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FOMC Minutes Hint at 50bps Hike

Markets ended their 5 day winning streak but result season has so far been very positive. So where are markets heading since inflation is still high. Do the FOMC minutes give us any hint? Tony Nash, CEO of Complete Intelligence tells us.

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.

Categories
Podcasts

Signs of Broader Recovery

Tony Nash joins BFM 89.9 The Business Station to discuss possible broader recovery. Where are the markets heading? In which direction will U.S. equities likely trade for the rest of the month? How much will that impact the ongoing debate on further fiscal stimulus? And how about the US unemployment data and is China on the recovery path?

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/signs-of-broader-recovery on October 1, 2020.


BFM Description

 

US jobs data will be released tomorrow but are we expecting better numbers? Tony Nash, CEO of Complete Intelligence sees a stronger pace of recovery for the US economy with improving macroeconomic data. He however does not expect a recovery in oil prices as demand remains weak while there are no supply shocks.

 

Produced by: Mike Gong

 

Presented by: Wong Shou Ning, Roshan Kanesan

 

Show Notes

 

 

WSN: But the question is where our markets are heading? So to help us answer that question, we have on the line with us Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Now the question, in which direction will U.S. equities likely trade for the rest of the month? Is risk aversion making a comeback to financial markets given the political and economic uncertainties?

 

TN: We expected a down month in September and that’s what we got. We’re also looking for a pretty difficult month in October, not quite as far down as September has been. But I think you’re right on the uncertainty side, one of the big unknowns is stimulus coming out of the US government. And obviously that would help move markets in other countries as well.

 

We should know by the end of this week if there will be more stimulus or the magnitude of that stimulus coming out of the U.S. So the real question around whether things will rally or fall is when the US will open up and when other countries will kind of fully open up, not partially open up. We look at, you know, Europe’s doing pretty well actually in opening up. Asia is doing pretty well. The U.S. is still kind of a patchwork.

 

So we won’t really know the near-term direction. But I guess I think over the next month we’re looking at at a bit of a fall.

 

WSN: And meanwhile, the Fed is extending the dividend by that limit with Wall Street banks till 2021. The announcement came out last night. So what does it tell us about the finance sector?

 

TN: We’ve been expecting a rotation into financials for some time, and that tells us that if dividends and buybacks are limited, those banks, obviously there’s a risk factor there, meaning that the regulators want those banks to hold on to their cash. But it also means that that the regulators also aren’t sure about when things will be back to normal. So that conservative approach forcing banks to hold on to their liquidity tells us that there’s not a lot of confidence in the next quarter or two. So we’ll really have to see the pace of recovery here in the U.S..

 

WSN: And Tony, just one more question on the U.S. and that’s the job data that’s coming out later today. Right? So there is out on Friday and it’s going to be the last one before elections. Are you expecting a good number? And how much will that impact the ongoing debate on further fiscal stimulus?

 

TN: You know, we do expect it to be a good number, the ADP number was out today and it kind of usually comes before the U.S. government’s non-farm payrolls number. The labor number. It was 750000 jobs added. That was one hundred or more thousand greater than was expected. Now, the U.S. Labor Department typically is higher than ADP. We expect the Department of Labor report on Friday to be about 900,000. So this is really good. Companies are coming back online. They’re employing there are fewer people out of work. That’s good for the recovery.

 

We keep hearing hesitation about the pace of recovery. We’re not sure of the pace. But from an employment perspective and even things like retail sales, the indications are good. So, you know, we’re hoping for the best. And unemployment is telling us that things are moving in the right direction.

 

WSN: And if you look at the recent EPA and EIA inventory reports are telling us that all demand tells us about the oil demand projections for the rest of the year. So what do you think? Do you think recovery’s a long way off?

 

TN: We do, actually. So production is up about 15 percent or so. Demand is still down 20 to 30 percent. So, you know, it’s not a good pricing environment for crude or for petrol. Downward pressure will still remain in those markets. We won’t see, say, Brent, north of 50 for some time. We won’t see WTI north of 45 for some time. There is a possibility we keep hearing we’ve heard for months about the possibility of a supply shock as demand comes back, which would push prices up. We’re just not seeing that at this point. And it’s going to be several months. If that does happen, it’ll be several months before it happens.

 

WSN: And one last question on China. The manufacturing PMI for September came in at 51.5 higher than market forecast. How much should investors consider a place in this figure? Does this number suggest that China is well and truly on the recovery path?

 

TN: I would be really careful of I’m looking at a China PMI. I’m aware of PMI generally, but I’d be I’d be careful of the China PMI. I haven’t believed it well, for years, if it really is ever, partly because it’s a kind of a second derivative of real data. It’s an opinion survey of future expectations and it’s an index of that opinion survey.

 

I know that sounds confusing, but you’re really far away from real data when you’re looking at a PMI number. And with China, the uncertainty and murkiness around Chinese economic data is something to be careful of.

 

So I would say if I’m investing in China, if I’m looking at data in China, the stuff that I’ve always found more important was first-hand information. What’s actually happening on the ground with your vendors, what’s actually happening in cities on the ground?

 

I’m not saying that China is suffering. I’m not saying China’s experience a massive pullback. I’m just not sure about the rate of recovery in China.

 

WSN: All right. Thank you for your time. That was Tony Nash, CEO of Complete Intelligence, giving us a somewhat optimistic view of the U.S. economy, saying that all the indicators are that recovery is their unemployment numbers should improve.

Categories
Podcasts

How long can the bull run?

Now that the bull run has started, Tony Nash CEO and Founder of Complete Intelligence joins BFM 89.9 in another global markets discussion. What’s behind this rally and will it be sustained? They also discuss OPEC, the Brent price and its future, Europe’s fiscal stimulus, the ECB, and the resumption of trade war between the U.S. and China.

 

Listen to the podcast on BFM: The Business Station.

 

BFM Description:

On the back of an emerging bull run in Asia and the U.S., we reach out to Tony Nash, CEO of Complete Intelligence, for his thoughts on whether or not this momentum can be maintained, oil prices, as well as the ECB’s bond purchase programme.

 

Produced by: Michael Gong

 

Presented by: Wong Shou Ning, Lyn Mak

 

 

Show Notes

 

 

BFM: U.S. stocks extended their rally into the eighth straight day as investors clung to optimism for quick recovery from the pandemic. So the Dow Jones closed up 2.1 percent. The S&P 500 closed up 1.8 percent, and NASDAQ was up 0.8 percent. In fact, NASDAQ in the intraday trading did touch an all-time high. It’s as if COVID-19 never happened.

 

Meanwhile, Asia also had a very good run. Nikkei 225 closed at 1.3 percent. Shanghai was barely up, though. It was flat at 0.1 percent. Hang Seng was up 1.4 percent. Singapore was the big surprise here. We talked about it yesterday. The banking stocks were up and this caused the Straits Times Index to go up by 3.4 percent. Meanwhile, on the FBMKLCI, our market was up 2.1 percent. Also on the back of banking stocks, public bank RHP saw almost a pulping double-digit gains.

 

Pandemic? What pandemic? Never happened.

 

So this morning, for more insight into global markets, we have on the line with us Tony Nash, CEO of Complete Intelligence. Thanks very much for joining us this morning, Tony.

 

Now, equities have recently exhibited strong bullish momentum in both Asia and the U.S.. What’s behind this rally? And is it sustainable?

 

TN: I think a lot of it is the monetary policy expectations and the stimulus expectations washing through. It’s a lot of hope around activity in the summer, say, for crude prices, driving and consumption. There’s an expectation that there’s been some pent up consumption because of COVID. Some of this is coming back. It’s key to know that the U.S. markets are still 10 percent below where they were pre-COVID, 10 percent or more. So it’s not completely as if things never happened, but it has come back relatively quickly. The S&P, for example, was at around 2300. So we’ve climbed about 700 points in the S&P 500 since the nadir of COVID.

 

BFM: I always ask our commentators this, and I’m going to ask you also. Why the disconnect between what is happening on Main Street versus what’s happening on Wall Street.

 

TN: There’s an expectation that most publicly traded companies are going to pack as much bad news into Q2 as possible. And so they’re just throwing the kitchen sink into Q2. So that should mean pretty clear sailing for the rest of the year, assuming that it is 2020 and all. So anything can happen. But assuming that there isn’t another major catastrophe, things should be pretty clear for the rest of the year if every- and anything that could go wrong goes into Q2 data.

 

BFM: Brent has also erased some of its recent gains and is back below the $40 a barrel mark with the OPEC meeting now in doubt. What do you think oil prices will be heading?

 

TN: Our view is that things have been pretty range traded. We don’t see things going up to, say, $50 anytime soon. It’s possible. But we’ve expected things to stay pretty range traded until probably August or so.

 

We’re going to see daily rises and we’re going to see falls. But prices have come back a little bit on some drawdowns we’ve seen in storage and expectations around driving. Although, It’s not a perfect substitution for flying. And those volumes will still be down until we start to see people get back on planes. And until we start to see commuters back on their daily drives, we really don’t expect to see things come back above, say, $50 for Brent.

 

BFM: Shifting to Europe. The ECB is expected to expand its bond repurchase program this Thursday. So they’ve got a currency 750 billion euros outlay. Is that enough or do you think they need to increase it?

 

TN: It’s not enough. But I don’t know that Europe really has the financial wherewithal to do much more. They are not a fiscal union. And so they’re really having to contort their mandate to make sure that they can do this. This is really pushing Europe and the ECB and the concept of a quasi-fiscal union under the E.U. is putting real pressure on that.

 

So the limits of the monetary, not fiscal union are really pressed. And when you look at things like the insolvencies we saw in Greece and Italy and other places in southern Europe over the last 10 years, places like Germany are just tired of fiscal stimulus of other countries in the EU.

 

BFM: And if you look at the equity markets in Europe, that’s been also the lag out. Do you think there’s any opportunities there or is it a similar situation whereby the corporates there are going to not perform up to par?

 

TN: No, we don’t think they’ll perform up to par. Until we see countries beyond Germany really lift some of these lockdowns in a big way, it’s going to be really slow going. It’s strange how we’ve seen these protests really go against the lockdown. We may actually see some of these countries rip the Band-Aid off, because if you have tens of thousands or hundreds of thousands of protesters out there, it may be a situation where you can just say, “Well, lockdown’s over,” and you may start to see consumption patterns come back to normal. That would be a good thing for markets. That would be a good thing for companies. But European companies, especially European banks, remain troubled. And I think this crisis has really forced those banks to look in the mirror. And if markets are functioning well, then we’ll start to see some consequences, particularly for European banks.

 

BFM: Thank you very much for speaking with us this morning, Tony. And that was Tony Nash, CEO of Complete Intelligence.

 

He made some comments there about Brent crude, which he doesn’t really expect to come above the fifty dollars per barrel mark until perhaps we see planes start flying again. But the Trump administration has just made an announcement to that effect, saying that they are suspending passenger flights to the U.S. by Chinese airlines effective June 16th.

 

So the U.S. government said in a statement that it was responding to the failure of the Chinese government to allow U.S. carriers to fly to and from China. Now, this hasn’t, of course, been good for the tensions that have already been flaring between the two countries over the handling of COVID-19, as well as the treatment of Hong Kong.

 

China recently paused some agriculture imports after Trump threatened to limit the policy exemptions that allow America to treat Hong Kong differently than the mainland.

 

And that was done. The global economy was cheering and it looks like they’ve started fighting again. I think I’m just curious, what else is there to fight over? Because there’s been soybeans, beef, pork imports, corn, and now airlines.

 

U.S. airlines did see a bit of a share surge amidst the broader market rally and signs that travel demand is starting to rebound. Boeing was up 13 percent at one point after a report from IATA indicated that recovery was underway for global airlines.

 

So looks like we’re going to be watching that space as well, quite closely.