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Slower US rate hikes could help ‘buy time’, allow businesses to plan better

This video interview is owned by Channel News Asia, and the original source can be found at https://youtu.be/U_Im05ClsN0

The United States Federal Reserve’s plan to ease its pace of interest rate hikes as soon as December would bring some relief for markets concerned about the central bank overtightening too quickly, Mr. Tony Nash, founder and chief executive of data analytics firm Complete Intelligence, told CNA’s Asia First.

Transcript

CNA: Federal Reserve chair Jerome Powell has signaled policymakers could slow interest rate increases starting this month. That sets the stage for a possible to downshift to a 50bps rate hike when Fed officials gather again in two weeks.

Powell: Monetary policy affects the economy and inflation with uncertain lags. And the full effects of our rapid tightening so far are yet to be felt.

Thus it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting.

CNA: But it isn’t quite a dovish turn. The U.S Central Bank Chief also stressed that they have a long way to go in restoring price stability despite some promising developments.

Mr. Powell warns against reading too much into one month of inflation data saying that the FED has yet to see clear progress on that front. In order to gain control of inflation, the Fed chair says the American labor market also has to loosen up to reduce upward pressure on wages. Job gains in the country remain high at nearly 300,000 positions per month and borrowing costs are likely to remain restrictive for some time to tamp down rapid price surges.

This is where U.S interest rates stand after an unprecedented series of four 75 bps rate hikes. Policymakers projected earlier that this could go as high as 4.6 percent but Powell says they will likely need to keep lifting rates more and go beyond that level until the inflation fight is done.

The less hawkish tone from Powell Boyd U.S market stow and the S&P500 erased losses it searched three percent. The Dow gained two percent while the NASDAQ jumped more than 4.4 percent. the 10-year treasury yield also dipped as Bond Traders dialed back their expectations on how high the Fed may push interest rates while the U.S dollar retreated.

Tony Nash is founder and CEO of Complete Intelligence joining us from Houston, Texas for some analysis. Now Tony, just looking at Powell’s comments, the first differs in some way with what the Fed and its officials have been telling us earlier in the year and how we’ll get there fast to try to reach the terminal rate. But now it’s signaling that it will get there slower. What is this going to mean for businesses and consumers in the US?

Tony: I think what it means is we’re going to get to the same destination. It’s just going to take a little bit more time to get there. So the Fed has seen jobs turn around they’ve seen jobs aren’t necessarily slowing but the rate of rise in open jobs is slowing. We’ve seen mortgage rates go up. We’ve seen the rate of inflation rise slowly.

So the Fed is seeing some things that they want and they’re worried about over-tightening too quickly. Because what we’ve seen so far is really just interest rate rises. They really haven’t even started quantitative tightening yet. I mean they’ve done a little bit maybe a couple hundred billion dollars. But they have nine trillion dollars on their books give or take.

They haven’t even started QT yet. And they’re starting to see inflation and some of these pressures on markets at least slowed down a little bit. So I think they’re saying “hey guys we’re still going to get to a terminal rate of five percent or five and a half percent but we’re going gonna slow it down from here unless we see things accelerate again.”

CNA: When do you think we will actually see that five to five and a half percent?

Tony: You’ll see it in the first quarter. You know if we do say 50bps in December and maybe another 50 in January, we’ll see some 25bps hikes after that but I think what markets the cyber leaf that markets are giving right now is just saying. Okay, we’re not at 100 or 75 in December.

I think that’s a big size that you saw today and you know. It raising at 75bps per meeting just put some real planning challenges in front of operators people, who run companies. So if they slow down that pace and people know we’re still going to get to that 5 to 5.5%, it allows people to plan a little bit more thoughtfully, and a little bit more intelligently.

I think this does relieve some people of the worries of the Fed over-tightening too quickly and it also relieves worries that the Fed is only relying on monetary policy. They’re not relying on interest rates I’m sorry and they’re not relying on quantitative tightening. so the Federal balanced approach sometime in Q1.

CNA: Okay, you also mentioned before in our past conversations, the concern that the market has been having for this week especially since it’s China’s lockdowns and you see these restrictions ending gradually. What is that going to mean for Energy prices and inflation?

We see Energy prices say now they’re what high 70s low 80s somewhere in that range. We do see a rise of say crude oil prices by about 30 percent once China fully opens. We could easily be 110-120 a barrel once China fully opens. And so there will be pressure on global energy markets once China opens. Other commodity prices will see the same because we’re just not seeing the level of consumption in China that we expect.

What we also expect is for Equity markets to turn away from the U.S. and more toward Asia. So the US has attracted a lot of investment over the past year partly because of the strong dollar partly because of kind of a risk-off mentality consolidating in U.S markets. As China opens and there becomes more activity in Asia than we would expect, some of that money to draw down out of the US and go back to Asia.

CNA: Can you look at the jobs market in the US even as we expect this potential pivot towards Asia for stock market investors? The jobs market and the picture on wages there because the ADP data shows that there seems to be a cooling in demand for labor how soon do you think we can see a broadening out to the broader jobs market?

Tony: You would have broader cooling of demand in the jobs market I think, that’s definitely hidden tech. You’ve seen a lot of layoffs in technology over the past say three weeks. And that will cascade out. I don’t necessarily see think that you’ll see that in places like energy, but you will see that in maybe finance, some aspects of financial services. You’ve seen some of that and say mortgage brokers and this sort of thing so you’ll see that in some aspects of financial services. Some aspects of say manufacturing at the edges. but I do think there’s a lot of growth in U.S manufacturing as this reassuring narrative really takes uh gets momentum in North America. And so even though we may shed some manufacturing jobs in one area I think we’ll see growth in manufacturing jobs in other areas.

CNA: Okay, Tony. We’ll leave it there for today. Thanks for sharing your analysis with us. Tony Nash is founder and CEO of Complete Intelligence.

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

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

 

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

 

Show Notes

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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CNA’s Asia First: Restarting the economy takes a disproportionate amount of resources

Tony Nash, CEO and founder of Complete Intelligence, joins Avril Hong and Adam Bakhtiar of Asia First to share his insights on restarting the economy, Texas’s economy on a lockdown, fiscal stimulus and policy, and if he’s bullish on China. Watch Tony’s segment here and in our Youtube channel.

 

This video is part of a 2-hour live news show at Channel News Asia’s Asia First. CNA is part of Mediacorp. Find the original segment here: https://www.channelnewsasia.com/news/video-on-demand/asia-first

Show Notes

 

CNA: Tony, the last time we spoke was a couple of months ago. At the time, Houston hadn’t confirmed any cases of coronavirus. Fast forward to today, we’re seeing the biggest daily surge in confirmed cases. 10,000 in the state. Do you still think that it’s not as big an issue for the lockdown for restarting the economy especially for the Sun Belt state as a whole?

 

TN: We’re seeing the the case counts rise. But we’re seeing the death rates stay low and even decline. In terms of markets, I think that’s a good sign. If we saw the case counts rise and the death rate stay consistent or rise, then I’d be very concerned. But we’re seeing the case counts rise and the death rates fall. We’re seeing plenty of capacity in hospitals as we talk to hospital administrators here. Here in Texas, places like Arizona, Florida, what I’m seeing by talking to people in healthcare is that things are okay. Again, what I’m keeping an eye on really is the death rates. And the the death rates as that incidence rises. This is a virus. That’s going to get out. It’s going to grow. It’s going to hit more people. I don’t necessarily think that incidents itself is an issue. We have to look at the fatality rate and how persistent that fatality rate is.

 

CNA: Right. Then if it’s not that big of an issue, then is there less of a need for stimulus whether from the Fed or the government in that sense because we’re hearing from some of these Fed officials, they’re warning that growth has plateaued. It’s kind of leveling out and they are asking for more stimulus. But if it’s not such a big concern these surge in coronavirus cases and its impact on restarting the economy, is there still a need for further stimulus?

 

TN: The problem with stopping an economy or pulling the plug on an economy, which is what governments around the world did, is that restarting it takes a disproportionate amount of resources. So governments around the world pulled the plug, stopped business, stopped socializing, stopped all these things, stopped flights, and it killed the oil and gas sector. It killed the hospitality sector. It killed travel and so on and so forth. In order to restart the economy, it takes a disproportionate amount because there’s inertia in economic activity and so we really have to push it along pretty far so that it gets back to that rate. It’s pretty easy to criticize companies that aren’t performing. Q2 revenues for example, Q2 earnings are going to come in pretty poor. But these guys are doing the best they can given the impacts of governments globally. And here in the US, we see state level and local governments making decisions for businesses to stop. But they’re not the ones who provide the fiscal support. It’s the federal government or the central government that actually provides that support. So there’s a weird misalignment of incentives in the US where it’s local governments forcing companies to close our state governments. But they’re not actually accountable and they’re not paying the consequences of it.

 

CNA: Yeah, so that therein raises this moral dilemma I guess, because whether you’re looking at fiscal or monetary policy support, we see the Fed dipping its toes into corporate bonds, buying Apple bonds, Microsoft bonds for example. Apple stocks up 25% year to date and then in terms of fiscal policy support, sure that pandemic aid program, it has according to the Trump administration, helped to save more than 50 million jobs. But it’s also helped the wealthy and connected.

 

TN: Sure. It has. When you see the the Fed of the Treasury spending on things like Apple bonds, yes it’s for Apple, but I don’t think it’s really for Apple. It’s the wealth effect of markets and getting US consumers back to the point of feeling like they can spend again is a very difficult place to get consumers and so, especially when you look at baby boomers and the spending power they have, they’re looking at their retirement years. If they’re looking at their portfolio being cut dramatically, then they’re going to cut back on their spending really, really dramatically. So the sentiment around markets is important. It’s easy to make fun of. A lot of people mock it. But the fact is baby boomers have to feel comfortable to go out and spend because they’re the biggest age cohort. Actually, those guys and millennials in the US are around the same size. But it’s important for them to spend and that the sentiment around markets, the sentiment around things like real estate values are really, really critical right now.

 

CNA: Right. Okay. Let’s shift focus a bit and talk about the Asian markets. We’ve been seeing that Chinese rally. It seems to have, you know, showing no sense of stopping. Shanghai Composite still closing up about half a percent. Do you still feel bullish on the mainland markets?

 

TN: No. Look, they’re way ahead of what we thought they would hit by year end. Sure, you may see more momentum. You may see more of a run in Chinese markets but we don’t see it based really in any fundamentals, which very few markets are right now. But we don’t really see a lot of room left there even before the end of the year. So, we may see some volatility there. I was working in Beijing in 2015 when markets crashed there before and sadly, we may see something similar now. It all depends on how the central government will then address it and if people will walk away whole. But I have friends who in 2015 lost 30, 40 percent of their wealth in that collapse and so, will we see another one? I don’t necessarily think we will. I want to think that they’ll be more prudent. But all the games that we expected before the end of the year have already been taken off the table in the Shanghai Composite.

 

CNA: Thank you for sharing your time and your thoughts with us. That was Tony Nash, Founder and CEO of Complete Intelligence.

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COVID-19 effects on the US Economy

As the COVID-19 effects hit in the US, more than 3 million Americans lost their jobs last week. Reports also show a sluggish growth on personal consumption. The Fed Chairman says the US may already be in recession. We are joined by Tony Nash, CEO and Founder of Complete Intelligence, from Houston, Texas.

 

CNA: We’ve got this incredible amount of stimulus in the system, and the market seems loving it. The fundamentals of COVID-19 are getting worse, but the markets seem to be moving another direction. Is there a disconnect?

 

TN: I don’t think there is. I think there are two things. First, people want better information. With the testing and other things. Not all tests are created equally. We are not told the denominator of the tests. I’m not an expert, but there are some issues around that not all countries’ numbers are created equally. But the 2 trillion dollar stimulus, it’s not possible that that’s the extent of the stimulus that the US government is going to issue.

 

This is a government-induced recession, globally. A recession is typically an economic failure, a financial failure. What has happened is that governments have effectively turned down the economy like putting their economies in a coma. So there’s nothing that companies can do to avoid this. This is the responsibility of every government that puts strict measures in place and it’s their responsibility to make sure that their economies are back up.

 

CNA: Are you concerned about the cost to cushion the fall of COVID-19 effects? Remember the 2008 financial crises and how much money it took back then—hundreds and billions? We are now talking about trillions here. When will we able to see the kind of recovery that we saw in the past 10 years once we’re over COVID-19?

 

TN: I do believe we’ll see that recovery. I believe this is sufficiently different. It was not the market’s fault. This was the investor market, investor banks back in 2008, 2009. This is the government today. So it’s the government’s responsibility to fix what they did. I understand they’re responding to COVID-19 and its effects, but they’re the ones to put the measures in place. They’re the ones to handcuff managers, CEOs, and executive teams. So it’s the government’s responsibility to help companies start back up.

 

CNA: On that note, Donald Trump wants the American workforce to get back to their jobs as everybody wants to work. I don’t doubt that. Do you agree with that? Is that the solution, the elixir to the problem here?

 

TN: I do believe that. I’m actually more worried about the social issues associated with jobless dislocation than really the COVID-19 effects. Not that I don’t care. I want everyone to take measures. But the social dislocation of people in their prime working age. Being laid off. We have 3 million of them as reported today. These are people in their prime. They’re earning and they’re losing their jobs. We’re gonna see a lot of problems. And so, depression, suicide, all sorts of things.

 

My fear is that those things start to manifest in the next few weeks. So the US has to get back to work. Americans have to get back to work. Otherwise, people will be short on their bills and they’ll feel incredibly stressed.

 

CNA: How bad do you think the economic data is going to get? Now that we got the 3.3 million jobless claims out of the United States? Is this just going to continue to get worse and worse down the pipeline here?

 

TN: Oh yeah. I think it will get worse until probably the third week of April or maybe the 4th week of April. We’ll continue to see this over the next month until the hump. Once we get over the hump, we’ll see, once the fiscal stimulus starts to take place, which is the big difference this time.

 

We’re seeing a lot of fiscal stimulus. That’s the difference. It’s not just the Fed printing dollars, of course, that’s happening. But we’re seeing fiscal stimulus going straight to end consumers. That’s very important.

 

CNA: What can we learn from China’s response in this situation? It seems things are returning back to normal in China with Hubei province opening up, Wuhan in 2 weeks, traffic jams in Beijing. Can the US look forward to that extrapolation? What’s happening in China, coz I mean the capital markets in China have made a decent recovery as well.

 

TN: I think the US is going to come back pretty aggressively in say the last week of April or early May. I don’t see that the way the US is handling it is similar to China, given the civil liberties that Americans have, there’s absolutely no way that that would work in America.

 

We have a thing called the 4th Amendment in the US that allows people to assemble and leave their houses. So welding people in their apartments wouldn’t work here, and so the US had to take other measures. And I actually think it’s being fairly effective. The case count in the US looks like it’s high, but I’m not convinced that we’re seeing full reporting from any other countries.

 

CNA: Thanks so much, great to chat with you. Stay safe there in Houston, Texas.

 

 

Watch the interview on Channel News Asia’s Asia First. 

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Is coronavirus the straw that’s going to break the camel’s back of the US bull market run?

Tony Nash, CEO and founder of Complete Intelligence, is a guest on Asia First of Channel News Asia and was asked if COVID19 (coronavirus) will stop the US bull market run, the why’s of the way market is moving, mandatory policies, and what investors should do. Below are the show notes:

 

Is coronavirus the straw that’s going to break the camel’s back of the US bull market run?

I don’t think so. I think what we’re seeing is a view that it’s good to be paranoid/worried. We need to remember that the markets here is in a pretty euphoric state, and had a rapid acceleration since then. A lot of markets are looking for a reason to be more defensive, some see that the market is a little overvalued.

 

Why are markets moving the way they are — they’re important parts of the value chain but they’re not China? 

In the US, we have business optimism, consumer optimism at high numbers. There is a lot of positive momentum here. COVID19 is a catalyst to bring for a lot of people at getting defensive. But the fatality rate is very small. 66% of China’s manufacturing capacity is back on. It seems China made a decision to make them working and spending again.

 

How about mandatory policies? What are the odds that the Fed will cut given the possible impact of Coronavirus on the economy?

I don’t think the Fed will cut, and they will wait to see how and if it gets bad. We have a really strong dollar now. And if other countries become more aggressive without the US being aggressive, the depreciation of their currencies become problematic for their debt market and their trade balance. We need to be careful about the central banks in emerging markets becoming more aggressive in supporting their economies. It’s very complex math from here on out.

 

Are you seeing Beijing not letting certain companies fail?

They are in a position where they can. China has put these measures in place. I don’t think anybody blamed China for the measures they’re taking to get their economy back on track. It’s other countries where there is a lower incidence of the virus, where people become more skeptical, from a central banking perspective.

 

What is the portfolio re-alignment that you are suggesting?

It looks like people are getting defensive. This isn’t at all surprising. People are waiting for a couple of weeks.

It seems that the broad market in the West is becoming aware of the risk of COVID 19, which is good for the robustness of markets in the medium term. As these investors get accustomed to COVID19, they will factor that into their risks. But right now, it seems to be a shocking risk and so short term we should just expect more volatility.

 

Watch the interview on Channel News Asia.