This podcast is originally and first published by BFM 89.9 in this link: https://www.bfm.my/podcast/morning-run/market-watch/oil-gold-bitcoin-markets-up-asset-classes-investment
BFM Description:
We appear to be living in strange times as almost all asset classes are up in tandem. We ask Tony Nash, CEO of Complete Intelligence to explain this conundrum and how to invest in these confusing times.
Transcript
BFM
So joining us on the line to tell us what’s going to be moving markets in the weeks ahead, we speak to Tony Nash, CEO of complete intelligence. Good morning, Tony. Now, let me ask you about what your views are in terms of the US CPI numbers, because it came in slightly higher than expected. I believe the figure was 3.2% for Febre, thanks to a pickup in housing and energy prices. Is inflation actually stickier than we think?
BFM
And what does this then mean for the Fed fund rate?
Tony
Yeah, it is stickier than we think. And if you annualize that, so that 3.2% was month on month. So if you annualize that, that inflation is back at 5.4%. So keep in mind that the Fed’s target is 2% inflation on an annualized basis. So we’re more than double that in America. So what does that mean? Well, there is a hope among, well, the current administration really wants a rate cut this year, and there are a lot of people in markets who are hoping for a rate cut. But as we see persistent inflation at the grocery store, with things like flights, with energy costs, with housing and other things, that cut is less and less likely.
BFM
And Tony, let’s look specifically at some of the sectors. I think the first one that really has caught my eye are the banks. Right now, they’ve paid out large dividends over the past year and also a lot of share buybacks. But with the net interest margins set to go down as a result of these expected rate cuts, will they be able to keep those payouts?
Tony
Yeah. So if we don’t see cut in rates, let’s say we don’t see cut in rates. We don’t expect we’ll see a rate cut before maybe Q three of this year, maybe even further than that if we continue to see persistent inflation. I’m not particularly worried about net interest margin for banks. I think initially rate cuts will not be as large as we saw them hike at the start. So I think we’d see tepid rate cuts at the start unless we saw a pretty dramatic downturn in the US. Now, in terms of buybacks with both banks and other segments, it’s really interesting to look at the amount of corporate debt announced in January and February. It’s a record, at least for the last ten years. And something like 20% to 30% of corporate debt issued is done for share buybacks. So we’re going to have to see what is announced for share buybacks probably in April May time period. But we expect there to be a lot of share buybacks this year, especially for those companies that issued debt in Janfeb.
BFM
So if we can look maybe, perhaps at some of the potential headwinds ahead, we are going to see US federal elections in November. It’s most likely going to be a Biden versus Trump rematch. How do you think investors are going to hedge potential political risks, particularly in equities?
Tony
Well, I think for Biden, I think they’re going to have to be careful of inflation because we’ve seen a lot of federal government spending under Biden. And of course, it was under Trump during COVID and Trump was a spender. But we’ve seen it accelerate under Biden, and we don’t see it slowing down necessarily. So in a second Biden administration, we’d expect the US debt to accelerate, especially if Janet Yellen is still the treasury secretary. She’s very good at issuing T bills to spend, and she’s very politically well connected, so she can get the authority to issue that from Congress. Under Trump, yeah, we would expect spending to slow a bit. And the way to hedge that play under a Trump administration is to look at, say, defense sectors. Under a Trump administration, defense likely wouldn’t do as well under Biden. We’ve seen wars in the Middle east and Ukraine, and we would expect things to at least stay where they are under Biden. Under Trump, there weren’t any wars. So we would expect that the defense sector wouldn’t really do very well under a Trump administration.
BFM
But, Tony, who is better for markets? Biden or.
Tony
Think? I think it cuts both ways. I’m a Republican, so I’m pulling for my party. It doesn’t matter who’s running. I think under Trump, we did see healthy markets without a lot of stimulus. And then, of course, the pandemic hit. And what we’ve seen since the pandemic is wave after wave of stimulus in the US that has really hit markets in a good way. Right? So under Trump, I don’t think we would see the level of stimulus that we would see under Biden. But Trump has also been vocal, saying that he would fire Jerome Powell, who he hired, who he put in place under his regime. So Trump is saying that he would want to cut interest rates. So it’s tricky both ways. And of course, presidents don’t like higher interest rates because they think that it slows down the economy in a very simplistic way. So I think it’s really a coin toss who’s better for markets? It really depends on the amount of fiscal and monetary firepower. I think the Democrats would bring fiscal firepower. I think the Republicans would bring monetary firepower.
BFM
And if we take a look at maybe another aspect, which is crude oil, we do see that oil prices have been rising on the back of diminishing US crude stockpiles. Why are oil inventories being depleted? And will the replenishing of those stocks push oil prices even further?
Tony
Yeah, oil prices are being depleted partly on production caps and partly on maintenance and other things. But crude markets, especially in the Middle east, very tight right now. They’re very tight. So as the US continues to replenish oil stocks in the SPR and other things, that will definitely push crude prices higher. They’ll try to buy opportunistically when prices are low. But as they refill the SPR and as other kind of storage in the US is refilled, that will definitely push prices higher, because the supply globally is so tight right now for both crude and for refined, you know, it’s really hard to see a downward spiral for crude in the next, say, month or two.
BFM
Tony, I have a question, because I’m stuck. If you look at cryptocurrencies, especially bitcoin, it’s like record high. $73,000, but gold, also record high. What does it tell you about markets, or at least sentiment, when equities are also at all time high? Aren’t those the two asset classes I mentioned earlier, defensive ones and commodities?
Tony
This is the problem with inflationary markets. It tells you that there’s a lot of money supply out there. It tells you that there’s more demand than there is supply. And I know people who invest in crypto, I know people who are aggressive crypto. I don’t see the inherent value of crypto, so I wouldn’t recommend anybody either way on that. But I think we do see, especially in the US, we see demand rising because it has to. Because we have inflationary markets. Demand is measured in dollars, it’s not measured in activity. So people will say, oh, the US economy is booming. Well, it’s booming because inflation is high. Right. And so because inflation is high, people have to consume more goods now. And that’s why we see so much demand on things, both because of the nominal value and because prices are going up. So it’s really hard to see anything fall until it does. Right. And those of us who’ve been around markets for 20 plus years, the music does kind of turn off and there are a lot of books I could recommend to you. But once interest rates rise, there is a lag before markets respond.
Tony
So things like cryptocurrency, that’s rallying because they’re in funds, they’re into index funds or, sorry, into ETFs and stuff. But other things, it’s because people are buying because the prices, they believe the prices will continue to rise. We haven’t seen any evidence that prices will fall outside of places like Europe and China, where they’re facing both economic headwinds and demographic headwinds. So that’s why we see things. Japan, China, Europe are slow because they have demographic issues. Of course, that’s a very slow issue, but they’re also seeing demand issues domestically in those markets.
BFM
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. We have a little bit of time on the clock, so we are going to turn our attention to some of the international corporate headlines that we’re watching this morning. We’ve got news coming out of Adidas. Adidas faced its first loss in over 30 years following the termination of its collaboration with Kanye west, which included the highly profitable Yeezy sneaker line. Despite the loss, though, Adidas shares performed well. They outperformed competitors like Nike and Puma. But the company’s decision to maintain its earnings forecast for 2024 at an operating profit of about €500 million did disappoint investors who were anticipating a more optimistic outlook.
BFM
I think the buyers of the stock are fans of the Adidas samba, which.
BFM
Is like the next cult is the big issue, right?
BFM
Yeah, it is the big couch shoe. So maybe people are thinking, who cares about these yeezys easys. We’re moving on. But if you look at the stock, actually yesterday it hit its all time high, traded at 200 and €1.55. Now, what does the street think of this? Are they optimistic? Because there were some write offs earlier on even before these results. And it’s somewhat evenly mixed because it’s 15 buys, 14 holes, just seven sells. Consensus target price for this german listed company, €187.91. Like I say, yesterday was an all time high. So it looks like markets. Who’s buying, I wonder? Maybe samba users.
BFM
Yeah, the fashionistas. I suppose you do see that. I think if we look at sales performance, north american sales are expected to decline due to market saturation. But really other markets are predicted to grow significantly. Yeah. Footwear sales grew by 8%, probably those sambas, while apparel sales fell by 13%. Okay, turning our attention to another stock and company, but this one in pretty big trouble. We see country garden. They’ve missed a coupon payment on a yuan bond for the first time, the latest difficulty faced by the chinese developer that is facing a lawsuit seeking its liquidation in Hong Kong. In response to this, the company said its main onshore unit hasn’t fully prepared a 96 million yuan coupon due on Tuesday for a 4.8% yuan bond maturing in 2026, and further emphasized that there is a 30 trading day grace period for this payment. So they’re trying to buy themselves some time.
BFM
I don’t know how much more time they can buy because they already defaulted on the offshore bonds. And then added to their pressure is the liquidation order by the Hong Kong courts where I think some people still argue, can it be enforced in China? So even the share price is really like all time low, down 25% on a year to date basis. The question is, I don’t think anybody’s going to buy this stock. It’s a question, can it survive? But amazingly, there’s still six buys on this name. Nine holes, six cells. This is listed in Hong Kong. It’s only fifty eight cents. Hong Kong Tiger price $0.63. Wow.
BFM
Some very brave six analysts there to still have a buy call. All right, 719 in the morning. We are going to head into some messages, but we’ll come back to cover the top stories in the newspapers and portals this morning. Stay tuned. BFM 89.9.
BFM
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