This podcast is originally published at https://www.bfm.my/podcast/morning-run/market-watch/fomc-minutes-hint-at-50bps-hike
Transcript
BFM
This is a podcast from BFM 89 Nine. The business station BFM 89.9. It’s seven seven thursday the 18 August. And of course, you’re listening to the Morning Run together with Keith Kam and I’m Wong Shou Ning. Now. In about 30 minutes, we’ll be speaking to our own pie from Mong’s Hill Ventures on the Asian carbon market outlook, or the lack of one. But let’s recap how global markets closed yesterday.
BFM
Wasn’t such a good day for Wall Street. It ended a five day winning streak with the Dow down 0.5%. The SNP 500 down 0.7%. Net site was down 1.3%. All these follow the release of retail data and the Fed July meeting minutes earlier today. Asian markets, it was a bit mixed. Nikkei was up 1.2%. Hong Kong’s Hang Seng and Shanghai’s Composite were up 0.5%. Singapore’s STI was up 0.3%. Back home, the FBM KLCI was marginally lower, 0.4% down.
BFM
So for where markets are heading, we have on the line with this Tony Nash CEO of Complete intelligence. Good morning, Tony. Now, US stocks did dip last night, but we are still far higher than what we saw in June. Earning season show that four out of five companies are either meeting or beating street expectations. But does that matter? Or is the Fed still dictating market direction.
TN
Dynamics first is we’re in the last weeks of thinly traded summer equities in the States and Europe. And so you are seeing movement on not a lot of volume. So that’s one thing we really need to consider. The other is, yes, companies have reported fairly well, but the Fed really is what people are thinking about. And the Fed, if you want to know what’s in the Fed’s mind, they’ve really been looking at the University of Michigan survey quite a lot lately, which is kind of a mainstream economic item, but it’s a little bit obscure. But there’s some conflicting data there.
So if you look at the Michigan survey, they survey current financial condition of consumers and it’s as bad now as it was in, say, 2009. So the current financial condition for consumers is not great. And then when you look at inflation uncertainty, which is also what consumers look at or the University of Michigan looks at, is very high. It’s the highest it’s been since the 1980s. So the Fed is looking at those gauges and if you looked at the Fed notes that came out today, they were a little bit dovish.
They were leaning dovish, I’ll say I won’t say they were dovish, but they were leaning more dovish than people thought. So I think traders are looking more to the Fed their September meeting, what their intentions are, rather than any specific earnings call, although Walmart was a good call, and we’ll talk about that in a second, but there are some earnings that are coming through that are helping some portions of markets.
BFM
So, Tony, are you expecting a 75 basis point hike or maybe a 50 basis point hike because swaps now are indicating or at least increasing odds of that half point hike next month.
TN
I’m leaning towards a half point hike because we are seeing things slow down. I don’t necessarily think we’re going to be in a recession that’s at the depth that people are fearing. But consumers are laden down with worries, businesses are cutting staff and so on and so forth. So I think the Fed is likely going to slow down the rate of rise of rates,.
BFM
Meanwhile, all prices have come under pressure in last few days. Is it more due to demand destruction or increasing supply coming on stream and what sort of impact do you see going forward at least in the short term?
TN
It’s both actually. There has been demand destruction and people have slowed down some of their purchases because of demand destruction. But the SPR release in the US has really provided supply that has curbed some prices. And so if you look at year on year, US. Imports of crude are down 1.7 million barrels per day and US exports are up 1.5 million barrels per day. So that’s a gap of 3.2 million barrels a day that has been added to the market. So we’ll likely see crude trade in a range or the price will be capped until that SPR release stops, which is the end of October, which is coincidentally just before midterm elections here in the US.
BFM
Okay Tony, let’s go back to the conversation early. So it was kind of mentioned which is consumer. So consumer stocks like Walmart and Home Depot reported better than expected profits. But on the flip side, Target numbers weren’t so positive. So help us make sense of this. I mean where is the consumer, US consumer? How do they feel? How are they doing?
TN
Yeah, I think a big part of that is expectations. So Walmart’s Q2 earnings, or the ones they came out with three months ago, they were really negative. They had overbought. They had overbought because of supply chain issues and a lot of other issues. Walmart has since laid off a bunch of headquarters staff, really cleaned up their supply chain issues. And so their report yesterday or two days ago was fantastic. Target’s report yesterday on a relative basis was pretty terrible because Target didn’t prepare markets as negatively three months ago. So markets were still relatively optimistic on Target. And then this morning it opened, I don’t know, 6% down or something and it recovered a lot of that loss but markets were relatively negative.
What’s interesting to note on retailers is this: retailers are pushing price hikes across to consumers. So you’ll see say a 10% rise in revenues or something on quarter for example, but only a 1% rise in volumes. So what that translates to is retailers are passing along price hikes to consumers. So for those retailers who have the power to pass along price hikes, they will do well. Those who can’t pass along price hikes, they will have a really hard time.
BFM
And then the tech heavy Nasdaq has jumped 23% from June’s lows, perhaps driven by cheaper valuations and optimism that growth is back in fashion with inflation in check. Are you like the street, which believes the story except for Intel, which is still underwater?
TN
Well, I wish growth was back in vogue. I mean, we can look at everything from, say, VC to Meta to see that there’s still a lot of skepticism around growth in tech and chip firms like, say, Micron, which are still way down compared to a few months ago. So Meta, as I mentioned, Meta is still underwater from June, and it’s trading about half the level it did a year ago. Amazon is up 40% from its June lows, which is huge, but it’s still down from a year ago.
Although things are in a relatively better place than they were a few months ago, they’re still down on year, and that’s really hurting. A number of the tech. Valuations still seem stretched. I think some things really need to play through the economy. And if you look, for example, at ad space with, say, Netflix soon to be offering ad based business model and a number of other kind of ad supply coming on the market, a lot of the tech plays like Meta and Twitter and other guys who are ad based models. They will have headwinds as they try to raise if they try to raise their revenue guidance.
BFM
All right, thank you for your time. That was Tony Nash, CEO of Complete Intelligence, warning us that growth may not still be invoked at the moment and that he’s expecting a 50 bps hike at the next FOMC meeting, actually, as opposed to 75 basis points because it looks like the US. Economy is beginning to slow.
BFM
Well, the Feds did say that they’re still committed to raising interest rates because, well, let’s face it 8.5%.
In a distance, big, far off distance by talking about us without cisco, which is actually the biggest maker of machines that run the Internet, did have a pretty good set of results for fourth quarter, and it beat street expectations and provided better than expected forecast for the coming year. Earnings were at $83 per share. Net income decreased, however, by 6% to $2.8 billion.
And revenue was at $13.1 billion, which was slightly higher than what analysts had been expecting. Cisco’s numbers generally topped estimates the company is still struggling to grow. The tech world is rapidly shifting to cloud and subscription software and away from buying physical boxes, which is what Cisco is known for. Right now, Cisco stock price is down 24% this year.
Yeah, but if you look at the street, right, I think that’s reflecting why the share price hasn’t done well. It’s somewhat mixed 14 buys, 16 holes, one sell. Consensus target price for the stock, $52.91. Close at 05:00 P.m. In us at 46.66. Now, something that we mentioned just a few seconds ago, it’s Target. Now, they released their second quarter results. Profits fell nearly 90% from a year ago. But I get the sense that the market is all about expectations, right? So if you guide early and you guide well, then the street doesn’t get disappointed. But it doesn’t remove the reality that your set of numbers are actually bad.
Yeah. They still have quite a huge backlog of stock inventory for them. What we are looking at is that there was deep markdowns on unwanted merchandise, which is now what everybody is worried about because eventually it’s going to bite them, right?
Yeah. They’ll have to write it off. 22 buys on this top ten holes, no sales consensus. Target price for target $187.67. It closed at 05:00 PM. At 175. USD $34. But up next, we’ll be speaking to David Thio on DBKL’s new housing renovation rules. Stay tuned for that. BFM 89.9 you have been listening to.