europe to be a problem, possibly for financial crisis and contagion leading back into the United States. It’s just a big problem across the board.

TN: That PPI chart is just so stunning. Now we talk about concentration risk on the supply side. Let’s look at concentration risk on the sales side. Right. Europe has really over concentrated a lot of its sales requirements in China. China has been the market for a lot of European companies. Right. And outsource manufacturing. So they’re as concentrated in China or more concentrated in China than many US companies are, first of all.

AM: By far.

TN: And they’re more dependent on China as a sales market in many cases, than many US companies are, right?

AM: Yeah. This is the problem that I’ve had with Germany specifically. I want to pick on Germany because they are economic. That’s just the fact of the matter. But the Germans, they go out and they see China as a huge market, and they start pushing out their high tech trains and their windmill technology and so on and so forth. Well, the Chinese, all they did was order that stuff, buy it, piece it apart, copy it, and then they sell that to the Africans for one fourth of the cost of the Germans could possibly sell it to the Africans.

So not only is Germany losing out long term with Chinese trade in the market, because that’s stagnating, but now they have no chance to go into the African market because it’s flooded with Chinese parts.

TN: Sure.

AM: They made such critical errors for the years, and they were just so drunk on cheap money out of China that now for the next decade or two, they’re going to have problems.

TN: Yeah, but my overarching points are that Europe is over concentrated on the energy side with Russia, and they’re over concentrated on the manufacturing and then market side with China. And aside from that, they’re kind of out of bullets. They don’t have a lot. And I think that is a lot of the basis for the reason we’re seeing PPI just explode in Europe.

AM: Yes, of course. The only country that even has the only country… The French are smart. I don’t want to hear anything from the Americans be like, Oh, the French are weak and put up the white flag on the Eiffel Tower, whatever these jokes are. But the French have nuclear power and they have food security for their entire nation.

Two of the biggest problems right now in Europe, France has a grasp on. The rest of Europe is total chaos. But those two issues in France are absolutely secure, and the French are smart and they’re looking for long term gains to push the Germans out of the way and take over the EU, and that will actually end up happening. But in the near term, inflation is almost worse there than it is here. Their housing market is mainly cash based, so it’s not as bad of a bubble, but everything else.

TN: So you don’t see much let up in Europe for the rest of 22. You think it continues to be pretty dire in Europe for the rest of 22?

AM: Oh, absolutely. I think the only reason that it’s even somewhat stable at the moment is the tour season has kicked up, and then that’s created other problems where you’re going to cancel flights and overbooked hotels.

TN: Right. Sam, do you have a similar view on Europe at least for the remainder of the year? It continues to be really difficult for the remainder of the year.

SR: Oh, yeah. And the only other place that I would point out is Italy. I mean, Italy is in a pretty rough spot here too. Even with Mario Draghi at the helm, they’re still in a pretty tight spot, and part of it is natural gas and pretty tight there. But the other part is that when it took Legarde about 35 seconds of saying, we’re going to tighten up a little bit here, from negative rates to maybe zero to almost blow up the bond market in the BBB market, it was insane what was going on, and it was a very small move, and you still had yields blow out across the Italian government deck. It’s one of those situations where things move very quickly, things break very quickly, and it doesn’t have a whole lot of bullets in the site.

TN: It’s not like they can go to their version of the permian and drill again. Just to bring this back to something really basic. A lot of Europe’s problem stems from the fact that it has a very old population. So they don’t have young, productive people to keep up with the commitments to very old people in very simple sense. Does that make sense? Is that right?

AM: Oh, absolutely. Looking at just the Italian demographic, all those young Italian guys have bolted for the UK, London, and New York and Miami. They’re gone.

TN: So until they either have a lot of babies, automate, or have a lot of new immigrants, Europe continues to have the same issue?

AM: 100%.

TN: Okay, good.

SR: Demographics don’t change quickly.

TN: No, they don’t.

SR: It’s about 18 years.

TN: That’s right. Okay, so let’s move on to the Fed and inflation anchoring. Sam, you had a great piece in your newsletter, which I’ve referenced many times, and people always ask me how they get their hands on it. So it’s one of the most exclusive newsletters you can get in America. But you had a great piece on Fed Anchoring. Now, I put a chart up on five year inflation expectations. The only reason I put this up is because they really peaked back in late February. Okay? And after that, the five year inflation has really broken down a lot, almost to normal ranges. Okay. So I know you’re looking shorter term, but can you walk us through a little bit about the Fed Anchoring inflation and what you expect? Kind of the near term impact?

SR: Sure. So kind of the point of what I was trying to get across. There’s really two things that you needed anchored for markets to begin to find some footing in the US. At least. And that was you needed to have inflation expectations begin to become anchored. And I think we’ve seen that. Right. You see that chart and it peaked in March, give or take, and has fallen back towards call it normal ranges, if not slightly below what you would expect in this type of environment. That makes sense, right?

In five years, we’re not going to have this type of solution. I’ll be willing to accept that no problem unless we have another flare up somewhere. But I think that’s a fairly reasonable thing to do. But also you have to have the expectations for the Fed anchored as well, because you had two unanchorings that were really happening side by side that was highly problematic for markets.

One, you had inflation unanchoring very quickly, and that’s problematic for markets generally. But you also have the Fed expectations becoming unanchored, and the market was pushing, pushing, pushing for whatever it could get in terms of hikes. Right. It was 75-75-50-50-50. Adding an item to somewhere around four and a quarter percent at the peak. And as of today, you’re back to having the terminal rates or where the Fed raises interest rates to happen by December of this year, and it’s 3.25% 3.5%, and then it cuts next year, is the expectation.

So you’ve begun to have, call it a pricing that’s similar to 1994 hike and then cut style of Fed. That is pretty interesting. That’s a pretty anchored expectation for the Fed. It’s a reasonable expectation of the towards neutral. You’re probably somewhat towards real rates at that point being somewhat positive just because you have inflation of about 3.2 and you have a Fed funds rate a little bit above that. nThat’s why I think that’s a fairly reasonable place for it on the inflation expectations front, that’s largely specifically going to call it close in inflation expectations under a year.

Those are largely call it oil and gasolated and groceries.

TN: Very much energy.

SR: Yeah, this is US. This is not Europe. But as long as in the US, you don’t continue to have those rise in a dramatic fashion, people tend to stop extrapolating. Those forward in their inflation expectations either stabilized or declined back to what they call it normality. And that normality would be somewhere between two and a half and two so that we could spot.

TN: So if gas prices, gasoline prices in the US stopped at, say, 490 or whatever they’re selling at now as a national average, let’s say we plateaued there for three or four months, people would adjust and it would be livable?

SR: It would be livable, yeah, it would be livable. So long as the not accelerating higher.

TN: As long as what, sorry?

SR: As long as they’re not accelerating higher.

AM: Yeah, Sam is right. The risk is as long as they stabilize, I completely agree with Sam. We have one hurricane in the Gulf of Mexico. We have a problem, like a real problem, looking at like $5.50 to $6 gas, and then inflation becomes absolutely just insane.

Going back to the inflation number that they printed out last time, they’re using this ridiculous 5% for housing and shelter and the CPI equation. It’s a little bit hard for me to swallow, but if they can do some kind of magic and keep inflation somewhat steady over the next few months I agree with Sam.

TN: It’s kind of a short at that point.

SR: The interesting part about that is you create an interesting duality in calling risk markets, where the US risk market looks very attractive. If you’ve peaked on Fed pricing, if you peaked on the PE killing. PEs are down 35% year over year. That’s a bigger drop than we’ve seen for several corrections.

You can have a really interesting US risk market going into the back half of the year across markets. The curve, on the other hand, that could be two spends to get very interested very quickly.

TN: Very good. Okay, good guys. What are we looking for for the week ahead? We’ve got a holiday here on Monday. We’ve started to see, say, gasoline prices perk back up in markets on Friday. Are we going to start to see potentially in the near term gas prices rise post July 4?

AM: I think so. One of the things that’s not being said, I don’t think we touched upon, I think last time we did, but the Saudis come in with lower than expected barrels per day, lower capacity, and this must have been stemmed from McCrone and Biden trying to price cap them. Come on, you do that to us, we’re going to do this to you. It’s a game at this point. And the Russians are certainly pulling strings of the Saudis and the Iranians to make this a little bit more chaotic for the US. So I think gas does go does start to trend a little bit higher over the next two weeks.

You’re certainly going to hear noise from people with July 4 prices for barbecues coming up. So that’s going to be all over the news.

TN: Okay, interesting. Sam, what are you looking for during the week ahead?

SR: To build on what Albert was talking about? I think it’s really interesting that spare capacity from OPEC just doesn’t appear to be there whatsoever. But at the same time, you’re also probably going to have at least somewhat of a call, a permanent impairment of Russian oil fields if you continue to have sanctions, that puts a floor long term in global energy prices, period. And if you don’t have US service firms keeping those fields going, we’ve seen what happens when you send Chinese and Russian oil services firms to Venezuela just before you destroy the oil industry.

So look forward to that. On the other side, I’m really looking forward to the conversations that a bunch of millennials have to have with their parents, the crypto markets this July 4.

TN: You are a millennial.

SR: But I am looking forward to some glorious Twitter cons that Tuesday.

TN: Fantastic. Okay, guys, thanks very much. Have a great holiday weekend and have a great weekend.

AM: Thanks, Tony.

SR: Thanks, Tony.

Tags Africa, Africans, Australia, AUstria, boj, China, Chinese, CI Futiures, cny, complete intelligence, Copper, cpi, Detroit, ecb, equity markets, Europe, Fed, germany, Japan, Legarde, Mexico, south korea, tony nash, US, Vietnam

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