Month: April 2024

This podcast was originally published by BFM 89.9 The Business Station. Find it here: https://www.bfm.my/podcast/morning-run/market-watch/magnificent-seven-us-fed-cpi

Guest speaker Tony Nash, CEO of Complete Intelligence, offers his insights on the market trends, particularly focusing on the impact of interest rates on sectors like banking, real estate, and construction. He discusses the potential outcomes of the earnings season, emphasizing the significance of passive investments in shaping market movements, especially in tech sectors and commodities like oil and gold.

Nash also touches upon the implications of decelerating inflation in the US on Asian markets, pointing out the role of international trade in influencing inflation rates. He underscores the importance of understanding market dynamics beyond mere forecasts, highlighting the interplay between global demand, asset valuation, and inflation expectations in shaping market outcomes.

The podcast emphasizes the resilience of markets amidst various uncertainties, showcasing the complexities of factors like interest rates, earnings reports, and commodity prices. The discussion sheds light on the nuanced relationship between market trends, economic indicators, and geopolitical dynamics, offering a comprehensive overview of the current market landscape.

Transcript

BFM

This is a podcast from BFM 89.9, The Business Station. Bfm 89.9. It’s 07:06. It’s Friday, the 12th of April, and you’re listening to The Morning Run. And in front of me is Philip Sea. I got your name right this time. And I’m Wong Shauwning. Do I get a medal? In about 30 minutes, we’ll take a look at the performance of the Asian Pacific Aviation Sector. But let’s recap how global markets closed yesterday.

BFM

Tell you who deserves a medal, US markets, because They are on a tear this year. The DAO was flat, but the S&P 500 up 0.7 %, and the Nasdaq up 1.7 %. Over across in Asia, the Nikkei was down 0.4 %, Hangseng down 0.3%, Cheungai Composite up 0.2%, Singapore’s STI down 0.3%. Back home, FBM, KLCI, DC also deserves a medal. It was closed for the Raya holiday, closed on Wednesday at 1,553, down 0.6%..

BFM

Okay, but still up 6.8% on a year-to-date basis, so a little bit of cheer there. For some insights on where international markets are heading, we speak to Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Always good to speak to you. Tony, please tell me what is happening in US markets because PPI numbers, US producer price increased in March from a year earlier by the most in 11 months, but yet markets rallied. What’s What’s happening?

Tony

Yeah, I think from the quant trading perspective, the PPI looked muted. And part of the reason was energy costs looked like they fell, which is not what we’re seeing on the ground in the US. So some of these government data, when they come out, the algos trade these based on the data that come out, but the actual data on the ground is different. So what we’re seeing is algos trading because they believe other algos will be trading. You have to look at today as one of those potentially strange trading days. Friday in the US, we’ll start to really understand what people see through the PPI data. Obviously, we saw CPI come out on Wednesday in the US, and it was elevated compared to what people thought. It’s possible that we see inflation peaking, but the real question there is, how many rate rises will there be? Expectations are now down to one or two, where it was something like five just two months ago. It’s puzzling when we see, like today, we see tech rally, tech shares rally, when the interest rate cuts are being put further off, and there are fewer. So markets are a little bit out of balance right now, and we’ll only know in the next few sessions where things really start to settle.

BFM

In the meantime, US earnings season starts in full swing. Friday your time. I think we’ve got J. P. Morgan, we’ve got Wells Fargo, we’ve got Citigroup reporting their numbers. How do you think results will be this quarter?

Tony

Yeah, I think with trading being active and with interest rates rising, that leaves more than an interest margin for banks. So I think banks will report well. I don’t think there’s been a huge rise in bad debt. There’s definitely been a rise in bad debt, but it hasn’t been huge. Banks will probably report fairly well. The larger banks, the regional banks, they’re still having trouble. With the removal of the Treasury program to fund those regional banks, they’re going to have difficulty for the next few quarters.

BFM

Well, talking about then the sensitivity to interest rates, I wonder what’s your take on sectors like real estate and construction, where they were hoping for perhaps some relief there, but that might not eventually happen now, Well, yeah, it’ll take a while.

Tony

The problem is these are sectors that got used to low interest rates, abnormally low interest rates. We’re actually in a more normal interest rate environment. In the US, you have things like housing, which is largely undersupplied. You have commercial real estate, which is oversupplied. The commercial side is facing serious headwinds, probably for years. The residential side will see strength for years. So it’s a little bit mixed, but with interest rates not coming down at the rate that people had hoped a few months ago, it’s going to present a challenging environment.

BFM

And, Tony, looking at earnings specifically, according to Bloomberg Intelligence, the Magnificent Seven, the likes of Apple, Microsoft, Alphab, Amazon, NVIDIA, Meta, and then finally, Tesla, apparently are on course to rise 38 8 %. These are profits in the first quarter. What happens if it doesn’t? Does it mean that there will be sharp corrections in the magnificent seven, which will in turn bring down the overall broader market?

Tony

Well, it depends on a number of things. Yes, it would definitely turn things around, but the magnitude really depends on the passive income investment. So ETFs, say technology ETFs and other ETFs that people are invested in, those are passive instruments. And so people don’t necessarily have to pay attention to say NVIDIA every day when they’re investing in a passive instrument. But when people start to see their technology returns declining, they’ll rotate into other sector ETFs. We can’t underestimate the power of those ETFs, which are fairly passive. That’s actually more powerful than individual stock buys and sells.

BFM

Can we just have your perspective on commodities, particularly oil? I mean, it’s up around 17% this year. Just now you were already mentioning that the algos are not reflecting that accurately. What’s your take and prognosis on the future? If all continues to rise, what’s the broader implications to the global economy then?

Tony

If oil continues to rise, I saw somebody put forward a potential oil price of $1,000 a barrel a a few days ago. When we get to the point of the cycle where people are putting forward those types of ridiculous forecasts, we know we’re getting, I feel like we’re getting toward the end of that. We’re not there now, but it’s the beginning of the end when we start to see these ridiculous forecasts. If you remember in, say, 2020 when Crude was, obviously it went negative one day, but generally in the ’20s or ’30s, Citibank came out and said it would be at $10 when it trading, say, in the ’30s. So you know things are getting toward the end of that, either high or low cycle, when we start to see these extreme forecasts. So do I think we’re going to see $1,000 oil? No. I actually believe it’s going to trade sideways to slightly down for the next few months based on what we’re forecasting a complete intelligence. And we’ve been pretty right for the last year or so. So I’m not expecting to see, say, $130 a barrel of or something. I think we’re in the zone for the next few months.

BFM

But, Tony, we have seen a lot of other commodities, hard commodities, actually, Raleigh, Beat, Copper, Iron. Are those all indications of global demand improving, or is it just basically money chasing assets that hadn’t gone up so much?

Tony

Yeah, well, you see things like gold. You’ve seen the pop in gold because people are afraid that inflation is going to continue to to accelerate, which we’re seeing inflation rise, but it’s not necessarily accelerating. You see copper popping because people believe that that’s an extension of the AI boom and so on. So I think to some extent People are seeing what they want in markets, and that’s great. That’s how markets work. People come up with a hypothesis. But if inflation doesn’t continue to grow at a very rapid rate, we’re going to see gold slow pretty quickly. If things like, say, NVIDIA and other chips, Intel just came out with a competitive chip yesterday. If we start to see some of those AI names mute, we’ll also see copper mute a little bit. Some of these are self-fulfilling hypotheses, and those things will tail off as that hype declines.

BFM

Which then begs the question, I think what you’re saying is inflation is decelerating, right? It’s just not moving in the fast pace. What does decelerating inflation the US mean for Asian markets then?

Tony

Yeah, that’s a great question. I think, well, if we look at China, for example, there was an issue a few days ago where Janet Yellen was in China and scolding the Chinese about exporting Chinese electric vehicles at below cost or something. Now, for the US and Europe, and Southeast Asia for that matter, China exporting deflation is helpful for consumers. So that helps reduce inflation in the US. And the US benefited from China exporting deflation for 20 some years. So it could potentially bring down the cost of EVs, EV components, and so on, if China is incentivized to subsidize those goods and export them at below their cost. I’m not necessarily saying that’s the right policy move or the wrong policy move. I’m just saying the The reality of trade in markets is that international trade helps to bring down inflation. And if we see China and other places with a devalued Japanese Yen, we see Japanese products coming to market at much lower prices with a devalued JPY. Why? So these sorts of things help out consumers in the US, where we’re seeing persistent inflation, helps those consumers out over time.

BFM

All right. Thank you very much for your time. That was Tony Nash, CEO of Complete Intelligence giving us his views on markets, saying that, oh, looks like gold is ripe for a correction. And results, he didn’t pay attention to that, although he doesn’t think that even if the Magnificent Seven disappoint, there might be a correction across the board because there’s just so much passive money in those seven names.

BFM

Yeah, he’s, I think, emphasizing the resilience of the markets, right? I mean, he’s saying, look, the bank earnings are going to be projected quite good. As you said, there’s still quite a lot of flood, cash, flood, flood, Floating around.

BFM

Yes, flushed. We’re just flushed. Flushed with cash. I personally know, but markets are.

BFM

I think all of us in the studio are not necessarily flushed with cash. So I think that’s interesting. The interesting thing also is about oil, I think, where there are all these outlandish forecast there, but it’s not about- Thousand.

BFM

I was like, Is that for real?

BFM

Yeah, but it’s not the actual forecast that matters, but it’s the trigger, what it means, right? That actually you’re near the specific cycle there.

BFM

Yeah, because all is one of those things. When prices go up, there is natural demand destruction. So there seems to be a ceiling. The ceiling can shift a little bit depending on geo-politics, global economy, but it doesn’t shift that much. You have been listening to a podcast from BFM 89.9, The Business Station. For more stories of the same kind, download the BFM app.