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USD-Euro Parity Offers Opportunities

This podcast first appeared and was originally published at https://www.bfm.my/podcast/morning-run/market-watch/usd-euro-parity-currencies-euro-monetary-policies on July 21, 2022.

Currencies have been in a flux with the US dollar gaining strength on the back of the rising Fed fund rate. Our CEO and founder, Tony Nash tells us if there are actually investment opportunities from this.

Show Notes

SM: BFM 89 nine. You are listening to the morning run at on Thursday the 21 July I’m Shazana Mokhtar with Wong Shou Ning. In half an hour, we’ll discuss the emerging market economies that are at risk of going the way of Sri Lanka. But as we always do, let’s recap how global markets closed overnight.

WSN: While I haven’t seen this in a very long time because every market that we’re going to report pond is actually in the green. So the Dow was up 0.2%, the S&P 500 up 0.6%, Nasdaq up 1.6%. Meanwhile in Asia, Nikkei was actually up 2.7%, hong Kong up 1.1%, shanghai up 0.8%, Singapore street times up 1.7% and our very own FBM KLCI was up 0.6%.

SM: These days are far and fewer between indeed when the board is completely green. But for analysis on what’s moving markets, we speak to Tony Nash, CEO of complete intelligence. Tony, good morning. Thanks as always for joining us. So another choppy session on wall street, but the SP 500 posted its first back to back gains in two weeks. Do you think markets have bottomed and is there a sense of relief that results season so far has been pretty decent?

TN: I think the result season has been okay. It’s still a slowdown from the previous quarter. I think it’s really people taking a sigh of relief about the Fed. They’re was fear last week that the fed was going to raise 100 basis points for a few days and that really led to dramatic falls. And what we’ve seen is a sigh of relief that that’s unlikely to happen. We’re likely to see 75, which although that’s elevated, it’s less than a 400 basis points. So I think it’s more that than earnings right now because there’s not a specific sector that’s necessarily doing dramatically better or dramatically worse. Of course tech, we have some tech gains, but we also had other areas where things gained, so it’s more broad than anything else.

WSN: Tony, what did you think of Netflix? Sorry, Tesla’s results that came out just a few moments ago. Did it surprise you in terms of how well they’ve done considering the shutdown that they experienced in China?

TN: Yes, it did. And they banked a billion dollars on bitcoin. So I think that I’m hoping that Tesla starts to get more focus on their performance and their actual market rather than speculating on cryptocurrency. I think every business, at least in America is having to come back down to earth and focus on their own operations now and Tesla is one that really needs to do so. The results were good and that’s great, but I think more focus is needed, especially with the opportunity they have right now in the US.

WSN: And another thing I want to ask you about is some of these leading tech companies. So we see in Google, we’ve seen Apple actually coming out to say that they’re stopping. They’re hiring. At this current juncture, does this make you nervous about the state of the US. Economy or is it actually pretty good because the job market was too high and inflation was a major concern?

TN: Does it make me nervous? Yes or no? I’ll tell you what’s been happening here in the US. If you’re under 30 and you work for a tech company, you know that if you work for a company for twelve months and you jump to another job, you’re going to get a 20% to 30% pay rise. So for the last few years, if you’re under 30 or say under mid thirty s, you would work for a tech company for a year, then switch jobs and get a significant pay rise. So because of that, these tech companies have over solicited jobs. We’ve heard about these millions of unfilled jobs in the US. Those aren’t real jobs, okay? Those are jobs that tech companies have been waiting for people to move on from because they know their employees are going to move on after twelve to 15 months. And so they’re prepacking the employment queue so that they don’t have disruption in their business. That’s what that’s all about. So Microsoft, Google, Netflix, all these guys saying, we’re taking all these jobs out of the market. It’s really just them seeing that the market is slowing down and their staff aren’t going to jump jobs as much as they have been.

WSN: And one other thing I want to ask you about is the aviation sector. So last night, United also reported numbers that were below street expectations a lot due to capacity constraints across the industry. Do you think it’s time to buy this if we really believe in the reopening theme, because these are just temporary blips.

TN: Oh, the time to buy airlines was like three, four months ago. I would be really careful right now if I were to go on airlines. I’d want to know the summer travel season, it’s halfway behind us. So I think if you were buying airlines, you should have done it excuse me? You should have done it a few months ago and then seen the rise as we went into the summer season and sold just before earnings. But as we’re seeing some of their earnings come in somewhat disappointing, I think that’s the real kind of warning for, say, Q Three. So these disruptions, they’re not necessarily getting any better. Disrupted flights are not necessarily getting any better. So corporate earning or stock market prices are about expectations. They’re not about actual performance. So we saw the expectations in Q Two disappoint. So that’s going to really erode expectations for Q Three. So I would be really wary of looking at airlines right now.

SM: Okay. And if we take a look at Europe, the European Central Bank meets today to decide on whether or not to raise rates. What do you think they’re going to do?

TN: Look, Europe is pretty rudderless the ECB is pretty rudderless. They’ve got negative real interest rates and they don’t have a way out. So they’re kind of either already entered or about to enter a recession. So if they raise rates or tightened too much, they’ll steepen the negative slope of the recession. They’ll make it worse. If they don’t raise rates, then the recession will be a bit easier. But they’ll weaken the euro. And as they’re importing all of this power gas and oil and same natural resources, it’s just making those things more expensive in euro terms. So if they tighten, it’s likely about the purchasing power of the Euro more than anything else. The other part that they’re likely to do is look at things like demand destruction, which is what the Fed has been focusing on for about four, five months. They’ve been raising rates so fast that people feel less purchasing power and they stop buying as much. And so if the ECB raises, say, 75 basis points, which I doubt they will, what they’re really signaling to people is they want them to stop buying so much. But we really think the ECB is going to kind of have a moderate tone to the meeting and really not surprised the upside.

WSN: Okay, I want to stay in Europe and I want to talk about the week euro. I mean, at one point you said parity with the US. Dollar. But do you think that actually a weak Euro does provide some stock picking opportunities?

TN: Yeah, it can. I mean, if you look at those European companies that export a lot, let’s say to the US. That would give those companies opportunity to expand their margin in local currency terms while keeping their US. Prices either constant or raising them right. So I would look really hard at European countries who are exporting to places, dollar nominated locations to where they can absorb some of the same gains. For example, not a European company but Pepsi, okay, they make snacks and drinks and this sort of thing. Last quarter they raised their prices by 12% and they had a 1% volume expansion. So American consumers are accepting price rises, double digit price rises and they’re continuing to buy. Okay, so European companies could look that European companies that export a lot to the US. Could really look at this market and put that into their strategy for US. Exports. The problem in Europe right now, a big part of the problem is the expansion of energy prices. German producer prices rose by 30% last month and so they have a real problem with productivity or with profitability. Their costs are rising so fast they have to find a way to raise prices.

And they can only do that into a strong dollar market. It’s very difficult for them to do that elsewhere.

SM: Okay. And speaking of energy, currently, how much correlation is there between oil and natural gas prices and which one do you see undergoing more price volatility in the coming months.

TN: It’s almost zero, actually, over the last month. The correlation is zero point 607, to be precise. Okay.

WSN: It’s a real number.

TN: No, I actually did the calculation. I did the math. So that’s what I do all day long. So normally that’s kind of a zero seven to eight, which is a significant correlation. Right. What we’ve seen is that we’ve seen crude prices, downward pressure on crude prices over the past month. There’s been a lot of pressure, especially in the US. With the Biden administration really kind of bullying crude prices down now that gas prices have been pushed up because of the issues of gas exports out of Russia. Okay. And so you’ve had a disintegration or disconnection sorry. Of those correlations. Where do we expect more volatility? Well, we expect crude oil to be kind of range traded, say, between 95 and $115 for the next few months, that gas can continue to rise, especially if Russia does not turn the gas back on the pipelines. Which decision is, I think tomorrow or the next few days? If they decide not to turn those prices back on, the price of gas continues to rise pretty dramatically.

SM: All right, Tony, thanks very much for speaking with us. That was Tony Nash, CEO of Complete intelligence, giving us his take on some of the trends that he sees moving markets in the days and weeks ahead. Ending the conversation there with just a look at how natural gas and oil prices are expected to trend in the coming months. Crude oil to trend within the range of natural gas. Now, that’s where we could really see some price volatility if geopolitical situation in Russia and Europe doesn’t, I guess, stabilize.

WSN: Yeah. All this is going to feed into inflation. Right? And we are already seeing that in UK numbers. So it came out yesterday, hit a new four year high as food and energy prices continue to so. The consumer price index there rose 9.4% annually. It’s a lot, and it’s mainly due to fuel and food prices, which were the most significant contributors to the rising inflation rate that we’ve seen. So as a result, the bank of England might actually consider a 50 basis point high at its August policy meeting.

SM: Something to keep an eye on, and I’m sure something that the incoming prime minister, whether it’s Rishi Suna or Liz Truss, will need to start strategizing from now 718 in the morning. We’re heading into some messages and when we come back, does the antisexual harassment bill that was passed in parliament yesterday pass muster? Stay tuned. BFM 89 nine.

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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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Fed Chair Jay Powell Utters Dreaded ‘R’ Word

With Fed Chair Jerome Powell admitting that a recession is inevitable in the US, the narrative now turns to its timing and magnitude. Tony Nash, CEO, Complete Intelligence, helps clear the air.

This podcast first appeared and was originally published at https://www.bfm.my/podcast/morning-run/market-watch/fed-chair-jay-powell-utters-dreaded-r-word on June 23, 2022.

Show Notes

SM: BFM 89.9. Good morning. You are listening to The Morning Run. I’m Shazana Mokhtar with Khoo Hsu Chuang and Wong Shou Ning at on Thursday the 2020 3 June. In half an hour, we’re going to get an update on the situation in Sri Lanka and what the most viable path out of the economic quagmire that they find themselves in at the moment. But first, as always, let’s recap how global markets closed yesterday.

WSN: Guess what? Every market was down. Every single market that we cover, at least, the down nested were down zero 2%. SMP 500, down zero 1%. Nikki, two to five in Japan was down 0.4%. Hong Seng, Hong Kong, down 2.6%. Shanghai was down 1.2%. Straight times Index in Singapore down 0.8%. And our very own FBM KLCI having a bit of a bad day. It was down 1.8%.

SM: So, mark it’s all in the red this morning. For some thoughts on why, we speak to Tony Nash, CEO of Complete Intelligence. Tony, good morning. Thanks, as always, for joining us. Now, the Fed Chair, Jerome Powell came closest to admitting that a recession is inevitable, as engineering a soft landing would be challenging. These are remarks that he made overnight. Does this mean a less hawkish stance by the central bank going forward, do you think?

TN: Well, I think what they’re trying to do is kind of moderate the perception of their hawkish actions that they’ve taken over the past two months. So you have interest rates, rate rises happening, but you also have quantitative tightening starting as well, which means that the Fed is selling assets on their balance sheet. And what quantitative tightening does is it takes currency out of the market, so the money supply is smaller, which makes that currency more valuable, and it puts pressure on, say, equities and other things because money is not as easy. So, yeah, I think they’re trying to help people not see things as hawkish as they are, but they’re still trying to talk down inflation.

KHC: Yes. Tony, so the narrative existingly for recession is further out in 2023, but there’s one or two banks now in the US saying that 2022, the latter half could be the recession. What’s your opinion?

TN: Yeah, I think look, we already had a negative GDP number in Q1, so it’s quite possible that we see another one in, say, Q3 or something like that. What’s interesting to me is total commercial lending is still rising. So we saw total commercial lending, I’m not talking about consumer credit, I’m talking about bank lending. And so we saw in 2008, we saw in 2020, bank lending either declined or flattened here. It’s still on a steep curve. So that tells me that there’s still activity in the economy that people aren’t completely afraid. Yet you do see commercial and industrial loans still growing in the US as well. So I don’t necessarily think there’s a huge amount of say over the past couple of weeks, I’ve started to see people use the word depression. And we see this every time there’s a recession. People take it to an extreme. I’m not quite sure we’re there yet. A lot of people act like it’s a no brainer. We’re already in a recession, but we saw that in Q1. It doesn’t feel good. We may see it later in the year as well.

WSN: Okay, so, Tony, we know that the technical definition of a recession is two quarters of negative growth. Assuming that happens, so we have a technical recession. Just curious, how painful will this recession be? How long will it take for recovery? Or is it too early to try and make a guess on this?

TN: No, I think typically recessions are probably two quarters. Even if they’re say a shallow recession, what typically happens is the job losses are the most painful. And so we’ve heard so much over the past a year and a half about talent shortages and this sort of thing, and a lot of jobs unfilled. So what’s happening now is the investors and the banking analysts are transitioning their expectation on company performance. So during Covid, they were like, basically saying, look, just hold it together, don’t go belly up as a business, just keep running. And we’ll have a wide birth of kind of loss and other stuff for you. During COVID, we’re normalizing now. So analysts are pushing very hard for management teams to produce normal metrics for performance, and many of them aren’t doing it. And we saw with some of the retail numbers and some other numbers coming in, so what’s going to hurt the most is layoffs. And that’s going to come even with a shallow recession, we’re going to see layoffs. Will that happen now? We’ve seen that in tech. I wouldn’t expect other layouts to start until probably Q3. So that’s what’s going to hurt and finding jobs, it’s going to hurt coming out of this.

KHC: Yeah. Another metric, Tony, I saw that house prices continue to ratchet higher. I think average home prices in the US is nearly half a million US dollars. Do you see any kind of impact in terms of maybe a correction on that price rent?

TN: Yeah. So when we look at, say, the median home price in the US. It’s $428,000. Okay. So just under the 500 you mentioned. Now in January of this year, if you took out a mortgage in the US. Which the term for mortgage in the US. Is typically 30 years. So if you took out a 30 year mortgage, your monthly payment would have been around $1,700. Okay. In June. Now, that same size mortgage would cost you $2,500 a month. Okay. So we have $700 more a month just over the last six months. That hurts. So I think we’re starting to feel the pinch. There’s still demand for housing, but the affordability of housing has really dried up. It’s really hard for people to get the house that they want or need, and people are either choosing to stay in place or they’re just buying something of lower quality or different location or something.

SM: So, Tony, let’s switch over to what’s happening in Europe. The Eurozone’s first quarter GDP growth rose 0.6% on a quarterly basis and 5.4% on a yearly one. What do you make of these numbers? Do they show that Europe might avoid a recession this year?

TN: Yes, I think that’s going to be really hard. Europe is on really weak ground because they’ve had negative interest rates for quite some time now, and the ECB is talking about coming out of a negative interest rate stance. So when you look at that in Q One, you already had household consumption at a negative growth rate, negative 0.7% quarter on quarter, and you had public expenditures. So government spending down zero, quarter on quarter. So households and governments are spending less than they were the previous quarter. So it looks pretty bad. You even have things like fixed capital formation, which is kind of long term hard investments like roads and buildings and stuff. It rose just over zero. So Europe is really on this thin edge of having a growing economy or not. And so I think with rising interest rates in Europe and energy prices and other inflationary pressures, it’s going to be really hard for Europe to stay out of recession this year.

WSN: Tony, I want to ask about currency, because if you look at the Bloomberg spot in dollar, it’s up 7% on a year to date basis. Of course, in every other country is feeling the pinch. What is your view on the dollar? Is it bad or good for the economy?

TN: It depends on where you are. What the treasury and the Fed are trying to do right now is strengthen the dollar so that these commodities that are nominated in dollars or priced in dollars go down for American consumers. Okay, so you source copper globally, you appreciate the dollar. The price of copper goes down just by function of the currency that it’s nominated in. That’s fine for American consumers and American companies. But if you’re in a developing or in middle market or even just not America, look at Japan, right? Their currency has depreciated dramatically. And for, say, Japanese to buy things that are normally priced in US. Dollars, it’s, I think, 26% more expensive than it was, say, six months ago. Okay, so it hurts if you’re outside of the US. So what has to be done? Well, for countries that are importing things that are based in dollars, so energy and food and other things, they’re going to have to raise their interest rates and tighten fiscally and other things. Otherwise those products just get more and more expensive in local currency terms. So it’s going to be hard. It’s going to be a rough time for emerging markets, especially.

KHC: Yeah. Tony switching our attention to Hong Kong, China. There’s a report coming from the city state that John Lee, the new CEO, is working on a strategy to reopen borders with China. Do you think this pretends, maybe a relaxation of the covered rules within China itself?

TN: I hope so, guys. Really, I mean, Asia and the world really needs China to loosen their covert rules. They’re the second largest economy in the world. They’re the major manufacturer for the world. They are the bottleneck for the global economy. So we hear about how Ukraine, the Russia Ukraine war, is impacting inflation. That is nothing compared to what China is doing with bottlenecking manufacturing and trade. So we really need to encourage China to open up. And I did some analysis a few weeks ago. There is, on average, one covet death reported per day in China. Okay? So China is closed for a one over 1.4 billion chance of dying. Okay? So that’s like 70 to the right of the decimal point before the first number appears in a percentage term. So there’s a minuscule chance of dying and they’re closing for that. So it just doesn’t make economic sense, it doesn’t make public health sense for them to close. So we really need to encourage China to open up so that the rest of the world economy heals.

SM: Tony, thanks very much for speaking to us this morning. That was Tony Nash, CEO of Complete Intelligence, giving us his take on some of the trends that he sees moving markets in the days and weeks to come, ending there with an appeal to the Chinese government to please open your borders.

WSN: Please. Because I think what’s very disruptive is also this constant opening and then closing and opening and closing, and we can see the impact of that, especially when it comes to supply chain disruptions, like China still the factory to the rest of the world. But very quickly, I think we also have news coming out of us, and this is so much related to inflation because President Joe Biden has basically called on US. Congress to suspend the federal tax for 90 days. Currently, the federal tax stands at $0.18 for a gallon of regular gasoline and $24 per gallon of diesel fuel. So basically trying to calm down. I think also as America goes into summer holidays and driving season starts and I think we’ve seen prices as much as $5, $6 per gallon, which is a shocker to most households. So this is him, I think, making the political overtures that, yes, I’m aware inflation is a problem and let’s try and do something. But I think whether he can get the bipartisan support is always a problem in the US.

KHC: Yeah, we follow the local US papers over the past seven days, actually, he’s been introducing on a day by day basis different, different measures to try and address gas prices, which is of course, a political hot potato in the US.

SM: Very quickly, the UK still sticking on prices? Inflation has hit a 40 year high in the UK of 9.1% on a year on year basis. In May, it’s the highest rate out of the G Seven countries, and it was even higher than the 9% increase recorded in April. So inflation not abating in the UK. 719 in the morning. We’re heading into some messages. And when we come back, how are businesses embracing ESG in their strategies and frameworks? Stay tuned to BFM 89 Nine.

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Amidst Volatility, Boring is Good

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/us-fed-interest-rates-inflation-earnings-consumer-sentiment on June 9, 2022.

US markets remained volatile and on a downward trend as inflation concerns heightened. With that, the US consumer is beginning to feel the pinch of rising food and energy prices. What then does this mean for earnings in the coming quarters and has this been priced in? Our CEO and founder, Tony Nash answers these questions.

Show Notes

WSN: BFM 89 nine is seven o’ six Thursday the 9 June. And of course you’re listening to the morning run. I Wong Shou Ning together with Philip See. Let’s have a quick recap on how good global markets closed yesterday.

PS: US markets closed in the red. The Dow was down .8% SMP 500 down 1.1%, Nasdaq down zero. 7%. Whereas over in Asia it’s been a mixed bag. The Nikki was up 1%, Hong Sang up 2.2%. China composite up zero 7%. I think on the back of China easing a bit on the tech regulatory concerns. However, in Southeast Asia, Singapore is down 0.2%. FBM KLCI also down.

WSN: .1% so for some analysis on what’s moving markets, we speak to Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Please help us understand what is happening in US markets because it is another red day today. Why are markets so choppy this Thursday?

TN: I think people are awaiting the CPI print what’s going to happen with the inflation announcement because that number really helps to indicate if the Fed will accelerate their plans of tightening. So if the CPI runs hot, then we’ll see them accelerate potentially. If it comes in as expected, then they’ll stick with the plan that they’ve got.

PS: So the plan is to 50 basis point hikes. If you see it move higher, are you talking about it hitting 75 or like extending it for a third 4th hike?

TN: If it’s higher, we could potentially see it hit 75 maybe in June or July. But certainly we’re looking at another hike in September that’s probable right now and then maybe a 25 basis point in November. So let’s say we saw come in at nine or something like that for a developed economy like the US. These are people who normally look at inflation, 1%, one and a half percent. So 9% inflation is just something that people have not seen for a long time. And so this is really damaging to people. Wages are not very flexible here. And so I’m sure from the Malaysian perspective, you see that it’s damaging people here in the US and it actually is because wages are not as flexible here as they are in other parts of the world. So if we see CPI come in high, then you would see the set accelerate. If it comes in at eight, let’s say less than 9%, they’ll stick with the plan they have. If it comes in lower, say seven-ish they’ll still stick with the plan they have and continue to fight inflation to get it down around 2%, maybe sometime in Q1 in 2023 or something.

WSN: Okay. So let’s stay on the topic of the US economy now. Bloomberg runs a model, runs different models actually, and they say that there’s a 25% chance of recession in the next twelve months, but a 75% chance by 2023. Do you share the same view but.

TN: A 25% chance of a recession is just a hedge. Right? I mean, that’s just saying maybe it’ll happen.

WSN: It’s a chicken call Tony. It’s like being chicken.

TN: So when you look at what a recession, two months or two quarters. Sorry. Of negative growth. Right. Well, we had a negative quarter of growth in the US, and Q one of 22. Will we have a negative quarter of growth this year? Unlikely. Or this quarter? I mean, it’s unlikely because of the reasons for negative growth in Q one are not the same reasons they would be this year or this quarter. Sorry. So going forward, I don’t necessarily think we’ll have a recession, but I think it will feel like a recession to a lot of people because over the last year, year and a half, we’ve had higher overhiring in a lot of industries like technology, overhiring where companies have been afraid they wouldn’t be able to get the talent they need. So they overhire people. They’ve paid people a lot of money. So sectors like tech will likely continue laying people off. They’ve already started, but they’ll likely reassess their wages as well as they realize that they don’t need as many people as they hired. And of course, there will be other effects if tech start laying people off more broadly. So we’ve already seen housing housing in the US.

There is effectively no new mortgage applications going through on that in the US. So the Fed’s target for housing has kind of been achieved really quickly, actually. But it doesn’t necessarily mean there’s a recession. So things will feel like there’s a recession. But I’m not sure we’ll necessarily technically be in a recession.

PS: So let’s just build on your feelings, Tony, and translate this macro numbers to earnings. What is your expectation in terms of quarter two earnings? Do you expect them to be substantially weaker and how will that translate into equity markets?

TN: Absolutely, yes. Definitely substantially weaker. I mean, look at what happened to say, Walmart and Target a couple of weeks ago when they announced their earnings, they were way down. Why? Because they had way overbought inventory and they had bought the wrong inventory. Okay. So they’re paying for that now and they’re going to have to discount to get rid of that inventory. Right. I think people in a lot of industries because of supply chain issues, they’ve overbought things. And in the meantime, preferences and markets have moved on. So they’ve overbought things and they’re going to have to get rid of a lot of inventory. I think Target and Walmart got out there very early to be able to have their equity price hit hard early. But other companies will come out in second quarter and they’ll admit the same thing. So we’ll see margins really compressed. And because of that, we’ll start to see people announce more layoffs because again, during COVID, investors were very charitable to executive teams, meaning they were telling the executive, look, just stay open, just survive as a company, do whatever you have to. Right now, we’ve got markets that are normalizing.

Investors are being more scrutinizing as they should. They’re saying, look, markets are normalizing. You have to perform like an executive team should perform. You have to perform like a company should perform. So investors and markets are going to be harder on companies in Q two.

WSN: But Tony, does this then mean that when I look at the S&P 500 index, which is probably the broadest barometer of the US economy, it’s down 13 point 65% on the year to date basis. Can we expect further weakness or has this already been priced in?

TN: I don’t think it’s been priced in necessarily. I don’t necessarily think we’re going to see another 13% down, but we always hear that things are priced in. And then when events happen, we find out they’re not priced in. I don’t think it’s priced in. I think there’s more pain to come because people are realizing that they’re basically overpaying for the price of equity. Right. In a company. And so we’re going to see pressure put on valuations, and that’s going to hurt a lot, especially in tech. So we’ve already seen pressure put on valuations in tech. And you saw companies like Facebook who are just throwing off cash still and their valuation is compressed because people have just woken up and said, look, it shouldn’t be valued at that. Right. So we’re going to see that more and more, especially in tech, but also in other sectors.

WSN: So where should we hide, Tony? Will it still be in the commodity space? I mean, oil is up 2 and a half percent this morning.

TN: At where oil is. WCI is trading at 122 right now. Brent is north of that. So it’s possible that we see another 20% rise in crude, but it’s really thin air where it is now. So I think crude price really depends on the supply side. And so can OPEC pump more? Not much. Will things in Russia resolve? Maybe probably in third quarter or something like that. Right. So we really have to look at what are central banks doing? They’re trying to ratchet down demand. Right. And so if they can successfully ratchet down demand, then that will have an impact on true prices.

PS: Tony, I would love to get your view because you’ve seen a different vantage, especially in emerging markets, particularly Southeast Asia. If you saw recently WorldBank has scaled its forecast on global growth and has even highlighted the asphalt is very much vulnerable to stack flat, even recessionary pressures. What’s your view? What’s your advantage in terms of investment in EM markets, especially in Southeast Asia?

TN: Yeah, in Southeast Asia. I mean, look, in Southeast Asia, sadly, Myanmar is going to have the toughest time for the next year or two, right? I mean, we all know the political issues there. I love Myanmar, but it’s going to continue to have the toughest time, I think of the say more developed Southeast Asian countries. I think Thailand is going to continue to have a hard time Partly because of supply chain issues. It’s kind of intermediate point and if supply chains continue to stay strained and tourism continues to be relatively slow in Asia I think Thailand is going to continue to have a tough time. I think places like Malaysia, Philippines, Vietnam, I think they’re in a better position and I don’t know that you’ll necessarily get excessive gains in those markets But I think there’s more stability and more same maturity and leadership in those markets. So if I were to look to Southeast Asia on, say, a country play, that’s where I would look. I would be really careful to look at things like excessive consumption, these sorts of things. I think for the next year or so we’re going to be looking at real stables.

What do people need to live a really boring life because we’ve had this super exciting roller coaster for the past two years and we need to get back to normal and we need to look at what are people going to consume Just to have a normal day in, day out life.

PS: Boring life then.

WSN: Yeah, boring is good.

TN: I love that. Yeah, we all need a little more of that.

WSN: Thank you so much for your time. That was Tony Nash, CEO of Complete Intelligence, saying borrowing is good, we need to get back to normality which means that what investors should be focusing on Perhaps consumer staples Versus consumer discretionary and going back to core fundamentals. Looking at valuations, I think you hit.

PS: The nail on the head core fundamentals because I think investors have given companies the past throughout the pandemic most scrutiny now whether the question will be this will show dispersion and earnings variance between those high earners and low performers Will be a big question Mark as there’s more scrutiny about how you perform in this normal, boring time.

WSN: Stay tuned. That BFM 89.9.

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Podcasts

Major Headwinds Heading To The US Housing Market?

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/us-housing-market-outlook on May 26, 2022.

The VIX or the “fear gauge” has been trading sideways but what does it indicate about equity market expectation? And US home sales in April fell to their lowest in 9 years, brought down by rising mortgage rates but how adversely will this impact the property and construction sector? Tony Nash, CEO of Complete Intelligence tells us more.

Show Notes

SM: Bfm 89 Nine. Good morning. You are listening to the morning run at on Thursday the 26th May. I’m Shazana Mokhtar with Khoo Hsu Chuang and Tan Chen Li. First, let’s recap how global markets closed overnight in the US.

KHC: Doll up zero 6%. Smp 500 up 1%. Nasdaq up 1.5%. Asian markets. Nikay down .3% Hong Kong’s up 3%. Shanghai Composite up 1.2%. Sti down .5% FBN KLCI up zero 3%.

SM: So for some thoughts on what’s moving markets, we speak to Tony Nash, CEO of Complete Intelligence. Tony, good morning. Let’s get some reactions on US markets overnight. They interpreted the latest Fed meetings pretty favorably. It seems the US stocks all inched upwards. What did they find reassuring about the Fed’s policy direction?

TN: I think they were just looking for some direction that things weren’t going to be worse than the guidance that they received previously because commodity prices haven’t stopped rising necessarily. And so I think people were afraid that the Fed might accelerate their plan to stop inflation and just a little bit of a nudge that they probably weren’t going to do that and they were going to remain flexible, probably help things out after hours. You had Nvidia report, which was really disappointing. And so the Nasdaq futures are down pretty far right now. So although we had a good trading today, things are looking a little bit pessimistic for tomorrow based on some earnings.

TCL: Yeah. So the Fed translators have a TLDR conclusion on the Fed minutes yesterday. We have it at three more basis, 50 basis points hikes, and then an indefinite pause. Tony, what do you think about that translation?

TN: So I think what they’re saying is where investors are seeing say for the next six months that things will be pretty stable. They can Bake in the 250 basis point rises, and from there it’s pretty easy to calculate how much tolerance you have. The other factor to think through is how much the Fed will tighten for the next six months. And that’s already baked in how much they’re tightening their balance sheet. And I think that’s $23 billion a month, or 32. I can’t remember the number exactly, but it’s a stable number, and that’s really unlikely to accelerate.

TCL: Tony, does it set the stage for a second half risk rally?

TN: Yeah, it possibly could because it’s campaign season and nobody really wants to be tightening going into a campaign. So it’s possible. There’s a lot of talk about recession, and if there is a recession, we’re already in the middle of it. So there’s no sense kind of worrying about it because it’s already here. If that’s the case, we already had a first quarter contraction in US GDP. If we have a second quarter, we’re already halfway through that anyway, almost so or two thirds of the way through that. So it doesn’t really matter that much. And I think people are starting to look at that in a different light.

KHC: The CTO volatility index or the fear gauge has been moving sideways between 25 and 35 over the last month. What would that trading pattern indicate about equity market expectations?

TN: Yes. So the VIX really is it measures volatility of SMP 500 options over the next 30 days. And so it tells me that there is, I would say heightened sensitivity or elevated volatility expected. But I wouldn’t necessarily say it’s extreme. So it doesn’t appear that people are looking for some sort of extreme, say May or April 2020 type of event. So people are worried about further falls in equities for their pullbacks in equities. But I don’t necessarily based on what we’re seeing in the VIX, not necessarily seeing people expect things to fall off a cliff.

SM: And I think looking at how the rise in interest rates, what kind of impact has been having so far, we may be seeing that in US home sales because in April it fell to their lowest in nine years. But what other headwinds do you see facing the US housing market and how do you think it’s going to impact property and the construction sector moving forward?

TN: Yes. People in the US talked about supply like there’s a short supply on the market or not enough supply. In May, we actually went up to nine months of housing supply on the market. What that means is the number of, say, homes that are on the market, given the current pace of buying, would last for nine months. Of course, there is short supply in some markets, but in general, there seems to be across the US at least ample supply. So people are going to pull in their expectations for price given that interest rates have risen. But if they continue to rise, they’ll want to rush their purchases forward, which is possibly what we’ll see, especially over the next 30 days or so, because people always want to save a little bit more on the interest rate. So I don’t see a lot unless we start seeing mass layoff events or something like that. I’m not sure how much of this you see Malaysia, but we did see a lot of all cash buyers for houses in the US. And what’s been happening there is people will take out a loan, a cash loan against their equity portfolio.

TN: We will definitely see that stop because equities are not as relevant as they were 60, 90 days ago. There have been some calls on those loans and so some of those transactions have had to stop. So I think that’s what’s led part of what’s led to a little bit more supply on the market and may slow down some of the purchase transactions.

TCL: Yeah. Tony is still on properties. I think I read somewhere that the median home price in America across the whole country is somewhere around either 349,000, $391,000 per house, which is the highest it’s ever been in a number of years. Do you see that house inflation continuing to creep upwards, or do you think it’s kind of like peaks off and it’s going to taper off?

TN: I think we do have a lot of new houses under construction, so I don’t necessarily think we’ll see that continue to rise at the rate that we’ve seen. If we do, we’ll continue for a period, maybe six to twelve months or something. But I don’t necessarily see house prices continue to rise, especially with interest rates rising. If we had kept interest rates where they were, then sure, we’d continue to see house prices rise at that rate, but because they’re pulling that lever, I think they’re going to let it sit, of course, as Palo said, for a period of time. But if house prices continue to rise in an uncontrolled way, I think they’ll come back in and intervene with interest rates.

KHC: And with India now restricting sugar exports and Malaysia doing the same with chicken, where is the trend towards food protectionism headed, and are we looking at a global food crisis?

TN: Yeah, I think your last question first. Yeah, I think we are definitely looking at a global food crisis. Well, maybe not global a regional food crisis in certain regions. Of course, there have been protests in Iran, supposedly over food prices. We’ve seen issues in Sri Lanka, of course, places like Egypt, different countries. There are problems. But I think some of this is related to Ukraine’s inability to export Ukraine and Russia’s inability to export some of their goods. And yeah, some of it’s protectionist with sugar in India and other things. But I think the countries that are holding back exports are more focused on providing for their citizens, and I think they’re trying to visually make sure that their citizens see that as a priority. So the citizens aren’t protesting and upset. And if we look at what’s happening in Pakistan right now, so citizens aren’t protesting and upset. So the political leadership is actually seen to be doing something to hold some food back for their clients or their citizens as a hedge against inflation. So I think part of it is political. I know it’s a little bit protectionist, but I think it’s more just being very careful about being prudent for their citizens.

SM: Tony, thanks very much for speaking to us this morning. That was Tony Nash, CEO of Complete Intelligence, weighing in on some of the trends that he sees moving markets, commenting on, I suppose his outlook for the housing sector in the US, which has taken a different trajectory from Malaysia, which are housing hasn’t really gone anywhere for the past two, three years, six years, actually.

TCL: Yeah. In fact, since 2014. But I just checked some of the data from America, the Fred statistics from the St. Louis Fed prices. The median house price in America is $430,000. Of course, median is the middle number between the top and bottom, $430,000 per house in America. That’s average let’s reach out what 1.8 million ring? That’s a lot of money.

SM: That’s inflation for you 717. In the morning we’re heading into some messages. And after that all you should know about green bonds in the region. Stay tuned to BFM 89.9.

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Podcasts

Are Central Banks Moving Too Little Too Late?

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/are-central-banks-moving-too-little-too-late on April 28, 2022.

With inflation being the main concern in global markets, are central banks reacting quick enough to hike rates to contain inflation? And how will tech stocks perform amidst the volatility that we have seen year to date so far? Tony Nash, CEO of Complete Intelligence shares his insights with us.

Show Notes

KSC: Good morning. This is BFM 89, five minutes past seven in the morning on 28th April, 2022. I am Khoo Hsu Chuang with Wong Shou Ning and Tan Chen Li. In the meantime, let’s recap how global markets and the It yesterday.

WSN: US Market down 0.2%, SMP 500 up .2% Nasdaq close flat Asian Market Nikay down 1.3%, Hong Kong up .6% Shanghai Composite up 2.5%, SDI closed flat FBM KLCI down .7% pretty interesting trend over there. You can see I think the Shanghai site went up a bit because of the possibility of maybe cases eating in China.

KSC: Yes, foreclosures and more openings. So to join us on the line for some analysis on what’s moving markets, we now turn to Tony Nash, the chief executive of Complete Intelligence. Tony, good morning. Now, let’s start with tech stocks, and they’ve had a bit of a bumpy ride the first quarter and into the second quarter. What’s the situation report in terms of where that risk on asset class is concerned?

TN: Well, check so far in the earnings season hasn’t performed well except in the last few hours when Facebook announced their earnings. So Tech’s really disappointed. Up until about two or 3 hours ago, Facebook announced that ads to their users, their earnings were up and so on and so forth. So after hours, they’ve popped by $30 a share or something like that. And Qualcomm also after hours reported really good earnings. So what we saw early in the earnings season with tech down, hopefully Facebook and Qualcomm have changed things a little bit. But that’s not to say we’re out of this. Just because we’ve had a couple, it doesn’t necessarily mean that we’re out of the woods with tech. So Pinterest reported and they were negative. And so we’re really separating the kind of the viable tech businesses from those that really aren’t viable and who are really struggling. Part of the problem with tech also is that we have a lot of ad space coming online now with Twitter now sorting themselves out and with other tech firms having new ad space like Netflix is adding ad space and ad based subscriptions. So we’re going to see a glut of ad space going forward, which will challenge some of these technology guys in, say, two to four quarters time.

TCL: So, Tony, how do we know what is good and what is not such a good tech stock? What differentiates it? Is it going to be margins? Is it going to be market share? What is it management?

TN: Yeah, I think people are looking at earnings. People are looking for, say, online companies. They’re looking at users. So let’s compare, say, Netflix and Facebook. Netflix had a net loss of users. Facebook had a net out of users. Netflix’s earnings went down. Facebook earnings went up. Netflix versus Facebook, their earnings went up. People are really looking at what is the core business of that tech firm. And are they succeeding at that. So you can’t necessarily make a broad sectoral play. Right now, markets are really in flux as interest rates rise and money supply is kind of reined in. So you really have to understand the companies and you have to understand what the advantages and how they’ll play, at least over the next quarter, if not more kind of medium term.

KSC: Yeah. Tony talked about earnings. Right. What’s earnings season been like so far? It appears to be a mixed bike. Bad at Boeing. Okay. At Visa. Robin Hood is laying off people. What’s your take on earning season so far?

TN: It’s very mixed. And I think you’re seeing the companies that are well run versus the companies that have been just kind of posting. So during the Pandemic, we saw the Fed buying a lot of these Fang names and Tesla and other tech names. So it was pretty easy for tech firms to just kind of move along with that wave and not really get their management in place and not actually manage the business and the operations. These ones like Qualcomm and Facebook that are reporting well, they’re getting their operations in place regardless of what’s happening in the external environment. The guys like Pinterest and some of these other guys, they’re not managing well and it’s showing in their earnings.

WSN: Let’s talk about inflation. As we know, this is the key concern of the global markets. So are central banks around the world a little too late? Too late already in trying to hike rates?

TN: Yes. Central banks are always too late because nobody he wants them to be the buzzkill on a Bull market. And so if they had come in earlier, although it would have been appropriate, they would have been blamed for killing the Bull market. So the pressure on a central banker is such that they really don’t want to be blamed for killing it. Now they have to come in for a lot of different reasons and raise rates. So I would say they’re definitely too late. They’re always too late. Is it too little? That remains to be seen. We expect a 50 basis point hike in May and another 50 basis point hike in June. That would really recalibrate some expectations. And we’ll have to see what happens in markets there. When you look at the ECB, they can’t raise at that rate. They’re stuck in a really bad place with energy and food prices. So they’ll move much more slowly.

TCL: And I guess the same for the bank of Japan that’s supposed to be meeting in the next two days. You don’t expect them to move? I mean, look at the yen. It’s like two decades low. Do you think this will continue?

TN: Yeah. BOJ and ECB have a lot of similar issues, and they’re really kind of pedging into a corner. They can either support their bond markets or they can support their currencies. They’re in that bad of a position. They can’t do both so both of them have to support their bond markets right now. They can’t mind their currencies. Now, when we look at the PBOC really has to just drop helicopter cash across China right now. They have to get incredibly aggressive to support the Chinese economy. If they don’t and if China doesn’t open soon, there are major problems in China. So the PVoC has to be very aggressive going forward.

KSC: Yeah. Just think of the PVC. Tony, do you expect that the Chinese government maintains its very strict zero covered policy, especially since in the context of a rapidly declining local economy.

TN: think China cannot stay closed. Okay. The rest of the world has come to a position where COVID is endemic. That’s the view of the governments. People realize that they have to have an active economy to feed their people. China is making these very active, say, policy changes for a number of reasons. But what’s happening is it’s starting to really bite. They’re starting to impoverish their people because of food prices, because of fuel prices, because there are no exports and so on and so forth. So the Chinese government is in a really sticky position. And if they don’t change policies soon, there will be major difficulties both politically and economically in China.

KSC: Yeah. And lastly, Tony, just want to get your view in terms of rushes and systems are being paid in rubles with its energy supplies. How do you read that move in the context of it being taken off the Swift financial system? It’s freezing of dollar assets in the context of the US dollars utility in the global economy.

TN: Yeah. I think look, Russia, this is a negotiating position for them, and it’s something that they’re insistent on. They know that countries like Germany are way too dependent on Russian oil and gas. So they know that Germany will pay in rubles if they’re pushed to do it. They don’t have a choice. So Russia is right now showing Europe who is boss, and Europe has unfortunately put themselves in this position. Poland hasn’t worked on diversifying their energy of late, and a lot of their energy mix comes from domestically mined coal. But for oil and gas, they’ve been working feverishly on getting alternate supplies, but other parts of Europe have not. And also they’re much more dependent on Russian oil and gas. So Putin is flexing. They have to kind of count out to him and they have to do what he says because he’s their main source.

KSC: Absolutely. Okay. Tony, thank you so much for your time. That was fantastic, as always. That was Tony Nash, complete intelligence chief executive, talking to us about markets. And just in the context of China’s insistence on staying closed, I think if the Chinese government doesn’t about turn even in the slightest, it might just be the biggest fill up for capital markets going forward.

TCL: Well, we’ll find out later at 730. Right. Because you’re going to be talking to Gary, he’s an economist and he’s going to be telling us what’s the situation like on the ground, whether the GDP target of 5.5% is going to be achievable at all, because it looks like the lockdown might even extend all the way to Beijing.

KSC: Yes. And of course, our Foxconn’s factory is bigger supply to Apple also is close in Kunshan, two of them. So global repercussions. Let’s turn to Facebook, now known as Meta, which did report earnings before they reported the shares actually did soon, considerably on the expectation that they would report a bad set of numbers. But actually, Facebook Meta surprised.

TCL: I think there was a lot of negative news even before this. And they were already receiving regulatory headwinds from the EU with regards to whether their dominance questions of their advertising, questions of how much are they involved in our daily lives. But I think the results were better than expected. Yeah.

WSN: So I think adding on to what Shannon was saying, there was also a concern about user base that’s not growing for the first time. The revenue that came out yesterday, it was reported their shares jumped 15% because their revenue jumped 6.6% to $27.9 billion. And this is the first time in Facebook’s ten year history as a public company that they landed in a single digit growth. And if you look at it, is that better?

TCL: Good.

WSN: Well, slower, but still growth.

KSC: Yeah. Because with this kind of platform, it’s all about Dows and Miles. Right. Daily active users and monthly active users now.

TCL: And what they found is that people have been spending a lot of time. So maybe the number of users hasn’t increased as much as they should, but the duration in which you spend on Facebook has increased. So you’re looking at maybe people spending as much as an hour versus other social media platforms where, yes, you might have an increase in users, but the duration is actually shorter. So that’s the justification as to why the share price has bounced today. And this is what Meta is telling the analyst community out there.

KSC: And we saw Snap also report a good set of numbers, surprisingly. Right. So actually doubling daily active users beat expectations, one point 96 billion versus one point 94. And Mouse monthly active use is two point 94 billion. Missed expectations of two point 95. So not a big mess. But actually they did also guide for revenue that was weak because of three things. Right. First of all, the military situation in the Ukraine. The second one, of course, the Apple Privacy changes, which made it more difficult to target ads. And of course, then the supply chain affecting advertisers now very quickly Spotify.

TCL: How many of us have subscriptions? Me, yes, me, I. But the share price fell more than 12% despite reporting first quarter earnings that beat both top and bottom line. Looks like markets still not happy with that number. I think exiting Russian market led to a loss of 1.5 million subscribers. Although monthly active users went up by 19% year on year to 422,000,000 users I think ad supported revenue did also grow 31% but I think basically ending subscriber subscriber base like Netflix seems to have come under pressure in the last few months.

KSC: Yeah sign of the Malays affecting streaming sites. Stay tuned. BFM 89 nine

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Has US Inflation Peaked?

US inflation in March has stampeded to a 41-year high, though there are signs of moderation, leading market commentators to wonder if the peak has been reached. Tony Nash, CEO, Complete Intelligence, discusses. 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/has-us-inflation-peaked on April 14, 2022.

Show Notes

SM: BFM 89 Nine. Good morning. You are listening to the Morning Run. It’s 705:00 A.m. On Thursday the 14 April. I’m Shazana Mokhtar with Khoo Hsu Chuang.

I looked at you Khoo Hsu Chuang. I was going to say Khoo Hsu Chuang, but suddenly what came up with Wong Shou Ning.

KHC: I must be pretty and have long hair.

SM: You so super punch and Lee. We are the Morning Run, of course.

First, as we always do. Let’s recap how global markets closed overnight.

TCL: Lovely shade of green in US, doll up 1%. Snp 500 at 1.1%. Nested up 2%. Asian markets, Nikay up 1.9%. Hong Kong up 3%. Shanghai Composite down. However, zero. 8%. Sti up zero. 4%. Fbm KLCI up marginally at zero. 5%.

SM: All right. For analysis on what’s moving markets.

We speak to Tony Nash. CEO of Complete Intelligence. Good morning, Tony. Thanks for joining us. Can I get a quick reaction from you on the lovely shade of green that US markets are at the moment? They rebounded after a three day decline. Is this a dead cat bounce or are markets expecting good corporate results season?

TN: I don’t think they’re expecting a good corporate results season. I think investors are looking at aggressive Chinese stimulus coming in the next few weeks, and I think there is some expectation that inflation may have peaked. There are several people in the US saying that last month was the peak of inflation. That remains to be seen. But I think on those two notes, people are finding optimism in markets.

TCL: Yeah, because the March data came out last night, although they hit a 41 year high. Tony, as you say, cost API, moderated, used car prices moderated. What is your sense of inflation and how are you advising investors?

TN: Well, used cars were still up 35% year on year, so it did moderate, but those are eye watering numbers. So I think the pace of inflation may slow, the rate of rise in inflation may slow, but I don’t necessarily think it’s possible. But I don’t necessarily think we’re going to see year on year figures slow down dramatically, say over the next month or two. So while we may or may not have seen the peak, I feel like it will be within the next couple of months. Now, all of this depends on the supply issues as well. So if China continues to close ports, if oil and gas issues continue, say with the Russian Ukraine war, other things, most of this inflation is supply driven. It’s not demand driven. So if we don’t see things on the supply ease up, then we’re not going to see much ease in inflation figures. So why are used cars up 35%? Well, we don’t have new chips coming out of factories in China, so we can’t have new cars. So there’s more pressure on the used car market. I’m sure you’re seeing the same emulation.

TCL: Yeah. So, Tony, just a couple more of your points of view on this? Some people are saying that the demand is moderating as well, and that’s because of high prices. And as they say, the solution to high prices is high prices. What’s your sense of that?

TN: Well, there’s that. But also and we’ve been talking about for months with our clients, the Fed is focused on demand destruction as a way to cure supply side inflation. So the 50 basis point hike in May is all but certain to happen, and the 50 basis point hike in June is very likely to happen. So the Fed is trying as hard as it can to kill demand so that the supply side constraints are not as acute as they have been.

TCL: Tony, I’m going to shift your attention to yield a little bit. So typically, the ten year Chinese Treasury about 23% higher than US Treasury, but both have converged this week. So how is this affecting investors decision making, and this is nothing of a concern?

TN: Yeah, it should be a real concern for the PPOC, because what that means is that investment that could go to China will go elsewhere. US is considered a safer market. So if Chinese bonds aren’t getting the yield that they had been and there has been a premium there for quite some time, they really have to worry about an exodus of investment from China. So the PPLC is in a very difficult place right now because they’re looking at their bond yields decline, but they’re also looking at hefty inflation. And they need a heavy stimulus for both the slowdown of their economy and for the big national meeting they have coming up in the fourth quarter. So they’re in a very difficult position. I don’t envy them. What will likely happen with the PPOC is they will stimulate heavily, but the national accounts will likely absorb a fair bit of the commodity price inflation. So that primary inflation. I wouldn’t say all of it, but a decent portion of it will be absorbed by national accounts so that the CPI doesn’t get hit in a big way.

SM: And, Tony, overnight we saw JPMorgan report results which were below street expectations with the loss of $524,000,000 tied to Russia. They also set aside a $902,000,000 net reserve, which is the first since 2020. Do you expect other banks that are reporting over the next few days to also report similar disappointing numbers?

TN: Oh, yeah. I mean, look, JPMorgan’s income is down 46%, right? So there is always whether they had exposure to Russia or not, they will blame Russia for their poor results in Q One. And so Jamie Dimon said that they didn’t have much direct exposure to Russia, which is a way of saying that this Russia excuse is not really the reason why they’re reporting these poor numbers. Okay. So I think going forward, they’ll have written this down in Q One. They are, as you said, putting $900 million toward potential bad loans. If you remember at this point in, say, 2007, people were assuming that the maximum exposure to bad loans was a fraction of what it ultimately ended up being. So JPMorgan is putting 900 million, but it could be a multiple of that given interest rate rises and the rate of, say, mortgage rate rises in the US. So the pressure right now is on renters. The average American has $1,000 in savings, so renters will really start feeling the pinch. And with that, you could see defaults on consumer credit and in other areas.

TCL: Yes. Tony, you sort of quite cautionary on the upcoming earning season. Can you expand on that, please?

TN: Yeah. The free money is over, right? I mean, the free money from 2000 and 22,021 is over. It’s been spent. And so we have an environment of rising costs, both wages and let’s say commodities and goods. So all three of those are rising. You have companies and individuals without stimulus and banks and other firms have to make a profit. So Q One was really the first quarter where a lot of the stimulus payments from 21 were done. And I think it’ll get worse in Q Two. We really have to see what happens in markets and with the global economy. But I don’t think earnings really look good for Q One or Q Two. I think the earnings estimate according to I can’t remember who did this, but they estimated earnings to be down 12% across the board. So it’s not looking good in general.

TCL: Yeah. So who are the winners and losers in the first quarter? Tony, what’s your sense?

TN: Well, you look at, say, low to middle end retailers like Walmart. Walmart has been on a tear over the past few weeks. So I think people are looking at recession type of stocks. When people downgrade, what do they spend money on? So those are the types of stocks that people are looking at. I think also, as I said earlier, there are a lot of expectations of spending in China. So a lot of Americans are looking at Chinese equity names and some Chinese funds in expectation of central government spending in China. Aside from that valuations are incredibly stretched, really stretched. And so I think it’s going to be hard for people to find deals in this market.

SM: Tony, thanks very much for speaking with us.

That was Tony Nash. CEO of Complete Intelligence, giving us his take on some of the trends that he sees moving markets, putting a rather cautionary note on earning season. He doesn’t think that we’re going to see those stellar results that we saw in the last quarter. It’s going to be more muted going forward given the environment that we’re in of higher interest rates.

TCL: The key takeaway $1,000 is what the average American household has in savings. That is not a lot. And those households are going to be hit because the party is over. The free money is gone through the first quarter. You see these results being manifested then you’ve got the Ukraine issue. 50 basis points in may, 50 basis points in June just to try and at least try and normalize rate. Expect to rent around about 1%. Normal is about 2%. I don’t think the fed might get there then. After that, if they over correct and demand disruption happens is the fed wants does the fed then start to cut again? Jaypower is in a tough place right now.

SM: Indeed he is. Now let’s take a look at some of the results. Yes, we have JPMorgan results in front of us tied to what we were speaking to Tony about earlier. Jpmorgan chase said that its first quarter profit fell sharply from a year earlier driven by increased costs for bad loans and market upheaval caused by the Ukraine war. Adjusted earnings was at two point 76 a share versus the two point $0.69 expected by street analysts while revenue was at around $32 billion versus $30.8 billion estimated.

TCL: And JPMorgan said it took a $900 million charge for building credit reserve for anticipated loan losses which Tony also mentioned briefly just now because they’re thinking that with the inflation situation going on it could have a lot more bad loans but Tony also mentioned it could be way more than this. We don’t know what’s the real number yet, right?

SM: I’m curious to see whether this will be replicated across other banks as well. Something to watch as earnings season unfold. Stay tuned to BFM 89.9%.

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If Recession Is Coming, Does Jay Powell Still Raise Rates?

US bond prices are pointing to an oncoming recession, raising the question of whether the Fed stays the course on its path to rate normalcy. Tony Nash, CEO, Complete Intelligence, discusses. 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/if-recession-is-coming-does-jay-powell-still-raise-rates on March 31, 2022.

Show Notes

SM: BFM 89 Nine. Good morning. You’re listening to the Morning Run. It’s 7:05 A.M. On Thursday, the 31 March, looking rather cloudy outside our Studios this morning. If you’re heading on your way to work, make sure to drive safe. First, let’s recap how global markets closed yesterday.

KHC: US markets down was down. .2% S&P 500 down .6% Nasdaq down 1.2%. Asian markets, Nikkei down zero 8%. Hong Kong’s up 1.4%. Shanghai Composite up 2%. STI up 3%. Fbm KLCI close flat.

SM: So fairly red on the board today. And for some thoughts on where international markets are headed, we have on the line with us, Tony Nash, CEO of Complete Intelligence. Tony, good morning. Always good to have you. Now markets are speculating that the brief inversion of the two over ten year US Treasury yields this week is a sign of an oncoming recession. So do you agree with this? And if not, what might explain these brief periods of inverting or inversion?

TN: It could be a sign. Shazana, I think we have to see a more consistent and meaningful inversion to say that we’re definitely headed into a recession. So what this means is that what a yield curve inversion means is that people have to pay more for shorter duration money. So right now, if you look at, say, the five year treasury, the yield is 2.4% and the ten year is around two point 35%. So it’s cheaper to borrow longer term money, which is really weird. It could have a lot of reasons. Maybe companies need money more. They’re short on cash and they’re more willing to pay for it. So that would be a sign of a recession. So if we see a more consistent yield driven version, we see the two and the five years continue to be higher rates, then we need to be more concerned. For now, there’s a lot of speculation, but we just don’t necessarily see the certainty of it yet.

TCL: Tony, markets are wondering whether the Fed is going to push ahead with this rate policy on tightening because this volatility both in share markets and bond markets is a bit muddling for the analysts and the fund managers to make sense of. What’s your point of view?

TN: Yeah, I think at least for the last few months the Fed has been fairly consistent. But of course, we’ve had exogenous type of events, the war between Russia and Ukraine being the biggest, and that has had an impact on raw materials costs. So food in the case of Ukraine with wheat and sunflower oil and all this other stuff and energy with Russia. So it doesn’t matter what a central bank does necessarily. They can’t push down the price of oil through monetary policy. What they can do is demand destruction. And this is why we think that they’re going to lead with some fairly sizable 50 basis point rises, say in May for sure, and possibly in June. I don’t know if you saw that today. JPmorgan was out with a note saying that there will be 50 basis point rises in both May and June, which would be a pretty sharp rise in interest rates. The good news is we see a sharp rise initially, but then they’ll only do that for a short period of time to cut off demand pretty quickly and hopefully cut down on some of the demand for petrol and oil and some of these other materials.

TCL: Okay. So your sense is that the Fed and JPowell will stay the cost and increase rates, but what’s happening in Japan is quite the opposite. They’re actually showing quite discernible decoupling because they’re staying with zero interest rates. I think the ten year yield on the JGBs is about zero point 25%. What does that spell? Because the Japanese yen is now down at a six minute seven year low. Obviously, there’s a big sense of what’s going on here. What’s your point of view?

TN: J I think yesterday announced that they would have unlimited purchases of Japanese government bonds. So what they’re doing through that is it’s an open door for them to insert currency. It’s kind of a backdoor to growing their money supply, which leads to evaluation of the yen. And so Japan is in a place right now where they want to grow their export sector. They do that through yen evaluation. The competition between, say, Japan, China, Korea is there. China’s exports keep growing despite a strong Chinese Yuan Japan. There are other central banks. It’s partly that reason, meaning the ECB tightening and the Fed tightening, but it’s also competitiveness of Japan of their exports. So there are a number of reasons at play there.

KHC: So you were saying that earlier that maybe we will see 50 basis points increase in May or June. How do you think the share prices of US banks and financial institutions typically would do in this kind of environment, and would they be ultimate winners?

TN: They could be, I guess the only dilemma there would be the impact on mortgage. So if the Fed raises rates really quickly and it has an impact on mortgage demand and mortgage defaults, then that could be a real problem for banks. But short of that, I think they’re probably in a decent place to do fairly well. Of course, that’s company specific and all that sort of thing. But I think financial services in general should do fairly well on a relative basis.

TCL: Yeah. Tony, if it goes ahead as follows. Right. And Japan does not increase rates like the US is, it just extends its debt to GDP ratio. I think Japan is now 255% to GDP. I think the US is well above 100%. That’s quite disconcerting. What happens? How does it all end? Because it’s quite clear that Japan cannot raise rates because it just cannot fall into recession.

TN: Well, the problem with Japan raising rates is their population. And you all know this story, but they can’t necessarily raise productivity without automation. So they have to automate to be able to raise their productivity, to be able to raise their rate of growth. So that’s the foundational problem Japan have now with the BOJ buying with their JGB purchases, they’re actually buying the debt that the Japanese Treasury creates. Okay. So it’s this circular environment where the Japanese Treasury is creating debt to fund their government, and the BOJ is buying that debt basically out of thin air. They’re retiring. Okay. So Japan is in a really strange situation where it’s creating debt and then it’s buying it and retiring it. And this is a little bit of modern monetary theory, which is a long, long discussion. But Japan is in a very strange place right now.

SM: Tony, thanks very much for speaking to us this morning. That was Tony Nash, CEO of Complete Intelligence, giving us his take on some of the trends that are moving markets at the moment. And in the conversation there with a look at Japan and just the curious situation that it finds itself in amid all these economic and geopolitical pressures happening in the world.

TCL: Yeah, it’s really weird, right? The Japanese are so much in debt and they can’t get out of it. They’re creating these debts and they’re buying back this debt. It’s quite insane. But America does the same thing with their bond buying program until this year. Right. And that they haven’t even significantly cut that program. It’s really weird because what happens then for the US dollar? What happens to the Japanese yen down the line when your paper currency is near as meaningless? Right. It’s not banked by anything. It’s just being printed every day Willy nilly. It’s really weird.

SM: So all eyes are, of course, on the Fed, I guess, the most powerful central bank in the world, and how much it’s going to raise rates when it’s actually going to start or stop its QE in since quantitative easing, opposite of that. Somebody tell me what it means. Qt. There we go. And when they start reducing, that’s something that everyone’s watching very closely. Let’s take a look at some of the international headlines that have caught our eye. We see something coming out of Shanghai. Volkswagen said yesterday that it would partly shut down production at its factory in Shanghai because the lack of key components indicating further how a resurgence of the Omikan variant has disrupted the Chinese economy and global supply chains. The Shanghai factory operated in a joint venture with SAIC of China, and it’s one of Volkswagen’s largest facilities. It shut down for two days in mid March, but reopened now. It looks like it’s going to have to shut down again.

KHC: Yes. And the company also gave indication they didn’t give actually any indication on when normal production will resume. But China is booked Vegas largest market in the essential source of sales and profit. So the country is in the midst of the worst outbreak since 2020. And so that should prompt the government to impose lockdowns and restrictions. And even car maker like Tesla is also having a large factory in Shanghai also have to suspend production because of this strict covet policies. And so voice mechanics, they’re actually having a lot of shortages and slowdowns in other markets as well.

SM: So it’s really the twin it’s the twin issues, right? It’s the pandemic on one hand and then it’s also the geopolitical events in Ukraine that’s really affecting it’s, leading to a shortage of auto parts. So all this comes together and it’s not great for car makers in Shanghai at the moment. Turning our attention to another headline, if we look over at Russia, Russia is going to lift the short selling ban on local equities later today. And this is actually removing one of the measures that helped limit the declines in the stock market. After a long, record long shutdown, the bank of Russia also said equities trading hours will be expanded from a shortened four hour session to the regular schedule of 950 to 650 P. M. Moscow time. So I guess they’re trying to get back to normal but how we see that impact the stock market is still, I think, an open question. Yeah.

KHC: And since the stock market has since that stock actually gained 1.7% and the daily move also has been limited. Prior to the resumption of trading, the Russian government actually took measures including preventing foreigners from exiting local equities and banning short selling and to avoid the repeat of 33% slump scene in the first day of the Ukraine invasion last month.

TCL: Yeah, this whole Russia Ukraine invasion is set off a domino effect of domino effect quite catastrophic. Or repercussions manufacturing in capital markets in currencies. How does it all end?

SM: We don’t know. We don’t know the end to that story. And how long 717 in the morning. Stay tuned to BFM 89.9%.

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Could Stagflation Be a Worry?

The Fed has finally increased interest rates hikes for the first time since 2018 by 25 basis points, but what are the implications for the market? Tony Nash, CEO of Complete Intelligence shares his thoughts on this

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/could-stagflation-be-a-worry on March 17, 2022.

Show Notes

SM: BFM 89 Nine. Good morning. You are listening to the Morning Run. It’s 706:00 A.m. On Thursday, the 17 March. I’m Shazana Mokhtar in studio today with Tan Chen Li and Wong Shou Ning. It’s looking quite foggy outside our studio windows here. So if it’s raining out there, we hope you stay safe on the road as always at this time of day. Let’s recap how global markets closed.

WSN: Yesterday in US, Dow was up 1.6%, SMP 500 up 2.2%, Nasdaq up 3.7%. Asian markets actually quite happening there. Nikki up 1.6%, Hong Kong and up 9%, and Shanghai Composite up 3.5%, STI up 1.7%. FBM KLCI up zero 9%.

SM: So I think we can see that the Asian markets are really rallying on the back of some news coming out of China, the fact that Chinese authorities are going to intervene to kind of support the market after this historic route that we’ve seen over the past few years.

TCL: So basically they came out with a statement with very positive market measures, one of which is that they’re going to emphasize financial stability. They’re not going to go after the technology companies. So as a result, all US China listed stocks actually sought the most. In fact, NASA Golden Dragon jumped 33% on Wednesday.

SM: All right, well, not only are we seeing announcements coming out of China, but we also saw the Fed make an announcement yesterday about the raising of rates. So joining us for some thoughts on where markets are headed, we have on the line Tony Nash, the CEO of Complete Intelligence. Tony, good morning. Thanks for joining us today. So let’s talk about the Fed announcement. After much anticipation, the Fed has finally increased rates for the first time since 2018 by 25 Bips. They also signaled six more hikes for this year. So markets seemed really relieved. We see the green rally across US markets. But has this truly been priced in?

TN: Well, I think people feared worse, but what you need to know is they raised by 25, but it was a range of 25 to 50, so there will be movement in that range over time.

TCL: Okay. But the Feds also said that they will be starting to shrink its US. 8.9 trillion billion balance sheet. Do you think that’s going to shape markets more than the height which have been talked about a lot?

TN: Yeah, I think the shrinking the balance sheet will have a big impact on the available currency in the market. Inflation is already killing available money. It’s eating people’s purchasing capability. But shrinking the balance sheet takes money out of circulation and so that will make the economy feel higher.

WSN: The US PPI numbers jumped 10% while the New York State manufacturing index recorded a steep drop in economic activity. Are we looking at possible staff stationary signs in the US economy?

TN: Yes, I think that’s a very real worry with the labor market where it is with elevated salaries, with inflation, the 10% CPI there or the PPI there. Sorry. And with manufacturing sluggish, really, supply chains are hurting manufacturing still, and that’s hurting available inventory. So we are really looking at a stagnationary environment.

SM: And Tony, oil prices have been on a roller coaster from a peak of $130 to below $100 a barrel. Now, can you give us some insight into the current supply demand dynamics underpinning these price levels?

TN: Yeah. Obviously, things are tight with the embargoes on Russia, not necessarily as tight in AMS, as crude as being sold in China and other places, but it’s certainly tight in Western markets. And we don’t necessarily see that alleviating anytime soon.

TCL: And just curious, right. About the Russian bond situation. Do you see that deteriorating? Perhaps.


And even the rubber coming under increasing pressure. It’s already down more than 40%.

TN: Yeah. And the rubber appreciated just a little bit. But the debt issue is a real problem, and I think that’s going to get worse before it gets better.

TCL: But will there be a contagion effect on global markets if the Russian bonds actually default?

TN: There would be. You’re already seeing impact on European banks, which are the banks that own the most Russian debt. So we’ve seen a lot of pressure there, but some of that has been alleviated in recent days, but still, that real debt pressure is there mostly for European banks.

SM: Tony, thanks very much for speaking to us this morning. That was Tony Nash, CEO of Complete Intelligence, giving us some quick takes on some of the trends that are affecting markets, from the Fed raising of rates to what’s going to happen to Russian bonds, whether they’ll be able to make those payments.

TCL: Yeah, but staying on the topic of the Fed, I think the 25 Bips was pretty much anticipated. It was probably priced in. But what I find interesting is that they are continuing on their policy normalization, which is six rate hikes for the rest of the meetings this year. And they’re also launching a campaign to tackle the fastest inflation in four decades, even though I think there are concerns that global growth might be slowing down as a result of this Ukraine Russian war, not helped by the fact that China is actually some key cities like Sunshine and Shanghai are in lockdown. So clearly impacting the global supply chain.

WSN: And the Fed also said that they are going to allow the 8.9 trillion balance sheet to shrink at the coming meeting, but they didn’t elaborate more about this.

TCL: Yeah. The question is, can they engineer a soft lending to the world’s economy? Because you always have this concern that the Fed will over tighten, and when they over tighten, that might cause global markets to kind of crash. It’s a very delicate balance because inflation is extremely high, so it’s probably going to come in above 8% at the next reading.

WSN: Yes. CPI is about I think the last one was 7.9% in terms of inflation. Fed actually have a projection on it, and it’s 4.3% this year, which is still coming down to 2.3% in 2024.

TCL: I think this 4.3% is a bit like Malaysia CPI official figure of 2.5%. If you tell anybody that, they’ll start laughing.

WSN: Yeah, I think this is an inflation number, not the CPI number, though.

TCL: No, I know. But you have official numbers and unofficial numbers, right?

SM: That’s right.

TCL: But other I think interesting news Is coming out of China because we mentioned earlier the NASA Golden Dragon index hit a high of actually went up 32%, closing and even hang Seng yesterday closed up 9%. That’s a Whopper jump on a one day basis. And that’s very much driven by the fact that China came up with some key announcements to keep the markets going. And this was on the after a top financial policy committee Led by Vice President Yuha, who is the top economic official. So he made some promises, Stabilized better financial markets, Ease regulatory crackdown, Support property and technology companies While stimulating the economy.

WSN: But a lot of investors are also wondering, are they just words? What exactly are they going to do? They need more than just words. They need more action.

TCL: Yeah, but you just want to say this to calm markets down. It’s not the first time he’s done it. In 2008, this exact official said the same thing. It wasn’t really followed by a lot of action, but it’s a signal to the market that maybe they will ease off in terms of any crackdowns, which they did last year, Especially for the technology companies, Gaming companies, Healthcare companies, Education companies, when trying to pursue this common prosperity model. So I think they said, okay, we’re done with what we want. So you investors, maybe you don’t have to worry so much about policy risk.

SM: I think.

TCL: Yeah.

SM: So it’s going to be interesting to see whether this will actually put an end to the route. This could just be the calm before the storm, as some analysts say.

WSN: But they actually address all the five major issues that’s actually plaguing the market. They want to keep the stock market stable. Tech crackdown will be nearing an end, which you said resolve property risk support, overseas listings and also on us goods dialog on ADRs. So these are the things that have been plaguing investors, and they try to address all these concerns.

TCL: We will be asking Brock silvers These exact questions. He’s the chief investment officer Of Kayan capital to do tune in at 915. Maybe he might give us an indication of what to buy, actually, in regards to anything China related.

SM: All right. Well, it’s 7:14 in the morning. Stay tuned to BFM 89.9.

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Rate Hikes in the US and Rate Cuts in China

What should we expect from the FOMC meeting minutes in the US and also the latest CPI and PPI figures from China? Will oil prices continue to rally or slump with the latest development near Ukraine? And will it be another IPO year in India this year? Tony Nash, CEO of Complete Intelligence tells us more.

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/rate-hikes-in-the-us-and-rate-cuts-in-china on February 17, 2022

Show Notes

SM: BFM 89 Nine. Good morning. It’s Seven five in the morning on Thursday, the 17 February. You’re listening to the morning run with Shazana Mokhtar, Philip See and Tan Chen Li but first, let’s recap how global markets closed yesterday in US.

TCL: Dow was down zero 2%. S&P 500 was up zero 2%. Nasdaq down. .1% Asian markets Niki up 2.2%. Hong Kong’s up 1.5%. Shanghai Composite up 6%. Sti up 5%. FBI KLCI up zero 2%.

SM: All right, so all green and Asia, but some red coming in from the US markets. For more on where markets are headed, we have on the line with us, Tony Nash, CEO of Complete Intelligence. Tony, good morning. Thanks, as always, for joining us. Can we start with just the FOMC minutes that came out overnight? What did you make of them? And do you think this raises the possibility of a 50 bits rate hike in March?

TN: Yeah, I don’t think it raises the likelihood of a 50 basis point hike in March. I think it will likely be a measured approach. We have a pretty complicated central bank system in the US right now. We’re still easing until March, meaning the Fed is still buying securities and stuff until March. That doesn’t stop until March. So we need to start quantitative tightening, which means we sell off some of those assets because there’s too much currency in circulation and then raising interest rates will unlikely to be 50 basis points. The thing to remember is the US hikes in bands. So zero to 25 basis points, 25 to 50 basis points. So even if they come out saying it’s a 25 to 50 basis point hike, it doesn’t mean it goes straight to 50 basis points. They could hike at 32 basis points. And so it’s likely some sort of calibration like that that will happen.

PS: So then if you look at it, maybe not on this specific occurrence, but cumulatively, in 2022, what was originally expected to be 75 basis points for a whole of 22 people are expecting it to go as much as 150 basis points. Now, do you agree with that assessment?

TN: Yeah, I’m not sure that 150 is correct. I think it’ll be north of 75 and we expect it to be around 100. So around a 1% hike by the end of the year. Keep in mind that the Fed does need to tighten. That’s a reality because of inflation. But we also need to remember that it’s an election year in the US, and the party in power never wants the Fed to be too aggressive in an election year. So the Fed will make motions, but they’ll probably also let it run a little bit hot because they don’t want to upset the politicians in power regardless of party.

TCL: Ahead of the Russian following through and announced troop withdrawal near Ukraine.

West Texas crude has up to around $90 a barrel. Even so, the oil market remains tight. How do you think this will play out in the weeks to come?

TN: Yes, we expect crew to really trade sideways for the next several weeks, and we’ve been saying this for about the last two weeks, and so it’s kind of proving to be that. And so it will be volatile, but it will trade sideways. The thing to remember is that crude typically rallies during tightening cycles. So we’ll likely see crude rise a bit from here. There are certain people who say it’ll be 120 or $150. I don’t necessarily subscribe to that. There has to be a certain things aligned for that to happen. But there is underlying medium and long term strength for crude oil because of the underinvestment that we’ve had over the last decade and well under investment in exploration and in production capacity. So we need an investment cycle to have the capacity to reduce long term prices.

PS: Yeah. That’s why I’m wondering whether she’ll come into the picture. Right.

As you say, there is this medium long term upside potential still happening. There’s still that pent up demand won’t shall come into the picture then?

TN: It should yeah. I live in Texas, so I love Shell, but, yeah, it should come into the picture and it should help to reduce some of those prices over time. Absolutely.

SM: Tony, if I could get your thoughts on where you think supply will increase. I think Iran is coming up in the headlines again. There seems to be discussions on the nuclear deal. How do you see that playing out?

TN: I think Iran is already preparing to start exporting. So I think Iran is already exporting something like a million barrels per day, whether it’s official or unofficial. And they put $115,000,000,000 into their next fiscal year budget from oil revenues. And they’re already marketing, especially around Asia. They’ve been in South Korea recently and other places. So Iran will export oil. I think whether or not the nuclear agreement is agreed.

I think there is a skepticism that the US will enforce any embargoes.

TCL: Moving to China after last month’s ten basis points cut. The PBOC has refrained from cutting interest rate this week on the back of the slowing inflation in China. Should PPOC have adopted a more aggressive approach, you think?

TN: No. I think they need to signal I think it’s a fine path. You and I, we’ve discussed this several times since probably Q three of 2021, that I’ve expected the PVoC to start loosening in late Q one of 22. So I think the PVoC is actually listening to BFM, which is pretty awesome. A big part of this is really to weaken CNY, so it’s to stimulate the Chinese economy domestically, but it’s also to weaken the currency because they’ve had a really elevated, really strong currency over the past year and a half. And that’s partly been to fight inflation and commodity prices. Now that a number of those commodity prices, not oil, of course, but some of those commodity prices have come down off of those very high levels. It’s time to weaken their currency, which will help their exports.

PS: Which comes back to the question about China being the world’s factory, I think breathing as far as relief when we saw factory gain, inflation ease a bit to about 9.1% in January. What’s your take likely scenario of PPI moderating?

TN: That’s a good sign. So PPI peaked at 13% and so that is a good sign that the PPOC can start to moderate in ease. So I think aggressive moderation could potentially contribute to PPI. But if they’re moving in that direction gradually, as PPI eases, they’ll start becoming more aggressive about their intervention. So China is also entering potentially a slow period for the economy. So PPI will likely flow as a result of that. But as China had an appreciated CNY, they also accumulated a lot of things like industrial metals like copper and so on and so forth. So it’s not as if they need to continue to buy this stuff in huge quantities. They have a lot of storage of those commodities right now.

SM: Tony, let’s have a conversation with a quick look at what’s taking place in India in markets. India’s new stock listings are losing their edge. I think they’ve been calamitous IPO of PTM, Ecommerce, Domato and Nica. I mean, what do you make of this? Are the IPOs in India all hype and hoopla, but no substance?

TN: Yeah, I think these particularly have been a lot of hype. I think they’ve kind of peaked too early. Firms like tomato. I think every middle class urban Indian has used tomato. So it’s not as if they don’t have market penetration, but they’re really burning cash. And I think investors at this point in the cycle are already rotating out of technology. So they’re wary of firms that either don’t make money or burn cash or are very expensive in a share price perspective. So it’s the rotation out of tech. These companies need to show profitability and they need to have a more appropriate valuation. So I don’t think there’s necessarily Indian IPOs are out of favor. I think it’s really value with these companies.

SM: Tony, thanks very much for speaking to us today. That was Tony Nash, CEO of Complete Intelligence, giving us his thoughts on some of the trends affecting US markets. Also some developments in China and India as well.

PS: Yeah, I think India has a long term potential, but I think this is a bit of aberration, I believe. I think the IPOs that have come out have really been not stellar for sure. I think it’s causing a lot of people to rethink one of them being all your rooms, which is planning to IPO by saying that put on hold. So, yeah, let’s hope to see some long term gains in the future for Indian market.

TCL: I am quite curious to see and watch the US market, especially on the oil and also the inflation because has the inflation really peaked already or are we going to see higher numbers coming up in the next month inflation report? That’s something that’s unknown for now.