This podcast is originally produced and published by BFM 89.9 and can be found at https://www.bfm.my/podcast/morning-run/market-watch/oil-six-month-low-apple-credit-fed-opec.
With CI Markets Free, our goal is to democratize financial insights. We believe that everyone should have access to powerful forecasting tools, enabling them to make informed decisions that align with their financial goals.
In this BFM podcast episode, the hosts interviewed Tony Nash, CEO of Complete Intelligence, who shared insights on the impact of OPEC+’ accrued oil cuts, the US job market, and the Fed’s interest rate policies. Nash also discussed the potential impact of elevated interest rates on corporates and consumer spending financed by credit cards.
Furthermore, Nash highlighted concerns about smaller companies facing debt distress due to high-interest rates on new debt, as well as the rise in credit card balances, which could lead to weaker future consumption.
Transcript:
BFM
BFM 89.9 is 7:07. It’s Thursday, the seventh of December. And of course, you’re listening to the morning run with Keith Kam, Anwar Mahbob, and I’m Wong Shou Ning. Now, in about 30 minutes, we’ll discuss she and its threat to Southeast Asia’s e-commerce platforms with Nathan Naidu or Bloomberg Intelligence. But in the meantime, let’s recap how global markets closed yesterday.
BFM
Well, the Dow closed down to 0.2%. S&p 500 was down 0.4 %, while the Nasdaq was down 0.6 %. On the Asian side, Nikkei was up two %, Hang Seng was up 0.8 %, the Shanghai Composite, unfortunately, was down 0.1 %, STI was up 0.3 %, and our very own FBMKLCI was down 0.3 %.
BFM
Okay, so somewhat of a mixed day for markets, but for more insights into where international markets are heading, we speak to Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Can we start off with all, please? Because the prices have fallen to a two-year low? Please help us understand why, especially since OPEC Plus has committed to supply cuts to at least March.
Tony Nash
Yeah, accrued prices were down almost four % today, I think. So additional OPEC Plus accrued cuts, they’re not major new supply holdbacks. So doing small incremental cuts through that OPEC is saying that they really don’t want to do too much to unsettle prices. I think generally there’s a view that the market is in balance. I think there are a lot of worries in OPEC countries with the economy in China and the economy in Europe. I think the US is doing okay. I mean, it could be great or it could not be great. We saw with some of the job stuff today, but they’re mostly worried about consumption in, say, East Asia and Europe.
BFM
Us job openings pulled back in October to the lowest level since early 2021, underscoring a gradual cooling in the labor market. Now, these figures support expectations that the Fed will leave interest rates unchanged at next week’s policy meeting?
Tony Nash
It’s likely that the Fed will keep things unchanged. If we look at job growth, it’s really just dropping to long-term trend levels. If we look at this on a longer-term basis, the total jobs in the US is now really just at the level it was if we extrapolated the normal Jan 2020 jobs until today, we’re back at that line. We’re likely to see the new openings and other things slow down. The other thing to keep in mind is we’ve seen downward revisions of previous job openings data, which implies to me that job openings will likely be weaker in the near term. What does that do for us? Well, the wages and the employment mandate that the Fed has, that’s coming into line. They’re slowing down that job growth. We’ve seen inflation slow. And so are we right on target with the Fed? No, which is why they’re keeping rates higher. But I don’t think markets and data are telling the Fed that they need to tighten now. So December is likely on hold.
BFM
Going back to the job data, tomorrow your time, you’re going to get non-farm payroll data. Is that going to be vastly different from the job data we talked about just a second ago?
Tony Nash
I don’t think it’ll be vastly different from the JOLTS data. It may be different from the ADP data that came out today. There’s usually a difference between the NFP data, which is from the US government, and the ADP data that is calculated from a private sector company. The ADP data showed payrolls, I think, 20,000 below expectations. Again, it’s just confirming that the jobs market is slowing. Now, it’s slowing from an incredibly hot market. This doesn’t mean we’re going into some desperate state. It just means that things are slowing from an incredibly hot market.
BFM
But doesn’t this then mean that the Fed has achieved one of its mandates? In the sense that the job market has to be robust, right? They need to actually ensure that their unemployment isn’t too high because we talk about inflation a lot, but we don’t talk about the other mandate that the Fed has, which is employment.
Tony Nash
Yeah. I mean, the real issue with employment is the super core inflation. Super core inflation is where those two overlap. Super core inflation is really service wages. It’s those services wages that have been pushing up. They’ve been persistent within the employment numbers. And so that’s where you see the overlap of the jobs data and the inflation data. And that’s really why the Fed is focused so much on super core, because what they wanted to do is slow down those services, jobs, wages that have been rising so quickly. So are they doing their job in both counts? Yeah, I think they are. And I think it’s really easy to knock on the Fed and criticize the Fed and say that they’re not doing the right policies. But I actually think that they’re doing an okay job.
BFM
Tony, we always look at the effect of elevated interest rates on consumers. What has the impact been for corporates with significant debt levels? Are they in any danger of falling into debt distress at these current levels now?
Tony Nash
I don’t really see companies, larger companies fall into debt distress. So if we look at net interest paid as a % of profits, we’re at, I don’t know if we’re at historically low levels, but we’re lower than we’ve been at any time since 1970 when this data started being held. So net interest as a % of profits is around three %, maybe a little bit lower. And the Fed Fund’s rate or Fed Fund’s target is 5.25. So we’re well below the Fed Fund’s target. Net interest paid as a % of profits is usually notably higher, at least a couple, if not a few % higher than the Fed’s target. So large companies are in pretty good shape. They can get better interest rates on savings than their net interest payment. So it’s all good for big companies. The concern that I have is with smaller companies because smaller companies are saying that as they try to take on new debt, they’re seeing double-digit interest rates. So it’s really expensive given the higher interest rates. It’s relatively more expensive for smaller companies to take out new debt at a time that they’re losing pricing power. So inflation is ramping down.
Tony Nash
So smaller companies are losing the opportunity to capture more margin. And so the risk is with those smaller companies. So I wouldn’t be surprised to see some stress within smaller companies.
BFM
Tony, in the period of this year and gift giving and shopping season. There’s a report on CNBC that says consumer spending is being financed by credit cards, where interest is now over the top and possibly out of control. Some are expecting 2024 as well to be not as rosy with possible retrenchments may be happening. How worried should we be?
Tony Nash
I think we should be worried. I think the credit card balances are up 40 % from 2020 or something like that. And if you think about credit as just borrowing from the future, right? I mean, you’re consuming today what you would consume after you saved up that money. And so if people are accruing balances on credit cards, then that’s future consumption. And so if people are financing their holiday spending or other things through credit cards, then it just tells me that we’ll likely see weaker consumption in the future, and maybe that’s two quarters out, but it is in the future and it comes at a cost. So I think it is something to worry about. A lot of people love to talk about how Americans have cash on the sidelines or bank accounts are full or something like that. But if that was true, we wouldn’t see credit card balances rise by 40 %. So I think it’s easy to look at, say, the wealthiest of people saying they’ve accrued savings in a big way, but most Americans are not fortunate enough to be in that position.
BFM
All right. Thank you very much for your time. That was Tony Nash, CEO of Complete Intelligence.
BFM
I think it’s a very timely-.
BFM
Giving a bit of a warning bell.
BFM
No, it’s a timely reminder because a lot of us don’t realize that when you spend with your credit card, it comes back to bite you back in the future.
BFM
If you don’t pay off your balance in full, right? Exactly. You’re using your credit cards. In-
BFM
The interest builds up.
BFM
Yes, it’s 18 % here in Malaysia. I’m not sure what the figure is like in the United States. Basically, you’re using debt to fund your lifestyle.
BFM
And he did emphasize that credit card balances were up 40 %, but a lot of people are going to buy now, pay later. So eventually, it will come and bite you. Yeah.
BFM
So there are many schemes available even here in Malaysia. Buy Now, Pay Later is one, using your credit card is another, using personal loans. So when you look at your total debt servicing number, you have to figure all this in. All this is included, right? It’s not necessary just your housing loan or your car loan, for example. But let’s turn our attention to AI and the world of it in the sense that all these companies are trying to compete for a slice of it. And AMD, which is Advanced Micro Devices, has also joined the bandwagon. They are unveiled their new accelerator chips lineup, the MI300. They are able to run artificial intelligence software faster than rival products. Just go figure, okay? Because these chips contain more than 150 billion transistors, and they are 2.4 times more memory than the Windows H100, the current market leader. So of course, clearly, they’re here to compete with them. No pricing has been revealed, though. This was all done yesterday, last night in US, and I was listening to the on-site radio interview that Bloomberg had with AMD’s CEO. They’re, of course, clearly excited about this.
BFM
Now this will compete with NVIDIA’s in the budgeting market for AI, and other data center operators. But no pricing again was revealed at this event, surging demand for NVIDIA chips by data center operators. Well, that helped drive NVIDIA shares this year, sending the company’s market value way past $1.1 trillion.
BFM
And at that same AMD event, Meta, OpenAI, and Microsoft, they also said that they will use AMD’s newest AI chip, the Instinct MI300X. So this point is to assign that tech companies are searching for alternatives to the more expensive NVIDIA graphics processes. Meta and Microsoft were the two largest purchases of NVIDIA chips this year. Meta said it will use that same chip for AI inference workloads.
BFM
Okay, as the stock is up 80 % on a year to date basis, trading only at 44 times PE. Cheap when you think NVIDIA is trading at much larger multiples. Street Loves It, 39 buys, 15 holds, just one sell. Of course, I think NVIDIA doesn’t even have a single hold. Everybody’s a buy. Consensus target price is $131.88. Regular market hours, however, and the AMD was down $1.56 to $116.82. That’s all the corporate news. Up next, of course, we’ll be looking at the top stories in the newspapers and portals this morning. Stay tuned for that BFM 89.9.