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Could This Be The Tail End Of The Bull Run?

In this BFM The Morning Run episode, Tony Nash explains what’s happening in the US markets, particularly the tail end of the bull run. Will value stocks improve now as compared to the growth stocks? How about stay-at-home stocks VS cyclicals? Also discussed are currencies, USD against the Japanese Yen and Chinese Yuan, and the labor market.

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/could-this-be-the-tail-end-of-the-bull-run on April 1, 2021.

 

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Show Notes

 

WSN: Good morning, Tony. Now, is it likely that the U.S. indices will run out of steam for the moment? I mean, pausing to take stock of the earnings, are equity markets gravitating to what’s stay at home stocks or cyclicals?

 

TN: The problem with where we are now is that all value was stretched. Monetary policy and stimulus have really pushed money into equity markets as the remaining stimulus checks are distributed, meaning a lot of those stimulus checks are in the mail right now in the post going to homes in the US. So there’s a lot of investment expected and pushing against maybe the downdraft in equity markets. So I don’t think it’s really a question of stay at home versus cyclicals. It’s really a question of where is that value?

 

I don’t think it’s a sector question. It’s really an individual stock picking question. And that’s the problem. It’s not a sector market. It’s not a market wide phenomenon. We really have to understand where there is value because we’re in the very tail end of a bull market.

 

PS: Previously, it was the long and now five year Treasury treasuries are inching up. What impact will an upward shift of the whole yield curve have on equities?

 

TN: I think we’re seeing equities try to climb higher, but we’re not quite getting. The five year is up over five percent today on an incremental basis was up five point six percent. The 10 year is up two point three percent today. So, you know, there are a lot of risks out there. Ongoing Covid risk. France just closed down again today. There are geopolitical risks with the US and China and other geopolitical risks, of course, Syria and so on.

 

Iran, business supply chain risks. So, you know, with yields rising and the pressure on equity markets to rise as well, we believe that there’s going to come a point where equity markets break and we’re going to start to see see a decline in equity markets. So yields will rise in the U.S. and equity markets will inevitably decline, and that will likely bring some other global markets with it.

 

WSN: OK, Tony, let’s shift the conversation to currencies, because the U.S. dollar has really made some strident gains against both the Chinese yen and the Japanese yen. I just want to know, why are these two currencies taking such a beating in particular?

 

TN: Well, both currencies strengthened quite a bit in Q3 of twenty twenty and stayed strong until recently. CNY had been below seven and a bit well actually just above seven and it climbed to almost six point four versus the US dollar. So there’s been a lot of strength in both, as you say, Chinese and Japanese currencies. What’s happened while we’ve had those depreciated currencies is an accumulation of inventories of commodities like industrial metals. We’ve seen the copper price rise dramatically, for example.

 

And so as we see treasuries rise in the US, and that brings dollar strength, we’re seeing those manufacturers and those guys who’ve been building their commodity inventories in East Asia really slow down on those purchases and their future commitments. So we’ll likely see a lot of those currencies stabilize and weaken a bit more we don’t expect. A dramatic weakening from here, we don’t expect the US dollar to appreciate dramatically more, say, for the next few months. So we’re kind of in a range, we believe, for both.

 

We do see the CNY, for example, devaluing to say six point six to six point seven. And then, you know, we’ll kind of stabilize in that range unless there’s a dramatic impact.

 

PS: So a correction is in inventory levels readjust. Can I just shift your attention to oil? Because oil prices are at levels near the break even point for US shale producers. Are you expecting to see a resumption of shale activity this year?

 

TN: Well, yeah, we you know, living in Texas, we see a lot of shale activity here. So we do expect it to start slowly. But that business runs in a way where if we’re chasing price, more of those shale firms will come online pretty quickly, actually. So, you know, with the ability for shale to turn off and turn on so quickly, we believe that the prices will be range bound if there’s upward price pressure, you know, all things held equal.

 

If there’s you know, if there isn’t a major geopolitical issue in the Middle East or isn’t a major geopolitical issue in Asia or something, we think that will be fairly wrage range bound as those as those guys come back online. The shale producers.

 

WSN: Meanwhile, Tony, U.S. numbers, job numbers excuse me, are out on Friday. Are they expected to show a robust recovery in labor markets, in your opinion? Like what sectors grew the fastest in terms of employment?

 

TN: Well, you know, we’re starting to see quite a lot more capacity in airlines, although we don’t expect a lot of hiring there. The services around, say, travel and hospitality, they were devastated in twenty twenty. And we expect some of those jobs to come back online. We expect to see some restaurant jobs, some of those services jobs to come back online. That’s where we typically see these things come back first, relatively kind of lower wage, but more flexible workforces.

 

And so we’ll see activity there first. Tourism in the US obviously still isn’t up to what it was, but we have started to see some impact back in tourism. So I would expect to see some some interesting numbers there.

 

WSN: OK, thank you for your time. That was Tony Nash, CEO of Complete Intelligence, sadly reminding us that this is maybe the tail end of the bull run that we had been enjoying.

 

It was a very short one, is that it honestly, in March 2020 when markets collapsed and then because of the concerted, synchronized monetary policies that we saw around the world, central banks really pushing rates to ultra low equity markets rallied and rallied till now.

 

So he thinks we’re in the tail end and we should stop beginning to look at value stocks as opposed to growth stocks.

 

PS: And I think specific sector specific stocks, in fact, actually.

 

WSN: Yeah.

 

PS: It’s kind of very good.

 

Go for the jugular on specific things.

 

WSN: Yeah. I think you really do need to take a very bottom up approach as opposed from the top down approach. If you’re talking about the tail end of a bull cycle, what is also worrying is that he does say that with increasing yields in the U.S. and even on the shotted to bonds, which is the five year bonds, lightly equity markets, those are going to face another round of correction. And it’s not just going to be the U.S. it’s going to be other global markets as a result, because let’s face it, we take the cue from the U.S., right?

 

PS: Yeah.

 

WSN: If there is a shock there, there’s a shock around the world.

 

But what does it mean for Malaysia markets? Because yesterday we had a really terrible, terrible day.

 

And when I look at Bloomberg now and I’m trying to understand what caused the decline, it was really very much glove driven. Topcliffe hoteling, super Max, all coming under selling pressure as a result, took the index along with it, saying it was also the case for the telco sector. Zaatar was also down. Maxi’s was also down. There was actually no stock among the IBM, Kilsyth, the three component stocks, none were in the green. So clearly bad day.

 

We were down two point to two percent. And on original, on a year to day basis, we are actually down more than three percent.

 

PS: It’s incredible. I think also the conversation about currency is going to play. So we were talking to Tony about Japan and China. You heard and we saw disconsolately in Turkish I now emerging market currencies are going to all kind of a fall out in the short term.

 

WSN: Is there going to be a question of, you know, shift from emerging markets into developed markets? That’s the big question. But in about a few minutes, in light of April Fool’s Day, we’ll be speaking to resolve. Then Gizzle, comedian and the co-founder of Crack House Comedy Club. Stay tuned for that BFM eighty nine point nine.

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How long can the bull run?

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

 

Listen to the podcast on BFM: The Business Station.

 

BFM Description:

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

 

Produced by: Michael Gong

 

Presented by: Wong Shou Ning, Lyn Mak

 

 

Show Notes

 

 

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

 

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

 

Pandemic? What pandemic? Never happened.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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