The full episode was posted at https://www.channelnewsasia.com. It may be removed after a few weeks. This video segment is owned by CNA.
US banking giants express optimism for the year ahead despite warning of potential risks to the economic recovery. Sachs reports a 51% increase in earnings, driven by strong performance in asset and wealth management. However, Morgan Stanley’s net income falls over 30% due to charges, reflecting a mixed performance in the banking sector. The market sell-off is attributed to concerns about the resilience of US markets, potential volatility in the coming months, and uncertainty surrounding the upcoming presidential election and US fiscal spending.
Additionally, Wall Street is affected by the mixed reports from Goldman Sachs and Morgan Stanley weighing on market sentiment.
The show also discusses the upcoming reports from middle regional banks to gauge the performance of commercial lending, consumer activity, and the overall tone for corporate finance and insurance in the next quarter. Overall, market sentiment remains cautious due to uncertainties surrounding economic indicators, the upcoming election, and fiscal spending in the US.
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US banking giants are finally calling the bottom, signaling a deal making comeback in the coming months. Executives of two major lenders expressed optimism for the year ahead as they reported fourth quarter earnings. But they also warned of risks that could disrupt the economic recovery. And Goldman Sachs stuck the landing after tumultuous year for the bank. Its earnings jumped 51% in the fourth quarter from a year ago. A strong performance from its asset and wealth management business supported the profit boost, offsetting weaker investment banking, and its shares ended up about seven tenths of a percent. Meantime, Morgan Stanley also topped revenue estimates on an investment banking rebound. But the net income fell more than 30% due to one of charges, pushing its shares lower by more than 4% there. Now it is the first scorecard under new CEO Ted pick, who warned of two major downside risks, including concerns around geopolitics and the health of the US economy. Those bank earnings results posing one of the biggest drags on Wall street, pushing all three major indices lower overnight. Now the S&P 500 had been trading near its all time closing peak, reached in 2022 over the past several sessions, but it is now down about 1% from that record high.
CNA
Meantime, the tech heavy Nasdaq shed about two tenths of a percent. Boeing was the biggest loser in the Dow, shedding about 8%. The plane maker has yet to regain investor confidence after us aviation regulators extended the grounding of its seven three seven max nine jets indefinitely for new safety checks. Spirit Airlines, though, losing more altitude over a blocked acquisition deal. A federal judge ruled against JetBlue’s nearly $4 billion takeover proposal of spirit airlines over antitrust issues. And as equities tumbled, US treasury yields rose with the dollar amid easing rate cut expectations. Yields on benchmark tenure notes are back above 4%. Again on hawkish remarks from Fed governor Christopher Waller. Tony Nash, founder and CEO at Complete Intelligence, joins us for more now. Tony, we’re looking at Wall Street’s sell off accelerating. We’re hearing at the that, you know, markets may have gotten ahead of themselves regarding how deep and how fast those policy rate cuts could be. Your take on that and how we can expect markets to move?
Tony Nash
Sure, the problem with us markets right now is that they’re priced for perfection. So if anything goes wrong, if the Fed signals an overly hawkish message or an overly dovish message, or say, a government macroeconomic data print comes out that isn’t perfect, or if company earnings don’t come out that aren’t perfect, then we can really see some wobbles in us markets. So I’m not really sure about the resilience of markets here. I think what we’ve been telling our customers is you’re going to see some intramonth volatility for the next few months until investors become confident in the direction of the Fed.
CNA
At the same time, this year is a pretty big one. For the US. It is election year. How much of this of lack last step performance is actually due to this? S&P 500 historically performs well in an election year, but it typically sees a slower start first, or is this just part of what is usually happening?
Tony Nash
Yeah, a lot of this really depends on Janet Yellen, the treasury secretary. If she can sell enough bonds to have cash to spend money from the US government, then we can really see markets rally pretty hard. But if Yellen can’t get the authority and can’t sell the bonds necessary to do that, then the US fiscal spending will be problematic. We also have a budget that’s going through in the US and a tentative budget agreement. If the Republicans halt that agreement and make more fiscal spending cut demands, then that could weigh on the US economy as well. Yes, traditionally markets do well in a presidential year, but I think there’s a little bit uncertainty around the election. And people, I think people are a little bit hesitant to spend partly because they’re a little bit loaded up on debt or a lot loaded up on debt. And we’ve seen a really robust 22 and 23. And so really people are wondering how far can we push this in 2024?
CNA
Indeed, dampening sentiment there. Big bank earnings. We’ve got Goldman and Morgan did the latest two report appears to be quite a mixed bag, but mostly not so great this quarter. And that’s weighed on Wall street as well. How do you read the latest earnings report? Are we talking bad debt, the lingering effects of high for longer rates? And what does it tell you about the consumer?
Tony Nash
Yeah, I think that what we’re really waiting for is some of these middle regional banks to see how they report because we’ll know how, say, commercial lending is doing and how commercial real estate lending and how consumers are doing. It’ll be much more evident as we see these regional and mid sized banks report. The larger banks, they’ll be fine. They are fine. They know how to manage and trade off the different lines of business that they have. It really is the mid sized banks that we’re waiting on and that will set the tone for a lot of the corporate finance and banking and insurance for the next quarter.
CNA
All right, Tony, appreciate time this morning. Tony Nash, founder and CEO at Complete Intelligence.
The BBC’s Business Matters podcast covers a range of topics, including the positive economic signs in the US, the Russian tech brain drain, and the potential for a new plug to be the secret to a green transition.
Guests Emily Eng, NPR’s Beijing correspondent, and Tony Nash, founder and CEO of the financial forecasting platform Complete Intelligence in Houston, provide their insights on these topics.
They discuss the impact of economic sanctions on Russia and how the country is responding to them, including increasing exports to China and reducing its crude oil supplies by 500,000 barrels per day to push up prices.
The conversation also touches on a controversial proposal by the European Commission to seize Russian assets to help rebuild Ukraine.
Additionally, the podcast covers the announcement by the US federal government that all new garages and four courts built in the country will have to include charging points for electric vehicles and its potential impact on accelerating EV adoption.
Transcript
BBC
Hi there. Welcome to Business Matters. My name is Ed Butler, and today, despite all the political rows we’ve been hearing about a potential debt default, there are more positive economic signs from the United States. This week, we read the tea leaves with a former presidential economic adviser and hear about the new incumbent in that job. Also, we consider the Russian tech brain drain, and why a new plug could be the secret to a green transition.
Emily
This will definitely help accelerate EV adoption. Charging is one of the things that really does stand in the way of someone’s decision about going electric.
BBC
All the latest on electric vehicles in the States coming up in the show, and I’m going to be joined throughout the program by two guests on opposite sides of the world. Emily eng is NPR’s Beijing correspondent, although she is based in Taiwan at the moment. Hi, Emily, can you hear us?
Emily
Yes, I can. Good morning.
BBC
Great to have you on the show. Tony Nash. He’s the founder and CEO of the financial forecasting platform Complete Intelligence in Houston, Texas. Hi, Tony.
Tony
Hi, Ed. Thank you.
BBC
Great to have you both with us. Tony Nash this is obviously a function of, to some extent of the economic sanctions that we’ve been talking about, those applied against Russia. I mean, the funny thing about this is to some extent Russia hasn’t done that badly in the last twelve months, at least initially. I mean, that’s what the headline data is telling us. You look further into the future, I mean, are you seeing a kind of more serious decline potentially with Russia now because of what’s been applied against it?
Tony
Sure, there are a couple of things to look at. First, in the four weeks in January, Russia exported more crude oil than during any four-week period in 2021. So they are recovering their export capacity to places like India, China, parts of Africa, and other places. So, you know, it really hasn’t necessarily hurt their crude exports. When you look at imports, they’ve really substituted, say, the west for China. Their imports from China have grown by, I think, $8 billion a month. It’s got to be more than that, but I saw some numbers recently, but they’ve substituted imports from China. So in terms of trade, they’ve really turned eastward and southward instead of westward, which is just a natural response to sanctions. So where they’ve hurt is domestically in terms of things like industrial production of, say, machinery and domestic goods outside of, say, coal and oil and gas.
BBC
What the west, of course, has tried to do most recently is apply these caps on Russian crude exports. Now you’re saying that they’re getting around those or are they simply selling a larger amount of crude but at a lower price?
Tony
They’re getting around them. They haven’t hit the price cap yet. The crude is trading, or what has been trading at, I think, a $20 discount to the price cap. So they’re not even hitting the price cap. There’s a $20 discount to Euros crude. What Russia on its own, announced last week is that they’ll reduce their supplies by 500,000 barrels per day. So Russia is, on its own, taking barrels off the market as a way to push up crude prices. So the volume and the price caps really aren’t having an impact necessarily on crude itself. Of course, the Russian economy is being hit. Of course the isolation, of course other things are impacting Russia. I’m not trying to say that there are no impacts at all, but in terms of that natural resources, trade, and some of the import substitution, they’re actually doing okay.
BBC
Yeah, import substitution. This is the thing, and it’s a fascinating subject, actually. I was suddenly trying to dig into this, and it’s really complicated. But Tony, one last tantalizing thought on this. An element we understand, what Bloomberg is reporting that may be part of these new sanctions from the EU is to force banks to report more information on what Russian central bank assets they are actually holding. Because of course, the EU and other countries want to know how much has been frozen in Western bank accounts that used to belong to the Russian state budget. Now, this is seen possibly as a first step towards a controversial move touted by the European Commission, not just to freeze Russian assets, but to actually seize them, to use them to start rebuilding Ukraine or to at least pay Ukraine back for the damage that’s been caused. I mean, gosh. Do you think that that could be something we’ll be looking at in the next few weeks?
Tony
I think as a threat, I guess useful as a threat, but as an actual policy, I think it would be very difficult to execute and justify. Usually, these things are seized for years or decades. Sorry, frozen for years or decades, not necessarily seized. So I think that could be a very problematic policy to carry out.
BBC
Because it would set precedents.
Tony
Yes, that’s right.
BBC
For western countries, I suppose. Okay.
Tony
And the banking system that supports Russian assets or sovereign assets, would be dangerous for people like Russia going forward.
BBC
Tony Nash, thank you for now but stay tuned to this because this is big news. If you’re a car owner who wants to buy an electric vehicle, maybe you’ve got an electric vehicle already, especially if you’re in the US. The Us federal government has said that from now on, all charges that are used in the garages and the four courts around the states must be American made and have to be usable for all-electric vehicles. That means that Tesla, which has had most of the existing charging points, they have to carry, adapters, allowing other cars to use them. I spoke earlier about this with Alexis and John of Business Insider in Detroit. Well, Tony Nash, there you are in the big oil state, famously, there Texas. How is EV adoption going in the States?
Tony
It’s great. I’m sorry. It’s great. A lot of my neighbors have EVs, and I think it’s probably not as dense as, say, San Francisco or something. But we do have a lot of EVs here in Texas.
BBC
You’ve got a lot of territories to cover, though, don’t you? I mean, if you’re a driver. We do, and I have an electric vehicle. Every time I’ve gone 100 miles down the road, of course, I’m starting to sweat at the thought that, you know, at some point I’m going to have to refuel, otherwise I’m going to stop on the highway. Tony Nash are you confident that the move to electric vehicles is going to move as fast as some politicians, I suppose particularly politicians in Europe, are saying that we can sort of phase out the internal combustion engine in the next few years and rely entirely on electric vehicles? It’s going to require an awful lot of infrastructure. An awful lot of rare earth. Exactly, that’s right.
Tony
A lot of infrastructure. I mean, I understand the aggressive plans, but I just don’t think it can happen on that time scale. So it seems to me that maybe add ten years to it and sure, that makes sense. And to be honest, ten years in terms of adoption, in terms of building this stuff is really just the blink of an eye. So sure, I think it’ll happen, but I think it’s going to take a bit longer than people right now believe.
BBC
Right, it’s going to take longer, but that’s going to leave, I guess, a lot of politicians with egg on their faces, isn’t it?
Tony
That won’t be the first time. Quite true. Especially American politicians. Won’t be the first time.
BBC
Quite true. evelyn professor Jason Furman. Tony Nash, obviously he’s speaking in an upbeat way. He’s a supporter of the Democratic cause. Are you sensing a slightly kind of warmer, more positive mood in the US right now over its economic performance?
Tony
I think the mood is tentative because inflation is affecting everything. So if we look at that retail sales number, if you look at it in inflation-adjusted terms, we actually saw a decline of retail sales by 2.3%, and it was the fifth consecutive year-on-year decline. So five months in a row we’ve seen negative retail sales if we adjust for inflation. So I think inflation really covers everything. One of the things that the professor said that I’m not really sure is right is he says the White House can’t do anything about inflation. So we have Janet Yellen, who is a Treasury Secretary reporting to the White House, who is spending $140,000,000,000 a month from the treasury general account, and it’s offsetting all of the work that the Fed is doing. So the treasury is actually putting $140,000,000,000 into markets every month to keep markets booming. When the Fed is raising interest rates and selling off its balance sheet. So the US Treasury is actually and literally offsetting all of the good that the Fed is trying to do.
BBC
It’s interesting because we got Lyle Brainer coming from the Fed right this week to the White House as an economic advisor. You’re seeing that the political executive and the Fed are basically in conflict.
Tony
Absolutely. And Lail Brainerd is very smart. She’s fantastic. But she is very much a dove. She’s very much a loose monetary policy believer. And so what Janet Yellen is doing at the Fed in terms of pumping money in through the treasury general account, Lail Brainerd would be an absolute supporter of. And so we have to be very, very careful of inflation. All of these stimulatory activities really hurt your average worker. So there’s a concept called core inflation which really takes out everything energy, food, and so on and so forth. And really all it’s reflective of is service industry wages. Okay? So what we like to see is a headline number which will say 6% or something and what we’ll talk about is a core number which may be 1.2%. All that really means is that your hourly workers are being squeezed by inflation. So when the headline exceeds the super core inflation rate it just means that your hourly workers are being squeezed. And so it’s a really tough environment for wage workers.
BBC
Okay? It’s a tough environment. The bigger issue perhaps. Meanwhile, Tony, we still have this debt default issue, don’t we? We’ve been hearing about it in the headlines. Yet another cliff edge approaching in the United States. The wearyingly inevitable to some people kind of confrontation between Republicans and Democrats in Congress.
Tony
Yeah, I think what’s happened is the US has not actually had a budget for years and my understanding is what is trying to be negotiated is for the US to actually start doing an annual budget again that gets approved by Congress which is their constitutional role. One of the other items that I know are under discussion is this Treasury general account issue. Kind of profligate spending from the treasury to support markets. So there are some issues. It’s not just about the full faith and credit of the US. Of course, nobody wants the US to default but we’ve had some pretty ugly spending patterns for the past well as far as I can remember and I think some of that is just being discussed to come under control. So the US won’t default but it’s going to take some time to come to an agreement.
BBC
Yeah, indeed it will. We’re probably just going to be talking about it for weeks and weeks and weeks.
Tony
Well, I don’t think people realize there are thousands of protests in China every year. It’s not rare to have protests in China. Some of them are local workplace protests. Some of them are bigger. There was a protest east of Wuhan a few years ago about the location of I think a plastics factory or something like that. And there was one in Guangdong about, I think, an incineration plant or something, probably four or five years ago. But there are thousands of protests in China. It’s good that this is happening, and it’s a good discussion to have, and it’s good that Western media are able to view it. So every society has protested and every society has disagreements, and China is no different. Yeah, but there are older people, and even during the COVID lockdowns, the aunties in the buildings were yelling at the people, bringing food to them, and yelling at the police. So there is a difference in the age population in China. So I just don’t find any of this surprising, whether it’s a protest or a deference to old people.
BBC
What are they yelling down at the government? I mean, is this an escalation in the sense of the language, perhaps the boldness of some of the protesting and the way it’s being put?
Tony
They’re not saying, down with the CCP. Right? So if Beijing will let local governments take the flak for local issues, that’s not all that abnormal. It’s not a daily occurrence, but it’s not all that abnormal. If they were shouting down at the CCP, of course, that protest would have been squashed, but local governments and local government officials always take the hit for these types of issues. That’s normal in China.
BBC
Okay, Tony and Emily and Tony Nash, I suppose workers, you know, if they did kick up a fuss, for example, at a handful of Starbucks stores, they are still, particularly they’re still potentially vulnerable to just being fired, aren’t they? I mean, how protected are they from that kind of retaliatory action if they were to try and organize just on a shop-by-shop basis?
Tony
Yeah, I honestly don’t know. I think that would have to do with the contracts they negotiate. As your guest said, unionizing is one thing, but getting a contract is a whole different level. So I think her interview is very interesting. And what’s really interesting to me is what is leading to this desire to unionize. People obviously don’t feel like they’re getting fair pay and fair benefits, and that’s something that really needs to be looked at across companies.
BBC
Yes. And that is what seems to be a legacy of the pandemic, partly, wasn’t it? People went home, they were kind of laid off or furloughed for often long periods, they reflected, and there is a kind of militancy that seems to have left as a legacy.
Tony
What’s interesting to me is Starbucks is supportive of this, but they’re also the company that people want to unionize under. Right? And so they have the orientation toward doing that, but they’re not providing on their own the benefits and the pay that would keep people from unionizing. So I just think it’s an interesting circular discussion. Tesla is a different story. They’re an auto company in different parts of the country, automakers are highly unionized. So I don’t think it should be any surprise to Musk that that’s happening in Taiwan.
BBC
Thank you so much for all your thoughts, your words, and your wisdom. And to Tony nash there at Complete Intelligence in Houston, Texas. My name is Ed Butler.
