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No Let Up in Fed Rate Hikes

This podcast first appeared and was originally published at https://www.bfm.my/podcast/morning-run/market-watch/us-federal-reserve-interest-rates-hike on July 7, 2022.

Despite weaker economic data, will the Federal Reserve continue their hawkish stance? Do the FOMC minutes offer any hints of their stance? Our CEO and founder, Tony Nash tells us whilst telling us the impact of rising rates on the banking and property sector.

Show Notes

WSN: BFM 89.9. You’re listening to the morning run is seven o’ 7, Thursday, the 7th of July there and keeping you company till 10:00 a.m. Is Shazana Mokda in an undisclosed location far, far away. And I’m Wong shining in the studio now in half an hour, we’re speaking to Manpreet Gill on fixed income and commodity the investment strategy for 2022. But let’s recap how global markets closed yesterday.

SM: So if you take a look over in the US, markets actually closed up despite Fed meeting minutes coming out signaling a more hawkish stance. The Dow was up 0.2%, the SP 500 and the Nasdaq was also up 0.4%. Looking over in Asia though, it’s mostly red. No, it’s all red really. The Naked and Hansi were both down 1.2%, the STI was down marginally by 0.01%, and the Shanghai Composite and FBM KLCI were both down 1.4%.

WSN: So for more on where international markets are hitting, we have on the line with us Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Now so far the economic data coming out of the US shows a slight deceleration of the economy. So do you think that the Fed will then hold back on their hawkish pace of rate hikes despite June’s FYMC minutes indicating that they intend to keep raising rates?

TN: I think they’re definitely going to keep raising rates, I think until we see a marked slowdown in particularly commodity price inflation, but also other things like wage inflation. I think they’re going to keep accelerating. So it’s unlikely they’ll continue with a 75 basis point hike, but they will almost certainly have a 50 basis point hike and continue for the next couple of meetings at least.

WSN: I have another question though, Tony, in that when do you think interest rates will peak or when is the peak of the tightening cycle? Will it be early 2023 or you’re looking maybe later in 2023.

TN: Well, some people are saying that it’s possible they continue to hike until the end of the year, and then in 23 they have some rate cuts similar to what happened in the early 90s. That’s possible. I think it all depends on where the economy is at the time. But I think for now they’re just worried about inflation and the downsides of inflation and they’re looking at asset prices and where asset prices are, and it’s really troubling for them given yeah, the economy has definitely slowed down, but we still have wages rising, we still have very high commodity prices, and we also have an appreciating dollar at the same time. So anything imported should be cheaper on a relative basis, but those prices keep going up as well. So Fed continues to be worried, although they’re getting pressure from the outside because it is an election year and the party in power does not want there to be a recession going into the election. And so they’re getting huge pressure from the treasury and from other people to moderate their stance so that there is not a recession going into the election.

SM: Well, what do you think then, Tony? We know that economists at Goldman Sachs have put the risk of a recessionary slump in the US. In the next year at 30%. So they’re still looking at next year. Some consumers feel it’s already here, I guess. Where are you standing in this debate?

TN: Yeah, I think we have unemployment still falling in the US. So you don’t usually have a recession at a time when unemployment is still falling. We also have high inflation. So on a real GDP basis, you may have a negative real GDP number. Well, you have a positive nominal GDP number. And I know that’s a little bit confusing, but what that basically means is that the rate of inflation pulls the economic growth into a negative number simply because of inflation. So we’re in a place where it’s kind of hard to identify a recession because of the real and nominal difference. But when we still have jobs growing, when we still have investments and other things happening, it’s really hard for us to hand on heart say that we are in or entering a recession.

WSN: Okay, let’s get into the weeds then, with regards to the recent set rate hikes and how that might play out in certain sectors. And I want to look at the US. Banks. So how do you think they perform this quarter? Are you a bull or bear?

TN: Well, it’s a tough time for banks. They had mixed results in Q2, and I think higher interest rates obviously help their net interest margin. But borrowing cools off, and it’s things like mortgages. Other things have cooled off dramatically over the last same month or so. Banks will likely have a very tough Q3, and then when things stabilize, they’ll be better. But I think Q3 is going to be rough for them. I wouldn’t say I’m necessarily bearish on banks, but I would say I’m neutral on banks.

WSN: What about the property sector, Tony? I mean, we’ve heard, of course, a few months ago that whatever you put up in the market, it gets snapped up within the day. But is that trend continuing? Are you a bull or bear for property?

TN: You know what? It depends on where you are in the US. Where I am in Texas, things are really strong. But a lot of other places in the US. Things have slowed down dramatically, and mortgage applications nationally have come to a standstill as interest rates have risen. So I think a couple of weeks ago we may have talked about how a house that was purchased in January, the median price house purchased in January, if it were purchased today, it would cost $800 a month extra. And so the interest rates just had a dramatic impact on house prices. So mortgages have really slowed down.

SM: And can we turn to oil, Tony, because oil prices have dropped below $100 per barrel for West Texas. Does this level accurately reflect supply and demand for crude? And does this then invalidate the bullish forecast of $150 and above that analysts were predicting not too long ago?

TN: Yeah, I think we’re in a really strange place for oil right now. And if you look at the later months of crude oil futures that are being traded, they’re actually trading higher than the current month. So there’s something happening in the current month, like maybe somebody’s books blown up or something. But there’s something happening in the July future that rolls off in a couple of weeks. And I expect that we’ll see higher crude prices going into August and the rest of Q three, early Q four. So it’s going to be pretty choppy for the next few months in energy and commodities generally.

WSN: One last question for me, and it’s more long term economic question, and that’s about Biden’s infrastructure bill that was passed in November last year, but it’s gone really silent. Do you know what’s happening on that front?

TN: Nobody does. There’s been very little news about it. What’s happened partly is inflation has taken a bite out of it and it’s really caused a lot of projects to stall. So the problem with federal appropriations is the longer the money sits, the less money that gets spent, which is good for taxpayers. Right, but I think inflation is really forcing local and state governments to pause on their investment plans because they do have budget, but they don’t have enough budget to get the projects done that they want. So can they appropriate can the US. Congress appropriate more for the next fiscal year? It’s possible. It depends on who’s in power. So if the Republicans come into power in November, then they may not raise the appropriations level and we’ll be stuck with the level that we have, which it’s $500 billion, a massive amount of money. I don’t want anybody to mislead anybody, but the Democrats will likely want to raise that level if they remain in power after the November election. But to date, not a lot has happened. There has not been a lot of movements. We haven’t seen a lot of major announcements of new projects, these sorts of things.


And if it was successful, we would see a lot of major announcements of new projects.

WSN: All right, thank you for your time. That was Tony Nash, CEO of Complete Intelligence, giving us his views on global markets, in particular the US. And whether the Fed will continue to raise rates until 2023. He says maybe, and then maybe they might even cut rates like they did in $2,000.

SM: That’s right. I guess one thing to note is the question is whether we’re going to see a recession sooner rather than later. Yeah, and Tony did point out the fact that labor unemployment is still at really low levels. Unemployment is decreasing so that’s really at odds with a recession and that’s what everyone is looking to see. I think if we start to see unemployment go up, that heralds that a recession is either here or coming.

WSN: I suppose we are living in really weird economic times. None of the normal correlations that we see are making any sense. I think that’s a lot to do with the fact that during COVID-19, governments basically just took the let’s do whatever it takes attitude. There was so much money pumping into the system by every major central bank and the recession was extremely V shaped, sharp recovery. But then that also caused supply chain disruptions and we had the war in Ukraine. It was like the perfect storm of Black Swan events which has resulted in this current situation that we are in now. Very quickly, we’re looking at the Fed minutes that just came out now. Indications are that they are signaling another rate increase of between 50 to 75 basis points lightly in the July meeting. And this is the interesting part, they are willing to accept the price of a slower economy in order to tame inflation.

SM: And this is sort of a change from their soft landing rhetoric, right? So earlier they were trying to say oh, it’s not inevitable that there will be a recession, we can still avoid it, we want to get that sweet spot. But I think now they’re trying to navigate those expectations to go like hey, I think we need to kind of expect pain. There is going to be pain, but it’s better to have this short pay now rather than long term pain later. So I think the Fed is really trying it’s got itself in a pickle essentially in terms of trying to prime expectations of the public.

WSN: I think that’s on the back of the fact that they spend the whole of 2021 telling everyone that inflation is transitory, hey, no problem. And it didn’t turn out to be transitory, so there’s a need to rebuild back that credibility. But up next we’ll be speaking to Carmelo for little on malicious overnight policy rate. Stay tuned for that.

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News Articles

Benchmark repo rate drops first time since October amid cash glut, collateral shortage

This article first appeared and originally published at https://seekingalpha.com/news/3782474-benchmark-repo-rate-drops-first-time-since-october-amid-cash-glut-collateral-shortage.

  • In the wake of the financial system’s cash glut and collateral shortage from the Fed’s quantitative easing program, the Secured Overnight Financing Rate drops to 0.04% from 0.05% on Monday, the first decline since October.
  • Even with asset purchase tapering underway, “it’s largely the same set of circumstances as in October,” TD Securities Strategist Gennadiy Goldberg told Bloomberg. “Lots of cash in the system and not a lot of collateral and that’s weighing down repo.”
  • Meanwhile, U.S. commercial banks park yet another record $1.75T at the Fed’s overnight repo facility, implying the banks are drowning in excess reserves, while searching for yield – which is scarce as most of the Treasury yield curve trades in net negative territory on an inflation-adjusted basis.
  • There’s an “incredibly large amount of cash sloshing the market,” said Complete Intelligence Founder Tony Nash via Twitter.
  • In August, the Fed’s overnight repo facility took up more than $1T.
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Visual (Videos)

Retail sales, jobless claims and the $3.5 trillion infrastructure bill

CEO Tony Nash joins CNA’s Asia First program to explain the logic behind the US market’s performance. Will the better-than-expected retail sales continue to the Christmas season? What is his outlook for Q3 and what’s hampering the economic recovery in the States? And what are at stake around the success of the $3.5T infrastructure bill?

 

This video segment was published on September 17, 2021 and is originally from Channel News Asia’s videos on demand, which can be found at https://www.channelnewsasia.com/watch/asia-first/fri-17-sep-2021-2186306

 

Show Notes

 

CNA: Well, Wall Street closed mixed in the State overnight as the major indices fail to build on Wednesday strong performance, while for the session, the blue chip Dow closed lower by two tenths of 1%, and the S&P 500 fell by a similar percentage.

 

However, the Nasdaq managed to eak out second consecutive day of gains. Well, this after investors digested mixed economic readings released before with the opening Bell when August retail sales surprised the market and rose 0.7% from the month prior, with analyst expecting a decline. But on the downside, jobless claims rose from last week’s pandemic low.

 

Of course, to help us understand the logic behind all the market movements were joined by Tony Nash, founder and CEO with Complete Intelligence, speaking to us from Houston, Texas. Very good evening to you, Tony.

 

So we’re looking at the better than expected retail sales number. And do you expect that momentum to continue given that we are 100 days away to Christmas in the State side and 99 days away from here in Singapore side.

 

TN: And we certainly hope that continues. But it’s really uncertain, given some of the corporate outlooks and given some of the other indicators that we’ve seen: purchasing managers indices and the regional Fed reports, Fed Manufacturing reports.

 

The port hold-ups in Long Beach are not helpful either. It’s really hurt supply chain. So we could see that spending tick up. But we do expect prices to continue to rise. And so there’s really a trade off there in terms of the volume that’s sold and the value that’s sold. And when we’re looking at, say a 1% rise in value of retail sales, that’s quite frankly, not even keeping up with inflation.

 

CNA: In the meantime, we’re also seeing that the weekly jobless claims increased. And of course, before that, many economist with organizations like JP Morgan has downgraded their third quarter economic growth outlook. So what is your outlook there and what is hampering economic recovery over there in the State Side?

 

TN: Well, it’s really companies are not seeing great investment opportunities. So the demand for credit in the US, just like in China, and just like in Europe, the demand for credit is really declining.

 

So we’re not seeing companies spend on big ticket items. They’re not investing on new equipment, they’re not investing on new projects. And so that’s hurting everything downstream because there are impacts across the economic spectrum when companies decide to spend on big ticket items. This is hurting the US. It’s hurting China. It’s hurting Europe.

 

So between now and you mentioned the end of the year, we expect that corporate spending to have an impact, the damper in corporate spending. We expect the supply chain difficulties and inflation have impacts as well. And if unemployment continues to tick up like it did, we could have a very difficult Christmas season. And the Fed and city administration here in the US are really contending with that, because as they go into the last quarter of the year, they’d really like to see things tick up.

 

CNA: And talking about those spending of course, there’s one catalyst that investors are watching out would be the passage of the $3.5 trillion infrastructure bill. But given the situation that a Biden is facing now, do you think that this increasing likelihood that this bill can’t be get past?

 

TN: Yeah, I think you’re right. With the failed withdrawal from Afghanistan, Biden has really lost a lot of the support from Democratic moderates. And so he’s got the support of the extreme left Democrats. But a lot of the Democrats in the middle are really starting to say, “Hold on a minute. We need to be really careful about how much we support Biden,” because those guys have to be reelected in November of ’22. So from here on out, the voters in their respective districts will be paying a lot of attention to what they’re doing.

 

This 3.5 trillion infrastructure plan, only 1.2 trillion of it, I say “only” but 1.2 trillion of it is dedicated towards real hard infrastructure. The rest of it is a lot of social spending, a lot of pet projects, and that’s a lot of money. 2 trillion plus dollars.

 

So Americans are really tired of seeing big stimulus programs put out, and they’re really tired of seeing the pork going to people connected to politicians. So they’d much rather see the lower $1.2 trillion program. It’ll go direct to infrastructure. They’ll see it. It’ll be a very tangible spend.

 

One other thing to keep in mind is there is still $300 billion that haven’t been spent from the stimulus program that came out in Q1 of 2021. So a lot of Americans are asking, why do we need to green light another three plus trillion dollars in spending if we still have $300 billion that’s unspent?

 

CNA: All right, Tony, thank you so much indeed, for your analysis. Tony Nash, founder and CEO with Complete Intelligence.

Categories
Podcasts

What’s Next For Crude Oil, Gold, And Cryptos?

As US and other markets decouple in terms of recovery trajectories, should investors adjust their portfolio? BFM spoke to Tony Nash, CEO of Complete Intelligence, on the major selldown of cryptocurrencies, as well as his thoughts on oil, gold, and inflation.

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/whats-next-for-crude-oil-gold-and-cryptos on May 21, 2021.

 

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Show Notes

 

RK: Well, choppy waters, to say the least. There is a little bit of a mixed day yesterday over in Asia. But right now, to talk more about global markets, we have Tony Nash CEO for Complete Intelligence for more insights here. Tony, good morning and thank you for joining us on the line. Now, it looks like the U.S. and other markets are beginning to decouple in terms of recovery trajectories. How do you think investors should allocate their portfolios according to this scenario?

 

TN: Well, obviously depends on the time, but I think that some action was taken yesterday in the U.S. around Fed comments as people were trying to decipher whether those comments were positive or negative. And today, I think they realized they were actually fairly dovish comments. So the U.S. is positioning itself to grow and other parts of the world say Europe and parts of Asia are still very conservative about opening until, you know, I think with the places that are being fairly conservative about opening, it really depends on investment, really depends on government assistance, monetary policy, you know, these sorts of things.

 

So investing in those markets depends on support that those companies are going to get and how how those investments will perform.

 

LM: Yeah, I’m just wondering, there has been increasing fears about inflation. Is that influencing or changing your views right now?

 

TN: Well, so, you know, we’re realizing that things like like lumber prices, which a lot of people talk about, that’s been a processing issue in sawmills. There’s a lot of raw lumber out there. Those prices in many cases are the same as they were like, say, 10 years ago. OK, it’s the process into their bottom and making issues in a number of other areas. One area that we’re keeping an eye on is crude oil, which I know is important later, of course.

 

And we’re not we don’t expect a dramatic rise in crude oil prices, partly because I still have six million barrels a day on the sidelines right now. So even if we saw a dramatic uptick in travel and other activity, power generation and so on, there’s spare capacity on the sidelines for a lot of countries to be holding down. So we don’t expect to see and short of having production cuts, we don’t expect to see dramatic oil price rises because that that supply will come on the market as needed.

 

RK: Right. And beyond crude, Tony, do you know crude oil in general is quite correlated to inflationary pressures and prices, but beyond crude oil, are you paying attention to any other commodities out there? Because, you know, we’re seeing a surge in all of them. Which ones particularly catch your eye?

 

TN: For industrial metals are the ones that have really rallied from, say, November or December through this month? What we expect is not pricing to continue to stay strong, but the rate of rise will will slow down.

 

OK, so we’ll continue, for example, to see high copper prices, but we don’t expect copper prices to rise at the same rate as they had been for the past five or six months. We see that across the board in a lot of commodities where we have seen really dramatic rises based on, you know, government spending, monetary policy and also uncertainty about the direction of the dollar when these things are positioned in or denominated in U.S. dollars. We’ve also seen over that same time, because it’s so going that in China we saw the Chinese renminbi appreciate pretty dramatically, which made the dollar denominated commodities really cheap.

 

And so there’s been accumulation of those commodities in China, whether it’s food or whether it’s industrial or metals. And we’ve seen that stuff accumulated in China because these things are really kind of pretty cheap for them in China in terms.

 

RK: And one more commodities. Want to get your views on here, Tony, is gold because it’s seen some strengthening over the last few weeks. In fact, you know, it was more towards the high single digits. Now it’s at the one percent range. Do you expect it to break into the green? And what kind of range do you expect for the year?

 

TN: You know, we do expect gold to continue to rise at least through August, August, September. We think that there’s kind of a sweet spot and people take a pause on, say, cryptocurrency. And as people look at some of these other metals and other commodities where the growth opportunity has slowed, we do expect attention to gold as well as kind of other inflation and currency risk type of focus will turn to gold as well. We expect there to rise through those then kind of a pause late Q3 and then we expect that to continue toward the end of the year.

So we’re not looking at a doubling of prices or looking at a know, low double digit type of price rises in.

 

LM: And Tony, twenty twenty one was supposed to be a bumper year for U.S. IPOs. Is it still buoyant or has sentiment turned more south?

 

TN: No, no, even seems like like Robin Hood starting to offer fractional IPO shares on their platform. So where IPO are typically restricted to a select few? We’re starting to see some things happen where where smaller investors are given opportunities in some of these IPO. So we do expect that to continue as long as investors are there to invest in IPO. And we don’t necessarily expect that that will taper off dramatically. We may see some hesitation if we see markets turn south in June, July, but we won’t necessarily see a dramatic taper off to the end of the year.

 

NL: So we have seen the major sell down of crypto currencies. How is the volatility affecting crypto companies like Coinbase and market confidence to gain legitimacy with institutional investors?

 

TN: Yeah, no doubt it’s hurting their credibility because cryptocurrency has kind of become a bit of a mockery over the past week or so, we assume on tweets and a number of other things. But I don’t necessarily believe that crypto currencies are a thing of the past. They haven’t been retired yet, but we do expect to see cryptocurrency is more regulation, more explicit regulation and kind of soft infrastructure around cryptocurrency like Coinbase that goes along with it. They’ll have the infrastructure to be able to help in that crypto investors who along with regulation and do just fine.

 

TN: So I don’t think crypto her dad the new not necessarily realize that they thought they may, but but I do think it’s still something that’s viable within the broad based interests.

 

RK: Thank you so much for your time this morning. That was Tony Nash, CEO of Complete Intelligence. And let’s take a quick look over at the coin prices right now. Bitcoin thing, a little bit of a recovery. It’s up two point six per cent now, forty one thousand dollars and on a year to date basis, up to forty one point six percent year to date, still far off from the 100 percent or 90 percent year to date gains we saw earlier this this year.

We take a look at Etha. It is now two thousand seven hundred and seventeen dollars, or seventy two thousand two hundred eighty dollars a coin up a little bit, point four percent year to date, up 275 percent.

 

NL: Yeah, very quickly as well. Taking a look at a piece of news, the first quarter of 2021 doesn’t appear to be working out in a week’s favor. According to the F.T., Quarterly losses almost quadrupled on year to over two billion dollars.

 

RK: We work not working. Yeah, that’s a headline in the making right there. The losses incurred as so far this year, three point two billion dollars in 2020. Revenue fell almost 50 percent on year from one point one billion to six hundred million dollars. And the company lost around 200000 customers from a year ago. And this, of course, all information, according to the Financial Times, because this is not a public listed company just yet. In fact, they’re looking to try and go public again later this year after their first failed attempt a year to be eighty nine point nine.