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Dollar stays soft till year end

Tony Nash joins BFM 89.9 The Business Station for another discussion on the global markets — particularly the growing US market amidst the weakening dollar. Why is that? Is it about the vaccine optimisim, the 2020 US election, or the pending unemployment benefits? What about gold’s fast value upgrade — will this continue or is it too vulnerable to handle right now? And Euro is performing impressively against the dollar — should investors dive right in or still be cautious?

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/dollar-stays-soft-till-year-end on August 6, 2020.

 

BFM Description

Tony Nash, CEO Of Complete Intelligence tells us why markets in US are still hitting new highs while giving us his views on the direction of the US dollar and whether it makes a difference who sits in the White House this November.

 

Produced by: Mike Gong

 

Presented by: Khoo Hsu Chuang, Wong Shou Ning

 

Show Notes

 

BFM: For more insights into global markets, we speak to Tony Nash, CEO of Complete Intelligence. Good morning, Tony. U.S. markets continue to break records. Now, how much of that is driven by vaccine optimism and a potential deal for unemployment benefits?

 

TN: I think there is a deal for unemployment benefits and it will continue to drive consumption. The disposable income that people had — that 600 extra dollars a week — really helped the consumer side of the economy stay afloat for the things that were open.

 

There is an expectation that if something similar passes, that it will help consumption in Q3. However, we see things like manufacturing employment are coming back quite strongly despite the ADP number that was out today. Services is lagging a bit largely because of restaurants and shops and etc., not being open so much. But it is on the expectation of a weakening dollar as well with both equity markets and commodities.

 

BFM: The same euphoria is happening to gold and it’s now something like 2,040 USD an ounce, one of the highest, if not the highest it’s ever been. Is it not vulnerable to a price correction, though?

 

TN: We don’t think it would be by much for some time because a weakening dollar is more reliant on central banks’ monetary policy. It’s likely that commodities will continue to rally. And the dollar has a lot of dedicated bulls. There may be a couple of hiccups before the end of the year, but we don’t see a whole lot slowing it down. Having said that, we don’t see a lot more headway to the upside. There’s some, but we don’t see like another 20 percent gain or something like that. It’s possible, but that’s not within our baseline expectation.

 

BFM: There’s even talk of three thousand dollars an ounce. You don’t think that’s going to happen, obviously?

 

TN: I think that’s possible. But not likely.

 

BFM: Meanwhile, the Euro has strengthened against the US dollar now. So is this, again, the weakening dollar rather than Euro strength? And what does this mean now for investors? Should they be more bullish on the Eurozone?

 

TN: A number of investors are bullish on the Eurozone because many of the countries in Europe are fully back to normal and and they’re doing quite well. So there is optimism about European companies, but it is also related to the weakening dollar. I think one of the other considerations around dollar weakness, whether it’s gold or euro or other things, is the uncertainty around the U.S. election.

 

I think priced into the dollar weakness is the possibility of a Biden win. And there is not a lot of excitement around a Biden economy. If there is clarity of a Trump win, Trump has done some interesting things in the economy and pulling back regulations and other things, it’s possible there will be more dollar strength.

 

BFM: Oil has been trading in a very tight range. API and US crude data showing a fall in inventories. Why isn’t prices rising more then?

 

TN: It’s demand. Yes, the supplies are falling, but the demand, it came back, but it is not continuing to rise as quickly as they had when they first started to open up. And until we start seeing things like flights happening again, business travel, personal travel, happening again in a big way, we’re not really going to see things like jet fuel consumption come back. That’s really where a lot of the growth is.

 

A lot of Americans are driving more in cars because things like mass transit… So I’m in suburban Houston, Texas. Right next to my office is a very large car park for commuters into the city. That car park has been closed since February. So the people who want to drive into the city will have to drive their own cars. There really isn’t a mass transit option. So individual consumption has risen because people who want to go to work have to drive themselves. But we don’t have things like jet fuel consumption that have come back anywhere close to where they were in January.

 

BFM: I want to come back to the US dollar. What’s your view on it? You expect it to continue to weaken? And if so, how has that changed your strategic asset allocation?

 

TN: Well, we really just turned. Through July, we expected the dollar to start to rally in October, November. But just in our forecast on Monday and we’re expecting a weakening dollar to the end of the year. So that market has evolved a bit where it’s tough for that asset to come back in value. And part of that is the veracity of the euro strength. We are a bit worried about the dollar value. Again, if we see a Trump win, which is it likely now? I don’t think we really know that. But if we do, we do expect that we’ll see some dollar strength to come back a bit earlier. If it’s a Biden win, we expect the dollar to remain weak, as you know, monetary policy and central bank and QE infinity, those sorts of things, will potentially be part of the economic plan.

 

So we don’t expect a strong dollar rally this year. It would be Q1 before we start to see some real strength in the dollar. We’re not expecting the dollar DXY, for example, to go into the mid 80s or anything like that. But we do expect it to remain weak over the next several months.

 

BFM: Friday sees US non-farm payrolls come out. Are you expecting the numbers to reflect this softening job market?

 

TN: You don’t necessarily see the job market softening. There are a couple of dynamics. As unemployment benefits dry up, people are going to have to start going back to work. So they probably won’t be as rich as they have been for the last few months. So people are going to have to get out and they’re going to have to work a bit more.

 

And we have also seen manufacturing come back pretty strongly. So, for example, one of our clients is an auto parts manufacturer in Michigan in the US. As auto makers pivoted to make ventilators, the auto parts business dried up. So these guys went from 400 workers to like 15 workers, like a dramatic cutback. Over the last three months, as of August, they’ll be back to 100 percent of their workforce working. So they’ve seen literally of the in their workforce utilization.

 

And we’ve spoken to a number of people who that’s what they’re seeing, and this is particularly on the manufacturing side, where they cut back dramatically in March, April, May. And since then, they’ve really started to build up pretty rapidly, given the extent of the cuts that they had to make in Q2.

 

BFM: All right. Thank you for your time. That was Tony Nash, CEO of Complete Intelligence, highlighting about the U.S. dollar rate. He expects it to remain soft until maybe when you’re recovering in the first quarter. And of course, that is also dependent on who might actually win or might be in the White House come November.

 

So let me bring this to the walking. And according to the Financial Times, Joe Biden is, you know, head and shoulders above Donald Trump in terms of the polls, which means in three months time Mr. Orangeman will be out of the White House. No more orange in the White House.

 

Yeah, but did you see those tweets that Donald Trump is trying to do to delay the elections?

 

Well, he has been questioning whether they are going to be reliable in the first place, right?

 

Yes. Well, we’ll be watching the space. I mean, it’s less than 100 days to the US presidential elections is going to be interesting times. I just wonder, you know, in the meantime, who’s really managing the United States? Because unfortunately, the COVID-19 cases just seem to get increasingly worse. But let’s hope they actually saw unemployment benefits deal quickly because otherwise the economy will really pay the price for it.

Categories
Podcasts

How long can the bull run?

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

 

Listen to the podcast on BFM: The Business Station.

 

BFM Description:

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

 

Produced by: Michael Gong

 

Presented by: Wong Shou Ning, Lyn Mak

 

 

Show Notes

 

 

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

 

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

 

Pandemic? What pandemic? Never happened.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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