This podcast is originally published on BFM: The Business Station, which you can see in this link: https://www.bfm.my/podcast/morning-run/market-watch/us-federal-reserve-bond-market-equity-market-slowdown
Macroeconomic data and the bond market are signaling that the US economy is heading for a slowdown but yet equity markets remain robust. Tony Nash, CEO of Complete Intelligence explains why whilst giving us his views of Asian equity markets.
BFM: And you’re listening to the Morning Run with Keith Kam and I’m Wong Shou Ning.
Now in about 30 minutes, we’ll be speaking to William Passet from Nikki Asia on Nancy Pelosi’s Asian trip. But let’s recap how global markets closed yesterday.
Yeah, on Wall Street, the US markets are looking quite green. The Dow ended up 1.3% the S&P500 was up 1.6%, while the Nasdaq was up 2.6% earlier in the day. Asian markets, we are looking at the Nikkei which ended up 0.5%. Hong Kong Hang Seng closed 0.4% higher, but Shanghai’s Composite was down 0.7%. Singapore’s STI was up 0.4%, while back home burn, Malaysia’s FBM KLCI ended 0.3% lower.
So for more on international markets, we have on the line with this Tony Nash, CEO of Complete Intelligence. Good morning, Tony, always good to speak to you. Now, we’re still in the midst of well, it’s the tail end of earning season, which hasn’t been too bad. And of course, last night there’s an influx of economic data coming out of the US. But can you tell us what actually determines the direction of markets because it’s just been so volatile in the last few days?
TN: Yeah, I think there has been a growing view in the last week or so that the Fed may change direction in September. And I think markets are becoming optimistic that the Fed may ease or at least stay neutral in September instead of raising. At this point, I think that’s a little bit over optimistic, but I think it depends on how economic data, say, inflation particularly come out over the next, say, 40, 45 days.
BFM: So your view we are far from peak inflation?
TN: I don’t necessarily think we’re far from peak inflation. I think there are a number of things that could potentially over the next, say, four to six months, actually ease inflation. If for example, the Russia Ukraine war stops, which I think that is a potential over the next six months, those types of things really could help to ease inflation. Something that could hurt inflation is, let’s say, China decides to actually let loose some of this fiscal spending it’s been talking about for so long. If they do, that could really put upward pressure on things like energy and precious metals. So there are some major kind of forces that could swing markets one way or another.
BFM: Another data that came in, Tony, it was July US PMI manufacturing index. And that came in lower than June at 52.8, but it still indicates expansionary activity. What was responsible for this upbeat reading?
TN: Yeah, it’s above 50, which means things are growing. But I don’t know that I’d necessarily call it upbeat because the economy is decelerating right now. So we saw new orders and employment, both contracting, manufacturing backlogs are growing.
On the positive side, supplier delivery times are improving. So that tells me that kind of supply chains are improving, which is great. Raw materials inventories are growing, which is great, and prices are rising at a slower rate.
So inflation, at least PPI, according to this survey, things are slowing down. So I think if this continues to slow that with the services PMI, we could potentially have another quarter of negative GDP growth. So I’m not saying it’s going to happen. I’m saying with this and the services PMI, that raises the prospect of that happening.
BFM: Can we say that we are actually over blowing fears of an economic downturn? That, I mean, it’s not as bad as some analysts put it.
TN: Well, it’s definitely slowing. I think the downturn I don’t know that it’s necessarily being overblown. I think those fears are well founded. But if you look at the way, say, consumers and businesses continue to spend, what we don’t have is, let’s say, volume growth, necessarily of markets, but we do have price growth. So if you look at some of the consumer companies, like food manufacturers, consumers have accepted double digit price growth in the most recent quarter. But volumes from manufacturers, from, let’s say, food manufacturers, have grown by kind of 0% to 1%. So their revenues may have grown by double digits, but their volumes have stayed pretty steady.
BFM: Another thing, Tony, is the bond market, right? So we’ve seen the shorter tenor yields rising, but longer, maturity rates decreasing depending on key yield curve, inversion signaling a recession. So we have many indicators of a recession, but yet markets seem to be holding relatively well, especially if you look at it from a year to day basis. Still negative territory, but isn’t so bad. So why the confusing messaging?
TN: Well, I think part of it is the Feds not being clear about what their next actions are. Powell in the Q and A of the most recent meeting said basically, look, there’s a long time between now and September, which is the next Fed meeting, and there’s a lot of data that’s going to come out. So we actually don’t know what our policy is going to be in September. And they stopped forward guidance. So when you stop forward guidance and markets need information to set price expectations for securities, markets are searching for a pricing level. Is it higher or is it lower? They’re always searching for that. So without guidance, it’s really hard for investors to understand where those prices, meaning stock prices or commodity prices or whatever, will be.
BFM: What’s your view in terms of Asian equity markets in the last two, three days? Of course, North Asian markets like the Hong Kong and the Shanghai have seen sharp corrections on the back of Nancy Pelosi’s visit to this region. Do you think actually it’s a buying opportunity? Very well could be.
TN: Again, I think the Chinese government could kind of as a way to frustrate the Biden administration, they could actually launch a massive stimulus program and get money into the economy very quickly. If they did that, it would raise commodity prices and it would really make the Biden administration look bad just before the midterm elections in November. It could be bullish for Chinese securities and North Asian securities. It would also be bullish for commodities. So it wouldn’t surprise me because Chinese government is very smart. It wouldn’t surprise me if they did something like that in order to frustrate the Biden administration and have his party lose both houses of Congress.
BFM: All right, thank you for your time. That was Tony Nash of Complete Intelligence giving us
his views on where markets are. And it’s rather confused because we also aren’t getting much signaling coming from the Federal Reserve, which is the key, I think, if you ask me, the key driver in terms of where markets are hitting.
I think everybody who is questioning whether peak inflation is here, it probably is very close. But is this the end of this normalization of monetary policy? How many more rate hikes are the Fed going to implement before the end of the year? But very quickly, we’re also looking at some results.
First off is Ebay. They reported second quarter revenue that beat street expectations and an upbeat profit outlook, evidence that a new focus on luxury items and collectibles is helping offset slowing sales and customer traffic. It shares rose about 5% in extended trading and back to the sales, it decreased 9% to 2.42 billion. Rigid analysts. On average we’re expecting $2.37 billion not ring gate earnings per share was ninety nine cents per share, beating estimates of Ebay shares rose to a high of $55.4 $55.4 in extended trading after closing at 50 and a half in New York.
Well, there are ten buyers on this name, only 18 homes and two sells. So not a big buy on Wall Street by any measure. Consensus target price for this stock is 53 USD $46. Like he said, it actually closed. This is not after hours trading, but closed at 05:00 p.m.. US. Time it was $50.48. It was up 2.5 cents. Now, another company that reported results is booking.com. They reported bookings in the second quarter, pun intended, that top street analysts and forecast record revenue in the current period, confirming what we already see a very strong start to what was expected to be a blowout summer travel season.
Anecdotally we can also see that generally people are out traveling a lot more and booking.com recorded gross bookings, which represent the total value of all travel services booked.
It came at $34.55 billion. And this beat and endless expectations of 32.8 billion. Total sales nearly double to $4.29 billion, less than analysts’average projection of 4.33 billion.
Not that far off its net income came in at $857,000,000, compared with a loss of $167,000,000 last year. But that was Colbyte. Yeah, I would expect less from them. The street likes the stocks. 23 buys ten holes. One sell consensus target price for the stock.
Am I looking at it correct? $2,524. Last time price $1,966.48. It was up ten point $18.
But Abdic will be speaking to Doctor Jeffrey Williams on Malaysia’s move on MNC tax implementation.
And what does this mean for foreign direct investment?