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BFM 89.9 Market Watch: Nasdaq Up Thanks To AI

This podcast is originally produced and published by BFM 89.9 and can be found at bfm.my/podcast/morning-run/market-watch/us-economic-data-equities-inflation-bond-markets

In this podcast episode, BFM 89.9 Market Watch speaks with Tony Nash, CEO of Complete Intelligence, to discuss the current state of the economy and the stock market. Nash predicts that GDP growth will be around 1% this year, which is a downgrade from previous estimates. He suggests that, due to inflation, firms have been passing on their costs to customers, but with lower volumes expected, there will be a focus on efficiency in the latter half of 2024 and into 2025. Nash also notes that there is a lot of excitement in the tech industry surrounding generative AI, which could bring about efficiencies and revenue opportunities for companies. This has resulted in a rally in tech stocks, despite the lower GDP growth estimates. However, Nash acknowledges that it’s difficult to predict how long this rally will last and whether companies’ valuations will come back down to earth eventually.

Regarding the bond market, Nash suggests that it has historically been more accurate in predicting interest rates compared to central bank prognostications. Currently, bonds are indicating that a recession is coming, but Nash believes there is only a slowdown expected, not a full-blown recession. Furthermore, he suggests that the Fed may be late to respond to this slowdown, as central banks are typically reactive organizations. Nash also discusses the recent performance of safe-haven assets such as the yen, gold, and the US dollar, and suggests that this is due to concerns over the Omicron variant and rising inflation.

Overall, Nash predicts that there will be a focus on efficiency and cautious optimism in the stock market in the coming years. He also suggests that it’s important to remain cautious and vigilant in the current economic climate, as there are a number of uncertainties and potential risks.

Transcript:

BFM

This is a podcast from BFM 89.9. The business station.

BFM

BFM 89.9. 7:06 A.m. On Thursday the 30 March. Good morning. You’re listening to the Morning Run. I’m Shazana Mokhtar with Wong Shou Ning. In half an hour, we’re going to discuss whether the worst is over for the Sri Lankan economy after it secured a 3 billion U. S. Dollar bailout last week from the IMF th. But as always, we’re going to kick start the morning with a look at how global markets closed overnight.

BFM

It was almost perfect. Almost perfect because almost every market was upset one. So let’s name the guilty one. It was the Shanghai Composite Index, which was down 0.2%, but otherwise us all in the green. The Dow was up 1%, S&P 500 up 1.4%, Nasdaq up 1.8%. In fact, if you look at the Nasdaq, this is the shocking thing, right? I thought tech was dead. Growth is over. Well, it ain’t the case because the Nasdaq is up 14% on a year to date basis, this has been the stellar outperformer. Now, if we look at Asian Nikkei was up 1.3%, Hang Seng up 2.1%. Shanghai, like I said, was the one that was down 0.2%. Singapore Straits Times Index, up 0.2%. And our very own FBMKLCI currently up 0.8% to 1420 points.

BFM

All right, so for some thoughts on what’s moving markets we have on the line with us, Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Thanks, as always, for joining us. Now, given recent performance in US. Equities, investors seem to be looking beyond the challenges in the financial sector and recognizing that US economic growth continues to be resilient. Could investors be headed for a rude shock, though?

Tony

Well, it’s a really interesting question. I think those investors who expect rapid GDP growth, I think will be disappointed. We expect GDP growth to be kind of around 1% this year. That’s downgraded from a couple of months ago. And so it’s not necessarily overall economic growth that will happen. There will be secural growth. And what we’ll see through the rest of, say, this year and into 2025 is a focus on efficiency. What’s been happening is, because of inflation, firms have been passing on their margins or been passing on their costs and more than their costs to their customers. Okay. And so with a lower volume. So we’re going to see a focus on efficiency in the back half of 2024 and into 2025. So you will see equity performance in pockets. But in general, we’ll likely see things sideways unless we see the Fed change footing dramatically, which is still not really expected.

BFM

Okay, so, Tony, is that pocket the Nasdaq? Because help me understand this. Right? Since December, it’s actually up 20%. And I thought growth is great. What’s going on?

Tony

Well, in tech right now, there’s a lot of excitement over generative AI. This is ChatGPT and the other kind of applications of generative artificial intelligence. And so investors are looking at companies everything from semiconductors to say, Meta and saying gosh generative AI, which is kind of the next milestone for AI, could really change these companies and could really bring about efficiencies and could really bring about these revenue opportunities. So there’s a lot happening in tech, of course, but in general, when you look at companies like Microsoft that has made the major investment in OpenAI and you look at Google and their new AI kind of chat item that’s out there and then other companies. It’s similar to I know you guys are too young to know this, but in 2000, whenever a company would release a website, their stock would get a bump. And so what we’re seeing right now is whenever companies release an offering or say they are implementing some sort of generative artificial intelligence or ChatGPT or something like that, they’re getting a bump in their equity price.

BFM

Okay, but how long can this rally kind of last? There seems to be a disconnect because you just told us GDP is 1% and then companies earnings probably aren’t going to be that great for the moment. Yet markets seem to ignore the news. Will they all come back down to earth eventually?

Tony

Well, it depends on how you define down to earth. Right? Is down to earth 2018 valuations and 2018 market levels maybe. Again, it really depends on how the market views, I think generally, how the market views activities by central banks and the Fed. So if the Fed has really isolated the banking crisis, which I believe they have, then the Fed can continue to raise rates and then they can continue to shrink their balance sheet. Now they just grew their balance sheet by a lot by bailing out banks. But they can shrink their balance sheet in certain areas, say mortgages, those sorts of things. So that can help to bring some of these valuations down to earth. But keep in mind, we’re going into a presidential election year in 2024. And so it’s really hard to determine, does the US administration not want a recession or do they want a terrible recession so they can be seen to be passing a fiscal stimulus plan. So I don’t know what their calculus is. They can either keep the economy steaming ahead or they can try to drive the economy into the recession so they can be seen to be passing massive stimulus packages.

BFM

Tony, in one of your panel commentaries, a suggestion was made that bond markets were more accurate in predicting rates compared to central bank prognostications. Why is that so? And what are they currently saying about future Fed hikes?

Tony

Well, the first thing kind of every amateur loves to be a central bank prognosticator, so those are rarely right. But bonds. So if you look at a year ago, bonds were telling the Fed that they needed to raise rates because inflation was coming and they waited until too late. Right now, bonds are saying that a recession is coming and the Fed is continuing to tighten and the Fed is always late. Central banks are typically always late because they are a reactive organization and that’s how they’re designed to be. Are bonds going to be absolutely right about a recession coming later in the year? I’m not really sure. Again, we think there’s a slowdown, but we don’t necessarily think there’s a recession. And when we use the R word, we also have to be careful because it can be defined any way we want. Right. Because we had two consecutive quarters of negative growth last year and nobody says that we had a recession last year. So a recession kind of is whatever we define it as today.

BFM

Okay, well in the last two, three weeks there’s been clear, three clear safe haven assets: yen, gold, and US dollar. Do you think these three asset classes still can be safe haven assets?

Tony

It’s really hard for the dollar and gold to be safe haven assets at the same time. For the yen, I think with the change of the governor, the chairman of the BOJ, and Japan of course is already doing this, but I think they have to be very careful. That happens in, I think late next month. And so if they can handle that transition in an easy, seamless way, I think we can probably continue to do that. Gold? I’m not entirely sure. I know there are a lot of people out there pumping gold right now, and there are a lot of people kind of naysaying the dollar right now. Trying to say that Saudi signed some agreement. Saudi Arabia signed some agreement to deal in US dollars, and Russia signed Chinese Yuan and Russia signed an agreement to deal in Chinese Yuan or whatever. But those are very small, nominally very small. So I do think the dollar will remain a safe haven in times of turbulence. Japanese yen probably because currencies are all on a relative basis. They’re all on a relative basis. Gold, I don’t think gold is going to fluctuate a lot, but I think gold investors can be very fickle. So I’d be really careful of that one.

BFM

Tony, thanks as always for the chat. 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. Commenting there a little bit about the difference in market exuberance in tech sector compared with, I suppose the sentiment that perhaps the US could be heading towards a recession or at least markedly slower growth than what was anticipated early on.

BFM

But I think it’s interesting that Tony brought up the reason why, which is, it’s generative AI, well ChatGPT, right. So much excitement about it and I think questions about is it a disruption or is it an opportunity? But I think markets thinking, hey, which companies are going to get involved in this.

BFM

If you see a company that’s involved in AI, if they have their own AI bot or whatever, oh, that must.

BFM

Be a good thing.

BFM

It reminds me so much of the hype over the Metaverse not that long ago when Facebook or Meta decided to take that angle. And right now, there’s no no one’s talking about the Metaverse metabolism.

BFM

What are you talking about, Charles? Everybody’s forgotten about it. Right. So there are always trends that come and go. Let’s see who really can monetize it. That’s the thing at the end of the day.

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BFM 89.9: Should The Fed Have Gone For 50bp?

This podcast was originally published on https://www.bfm.my/podcast/morning-run/market-watch/us-retail-inflation-feds-higher-rate-hikes-tech-sector

The Morning Run podcast by BFM 89.9 featured Tony Nash, CEO of Complete Intelligence, discussing the state of the US economy, market movements, and supply chains. The podcast began with a brief overview of the previous day’s market performances. The key US markets had ended in the green, while all Asian markets were in the red, except for the FBMKLCI, which was up by 0.3%.

The podcast host then discussed with Tony the state of the US economy. The US retail sales in January increased the most in two years, and the home builder sentiment rose in February by the most since 2020. Meanwhile, US inflation rose by 0.5% in January. According to Tony, these indicators suggest that there is still demand, and consumers are still willing to spend. Companies are able to raise prices pretty dramatically, resulting in more revenue and faster growth, even if the volume of sales is slightly lower. Tony believed that the Federal Reserve will continue to raise interest rates. He felt that the Fed should have kept the foot on the brake a little more in the last meeting when they hiked by 50. He thinks that the interest rate will remain at 25 for the next three meetings, but the question is how much beyond that will they raise it.

The podcast then moved on to discuss company performance, particularly in the tech industry. Cisco delivered strong results and beat street expectations, suggesting that companies still have money for capex. Tony believed that companies are having to build out more robust technology infrastructure for their existing operations, which is good for tech infrastructure companies like Cisco. However, there is a divergence in the tech industry, with old tech like HP Enterprise and Cisco doing better than new tech like Apple and Amazon. Companies like Apple, Amazon, and Meta suffer on the ad side because there is a growing supply of ad space, but there are not as many ad dollars, and companies have generally less to allocate to marketing on a proportional basis.

Finally, the podcast touched on supply chains. Tony believed that supply chains have generally recovered, partly due to the falling demand. However, there are still challenges, particularly with logistics and labor shortages. Companies are looking at how to reduce supply chain risks and increase resilience, including reshoring and nearshoring. Tony believed that the current supply chain challenges could last up to two years, and he recommended that companies should develop more robust supply chain strategies.

In summary, Tony Nash shared his insights into the state of the US economy, the tech industry, and supply chains during The Morning Run podcast. He believes that there is still demand in the US economy, with consumers willing to spend and companies able to raise prices. The tech industry is experiencing a divergence between old and new tech, with old tech companies doing better. The supply chains have recovered, but there are still challenges, particularly with logistics and labor shortages. Companies should develop more robust supply chain strategies to increase resilience and reduce supply chain risks.

BFM

This is a podcast from BFM 89.9, The Business Station.

BFM 89.9, 7:05 A.m. On Thursday, the 16 February you are listening to The Morning Run. I’m Shazana Mokhtar with Wong Shou Ning and Chong Tjen. Now, in half an hour, we’re going to move the proposal for Petronas to be publicly listed in order to pare down national debt. But we are going to kickstart the morning as we always do, and it looks like it’s going to be a glorious morning with a look at how global markets closed overnight.

So all key US markets ended in the green. The Dow was up 0.1%, S&P 500 up 0.3%, NASDAQ up 0.9%. In Asian markets, they were all in the red, except for our very own FBMKLCI. The Nikkei was down 0.4%. Hang eng down 1.4%. Shanghai Composite down 0.4%. The Straits Times Index down 1.1%. But the FBMKLCI, it was up by 0.3%.

So for some thoughts on what’s moving markets, we have on the line with us, Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Now, US retail sales in January jumped at the most in two years, and home builder sentiment rose in February by the most since 2020. While US inflation rose by 0.5% in January. What do all these indicators tell us about the state of the US economy?

Tony

It says that there’s still demand. It says that consumers are still willing to spend and that people really aren’t slowing down. We’re seeing things like price over volume. Meaning as we see more companies report, their earnings reports, they’re able to raise prices pretty dramatically, say, eight to say 12%, generally with a volume decline of, say, one to 3%, meaning the number of sales. Okay, so these companies are choosing to raise their prices and have fewer sales, but it results in more revenue and faster growth. So consumers are willing to pay more. They’re just buying slightly less of things.

BFM

And Tony, taking all this into account, what do you think the Federal Reserve will likely do next?

Tony

Yeah, they’re going to continue to raise. I do think that Powell missed a trick in hiking 50 in the last meeting. I do think they probably should have kept the foot on the brake a little bit more as a transition from 75 to 25. But I think for 25, it’s kind of as far as the I can see right now, at least while the current pace of the economy holds up. So, you know, we’ll certainly see 25 for the next three meetings. The question is, how much beyond that will we see it?

BFM

And Tony, are you in the camp where I have seen more economists raising their forecast for US GDP growth? I see numbers jumping from 1% to 2% for the first quarter. Are you in that camp?

Tony

Our view has been 1.4 this year, so it really hasn’t changed.

BFM

Okay.

Tony

We do reforecast each month.

CI Futures covers 50+ economies around the world. You can see historical data and forecasted data in an instant, like the US GDP here. Learn more about CI Futures: https://www.completeintel.com/futures

BFM

All right. And then looking at some results right. Old tech, Cisco delivered really good numbers, beating street expectations with strong spending on tech infrastructure, suggesting that companies still have money for capex. Is this indicative that actually companies are doing better than we expected?

Tony

Well, I’m not sure it means companies are doing better because earnings generally are on a slowing trend. But I think what it means is that companies are having to build out more robust technology infrastructure for their existing operations. And that’s good for the tech infrastructure companies like Cisco. So we are at the emergence of a new tech cycle with generative AI, there’s a ChatGPT and so on. So companies are going to need more robust infrastructure to deal with that.

BFM

But then we also notice there’s a divergence right when it comes to results. So old tech like HP Enterprise and Cisco doing better versus new tech like you see results being soft from the likes of Apple, Amazon. Will this divergence continue?

Tony

Well, I think when you look at things like Apple, Amazon, Meta, these sorts of guys, part of their revenues are ad revenues. And what’s happening on the ad side is we have a growing, say, supply of ad space with different companies coming on, like Netflix offering ad models. So there’s more ad supply. There are not as many ad dollars out there, or even if you assume the same ad dollars. With inflation, people are having to make trade offs. Companies are having to make trade offs, so they have generally less to allocate to marketing on a proportional basis. But there’s more ad supply out there. So many of those tech companies where ads are a part of their revenue mix, they’re suffering on the ad side.

BFM

Turning our attention to supply chains. During the Pandemic, the world faced a series of supply chain stresses made worse by the Ukraine conflict and China’s sporadic lockdowns. Do you think that global supply chains have recovered? Are they functioning better now? Or do you still see some kind of rocky road ahead?

Tony

I’d say generally supply chains have recovered. Part of that is demand falling. So we had in the port of Long Beach, we had the volume declined by about 28% in January. So the volume of imports have have actually gone down year on year on the west coast of the US. So the demand there is slowing. We’ve seen one of the indicators is headcount cuts. Guys like Federal Express or FedEx and UPS are cutting headcount. FedEx has announced about a 10% workforce cut, which tells me those are usually the guys who see the supply chain issues first and the guys who see the slowdowns first as well. So if they’re cutting staff, it tells me that some of these things are really slowing down.

When we look at delays at Chinese port, for example, they’re about half the time of what they were about a year and a half ago. So they’re not really bad at all. And then when we look at, say, freight that’s waiting on ships that’s down dramatically to, say, Q1 of 2020 levels before all of the COVID stuff set in. There’s a great just for your listeners, keel. The Kiel, K-I-E-L, I think in Germany has a great indicators on supply chain delays. So I would recommend you guys to check that out.

BFM

And Tony, ASEAN is a key player in this global supply chain. Which countries in this region are likely to be major outperformers in that regard?

Tony

Well, you guys know Malaysia is seeing more inward investment, especially around electronics, so I wouldn’t be surprised if we saw some upside in Malaysia. I know the expectations for Malaysia aren’t as aggressive as, say, Indonesia or Vietnam, but it’s possible that Malaysia overperforms those expectations. Indonesia, I think there are a lot of expectations on indonesia’s outperformance partly on AG prices, but also partly on movement of some manufacturing to Indonesia, which has a pretty low base. And then Vietnam, of course, you know, we’ve seen blistering growth in Vietnam. We expect that to continue as people look for a substitute for Chinese supply chains.

BFM

And Tony, are you still a bull on energy stocks? Because if you look at the sector, it’s the worst performing in the S&P 500 today and also for the month so far. We see energy stocks all coming under pressure, I think in part due to all prices stagnating and weak earnings from some of these companies. Is it time to buy or is it time to just step back and say, hey, maybe I should cash in my chips?

Tony

Yeah, I think you have to look at the different segments of energy. So, for example, oilfield service providers, we’re starting to see upstream, meaning people who take oil and gas out of the ground starting to spend on development outside of the US. So some of these oil and gas services providers, it’s a very interesting space to look at right now because we haven’t had CapEx in so long in oil and gas. And as we get that, we could see some of these service providers do really well. In terms of oil price. I do think that we do see upward pressure. I don’t think anybody really expected that to hit in Q1, but as we end Q1 and go into Q2, we do start to see that. And I think we do see I don’t think we see two or $300 crude oil this year, but I think low 100s, 110s, high 90s. I think those are definitely within possibility and likelihood.

BFM

Tony, thanks very much for speaking with us today. 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 projection on how oil prices could be trending later on this year.

Yeah, so I think we’ll have to watch this space. But I want to focus on one of the names that I mentioned earlier on, which is Cisco. Right. So their results came out. In fact, it went up 8% after market hours trading because the street was really impressed with the numbers. Apparently the earnings, the last time we saw this kind of level earnings was in 2013, and that’s like a long time ago. So a lot of attention on Wall Street has been on what I call the new tech. So Amazon, meta, Apple, Microsoft, even on some level. But there’s a little bit of a shift. And I think what these names are showing is that, hey, there is still spending out there.

Yeah, I think the CEO actually said that the public sector business performed stronger than expected as compared to historically. While in the service provider category, some customers are adjusting to better delivery of the company’s products into the environment. In terms of the guidance for the next quarter, Cisco is guiding adjusted earnings of 96 to 98 cents to share and revenue of roughly about 14.25 to 14.5 billion dollars.

So currently the street doesn’t really like this name that much because there’s only 14 buys, 15 holds, and one sell. Consensus target price for the stock is $53.83. Like we say, it was already up 8% after market hours, right. I won’t be surprised. After these set of numbers, we will see quite a number of upgrades on this name because the company is already suggesting on giving guidance a more positive one.

That’s right. Their guidance is more positive for the next quarter. But turning our attention to other earnings report we have, the Canadian ecommerce platform Shopify. Shopify, in contrast to Cisco, didn’t have such a great report. They reported a loss of $623.7 million in the fourth quarter after adjusting for stock based compensation, gains on investments and other costs. The company reported earnings of 7 cents a share, down from adjusted earnings of 14 cents per share in the holiday quarter.

And revenue came in at about $1.73 billion, up from $1.38 billion. And the analysts on average expected an adjusted loss of a penny a share on sales of about $1.65 billion. The company said Black Friday sales rose close to 20% last year from 2021. And this year is working to recover from a misplaced bet that the Pandemic Field search in online shopping would become more permanent. Although he’s cut jobs, raised prices, and expanded offerings to merchants.

19 buys, 25 holes, five sells. Consensus target price for the stock, $46.48. Actually, the current share price is already above that, to $53.39 year to date. Actually, the stock is up 53%, but I think came from a very low base because 2022 was very painful for them.

All right, 07:17 A.m.. We’re going to take a quick break, but we’ll come back and cover more top stories in the newspapers and portals this morning. Stay tuned to BFM 89.9 you have.

Been listening to a podcast from BFM 89.9, the business station. For more stories of the same kind, download the BFM app.

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BFM Market Watch: King Dollar Deposed For Now

This podcast was first and originally published on https://www.bfm.my/podcast/morning-run/market-watch/bank-of-japan-monetary-policy-revisal-japanese-yen-us-fed-rates-markets-outlook

The CEO of Compete Intelligence, Tony Nash, was interviewed on BFM to discuss the current state of the US markets.

The S&P fell 1.6%, the worst decline in a month, and the tech-heavy Nasdaq snapped a seven-day rally, reversing gains of more than 1%. Nash suggests that this may be due to bad economic data, specifically PPI and retail sales falling, but also notes that consumer is still strong. Nash explains that the US economy is built on services, so people may be trying to confirm their downward bias in things, and when bad news is reported, a sell-off day occurs. Nash also mentions that if PPI falls, that should mean inflation is slowing, which should mean the Fed would ease a little and slow down on rate rises.

He also mentions that markets may be spooked by all the announcements regarding job cuts, such as Microsoft announcing they plan to cut 10,000 jobs and Bank of America telling their executives to pause hiring. Nash suggests that these job cuts are small in terms of the gap that we see in the US workforce, which is still missing millions of jobs in terms of the openings versus the available people.

Nash also mentions the yen tumbled yesterday after the BOJ went against market expectations by keeping its yield curve tolerance ban unchanged. He suggests that the BOJ is managing the yield curve to suppress borrowing costs and wants to keep it below 0.5%. Nash also mentions that Japan’s central bank is getting pressure from other central banks to keep their rates low, this means that if Japan lets their rates rise, then that would have a knock-on effect around the world and cause a repricing of government debt all around the world.

Nash concludes by saying that he expects a weaker yen, but doesn’t think we would necessarily hit those lows.

Transcript

BFM

This is a podcast from BFM 89.9, The Business Station. BFM 89.9. It’s 7:06, Thursday, the 19 January, and you’re listening to the Morning Run with Chong Tjen San and I’m Wong Shou Ning. And earlier on, we did ask our listeners how traffic is like and Roberto said traffic today really smooth and super low compared to just yesterday. He loves Chinese New Year in KL. And so do we. I just love Chinese New York because I like the feasting and I like the ang bao collecting.

BFM

I get the hint.

BFM

Yes, we’re all looking at you, Tjen San. But in 30 minutes, we will be speaking to Angela Hahn of Bloomberg Intelligence on the impact of China’s reopening to Markhouse gaming and hospitality sector. But in the meantime, let’s recap how global markets closed yesterday.

BFM

After a good run, all key US. Markets ended down yesterday. The Dow was down 1.8%, S&P 500 down 1.6%. The Nasdaq was down 1.2%. In terms of Asian markets, the Nikkei was up by 2.5%, Hang Seng up by 0.5%. The Shanghai Composite Index, it was unchanged, the Straits Times Index, it was up by 0.3%, and the FBMKLCI it was down by 0.3%.

CI Futures has S&P500, Nikkei, Nasdaq, Hang Seng, and nearly a thousand other assets across equity indices, currencies, and commodities. Subscription starts at $99/mo with a monthly commitment. Learn more here.

BFM

Why are we always again and again there’s a trend here for sure. But to tell us where international markets are heading, we have on the line with us Tony Nash, CEO of Compete Intelligence. Good morning, Tony. Help us understand what’s happening in US markets. Because the S&P fell 1.6% is the worst decline in a month. Tech heavy Nasdaq snapped a seven-day rally, reversing gains of more than 1%. Is this just really due to bad economic data?

Tony

Yeah, we saw PPI and retail sales fall today. The weird part is consumer is still strong. The US economy is really built on services, so I think people are trying to confirm their downward bias in things. And whenever we see bad news, we see a sell off day. So I’m not necessarily sure I would read that much into it, aside from just there was really nothing else going on. So people saw some bad PPI news and they were negative. So if we see downward PPI, that should mean inflation is slowing, which should mean the Fed would ease a little. Not ease, but would slow down on rate rises a bit. So that should have been positive news for markets. So it’s just kind of a weird read of some of that data.

BFM

Do you think markets are also spooked by all these announcements with regards to job cuts? Because Microsoft says they plan to cut 10,000 jobs. Amazon of course, made announcements last week, and even Bank of America is it telling their executives to pause hiring. Not great for the mood on Wall Street?

Tony

Well, maybe, but I think those job cuts are actually kind of small in terms of the gap that we see. So the US is still missing millions of jobs in terms of the openings versus the available people so I think there’s something like 7 million jobs open. We also had a million people post COVID not come back to work. So we have a gap in the workforce, just a status quo workforce of a million people, but we have something like 7 million open positions. So when Microsoft lays off 10,000 people or Goldman lays off 4000 people, sure, it’s tragic. It’s definitely tragic for those individuals. But in terms of the overall health of the economy, it really doesn’t make that much of a difference.

BFM

And Tony, the yen tumbled yesterday after the BOJ went against market expectations by keeping its yield curve tolerance ban unchanged. What possible reasons would the central bank have for keeping this status quo?

Tony

Yes, so the BOJ is managing the yield curve to suppress borrowing costs and they want to keep it below kind of 0.5%. There have been some hedge funds and some big investors who’ve been betting that they would tighten it. And the BOJ is just bigger. I mean, when they came back and they said, we’re going to hold the line at 0.5, they spent about $100 billion so far this month to defend that and they have plenty of resources to hold that. So the release issue is this is if Japan lets their interest rates rise, then Japanese, say, banks and pension funds and other investors would consider selling debt from other parts in the world and buying Japanese debt. Okay, so if Japan lets their rates rise, then that would have a knock on effect around the world and that would cause a repricing of government debt all around the world. So it’s not just the BOJ wanting to keep this for Japanese domestic reasons. They’re getting pressure from other central banks to keep their rates low.

BFM

Okay, Tony, but what does this then all mean for the yen? I mean, at its worst point, the yen was trading 150 against the US dollar. Today it’s 128. That’s a very wide range in just a few months. So what are your expectations?

Tony

It is yeah, certainly I would look for a weaker yen. I don’t know that we would necessarily hit those lows. But the BOJ has made their stance clear. The BOJ has a new head coming in in a few months. I would say they’re unlikely to dramatically change policy with a new head because they don’t want to make people nervous. So I think they’re going to aggressively defend the status quo. So I don’t necessarily think you see a yen appreciating dramatically from here. I think the bias is really toward the downside.

BFM

Okay, staying on the topic of currencies then, what’s your view on US dollar? We’re just looking at the Bloomberg Dollar Spot Index this morning. It’s already down 1.5% on a year to date basis. The era of King dollar, is it over?

Tony

Well, I think not necessarily. If you’re looking at the DXY, it’s really heavy on the euro. And so we’ve seen Europe do better than many people thought through the winter because we haven’t had a cold winter there and energy prices haven’t bitten as hard as many people thought they would. So I think Europe is doing better and the Euro is doing better than many people thought. And everything in Currencies is relative. China is opening, although it’s gradually. China is opening. And so that’s good for CNY. Again, in a relative basis, I think there is downward pressure on the dollar, but I don’t necessarily think we’re over on that. I don’t think we’re heading straight down to, say, 95. I think we’re going to see some back and forth over the next couple of months as we figure out what the forward trajectory of the dollar is. And a lot of that really has to do with what direction will the Fed take in terms of their rate hikes and their quantitative tightening. And it has to do with treasury activity from the US. Treasury. How will they spend, what will they do, how will they fund the US government?

BFM

Tony, some analysts are saying that without a recovery in the Chinese economy, a global recession is all but assured. But what are your thoughts on this?

Tony

I don’t necessarily think that’s the case. I think China will do okay this year, and I think regardless, Europe will likely dip into recession this year, although fairly moderate. In the US, you see a very strong employment environment. And so employment is one of the key considerations for recession. So I don’t believe the US. Will dip into recession really on the back of employment news more than anything else. And so once we see some of these layoffs with larger companies and we get through this as, say, equity valuations stabilize, I think we’ll start to see a renormalization in the US economy as the Fed kind of takes the foot off the brake of the US economy. Of course, the Fed will continue to raise rates, but they’ll do it at a much slower pace, and that will make people much more comfortable in doing things like investing capital and so on and so forth, that will help the US to grow.

BFM

All right, thank you very much for your time. That was Tony Nash, CEO of Complete Intelligence, giving us his outlook for the world economies and also markets in the coming weeks. I think very much the question everyone has on their mind is Fed rates. What is the terminal rate? Will they basically raise rates too much and then cause the US. Tip into a recession? But I see increasingly our guests, our commentators sounding a little bit less pessimistic, hinting that perhaps we’re going to have a soft landing rather than a hard landing.

BFM

Yeah, I think it’s really on the back of the really still strong employment in the US. I mean, he did mention there’s still 7 million jobs available in the US. And there are one million people post COVID that didn’t come back to work. And I think that really is his key point, that the US may not slip into recession, but it looks like EU will and China, it looks like they are really on track to a better recovery this year. I’ve seen some economists say that GDP growth could be like five to 6% as well.

BFM

I see that consensus figure that range is around there for China’s GDP for 2023. Now, turning our attention to corporate that released results they reported, which is Alcoa excuse me, which is aluminium company. They reported fourth quarter results earlier today, which saw losses narrow to $374,000,000. Loss per share as a result was $2.12. The loss included a 270 million charge related to tax expense. Revenue did decline 20% to $2.66 billion.

BFM

And Alcoa attributed the decline in revenue to lower prices for both Alumina and aluminium. Additionally, Alcoa will see some executive leadership changes effective February 1, including CFO William Oplinger reassignment to chief operations officer, in addition to his executive vice president role.

BFM

Okay, the street doesn’t really like this stock when you look at Bloomberg. Five buys, only seven holes, no sells. Consensus target price for the stock, $52.18. During regular market hours, the stock was already down one dollars. And now I think we need to talk about one of the world’s biggest companies, Apple. They are expanding their smart home lineup, taking on Amazon and Google. Are you surprised by this move?

BFM

Jensen not surprised at all. I think Apple is really the leader in terms of innovation, and we’ve seen it over the years, so no surprises there. So I think they’re launching some new devices. There’s a smart display tablet, there’s a HomePod. There’s a TV box and a MacBook and Mac mini using their cutting edge new processor, which is the M Two chip.

BFM

Are you going to buy any of these gadgets? You don’t even use an Apple phone. You haven’t joined a cult. You’re about the only one on the morning run. You and Philip sees that hanging on.

BFM

The iPad at home, but they’re quite old.

BFM

Okay, but will this make a dent to Apple’s earnings? Perhaps. I think they are trying to diversify their product range, because the iPhone, I think, hasn’t done as well as expected. If you look at Apple or Cost, still a darling on Wall Street. 36 buys, eight holes, two sells. Consensus target price for this to $169.24. At regular market hours, it was down seventy three cents to one hundred and thirty five dollars and twenty one cents. I, for one, will be curious as to what these products will be or how they’ll fare. Up next, of course, we’ll cover the top stories in the newspapers and portal. Stay tuned for that. BFM 89.9 you have been listening to a podcast from BFM 89.9, the business station. For more stories of the same kind, download the BFM app.

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Softer Fed Tone But Don’t Get Too Excited

This podcast is originally published on https://www.bfm.my/podcast/morning-run/market-watch/fed-rate-hikes-earnings-downgrade-outlook-for-2023

The released Fed minutes show that most officials are backing a slower pace of interest rate hikes. Markets reacted positively but this is false optimism as the terminal Fed Funds Rate may eventually be higher. The 3Q reporting in the US is also coming to a close and 75% of corporates experienced downgrade in earnings. Have the cut in earnings by analysts been adequate or will there be further downside, with 2023 outlook still uncertain? For answers, we speak to Tony Nash, CEO, Complete Intelligence.

Transcript

BFM

BFM 89 Nine. Good morning. You’re listening to the Morning Run at Thursday. It’s Thursday, the 24 November November Friday, junior, as we like to call it. Here. I’m Shazana Mokhtar with Wong Shou Ning and Chong Tjen San. As always, let’s kickstart the morning with a look at how global markets closed overnight.

All key US markets showed gains as most members of the Fed said the pace of rate hikes will slow down. So the Dow was up 0.3%. The S&P500 was up 0.6%, and Nasdaq was up 1%. In Asian markets, the Nikkei and Hang Seng was up by 0.6%. The China Composite was up by 0.3%. The Straits Times Index was down by 0.1%, and our very own FBMKLCI was up by 0.2%.

Joining us on the line now for more on what’s moving markets, we speak to Tony Nash, CEO of Complete Intelligence. Hi, Tony. Good morning. Now, let’s start with just some reactions on the Fed minutes that were released. It showed that most officials are backing a slower pace of interest rate hikes, but that the terminal rate might need to be higher. What do you think? Are we seeing a relief rally? And is that sustainable in the short term?

Tony

Yeah, I think the ultimate destination is probably the same, but the pace of getting there is slower than many people thought a couple of weeks ago. So I think what it means is we’ll see more, say, 50 and 25 basis point hikes. That’s the expectation. It’s still possible we’ll see a 75 if Powell really pushes hard for December, but we’re still going to see a 5, 5.5 terminal rate, depending on really how things end up for CPI and PPI next month. But it’s just the pace and markets are more comfortable with a gradual adjustment to higher rates than the continued kind of shock treatment.

BFM

And Tony, the US reporting period is coming to a close. How would you assess the quality of corporate earnings release so far? How well have they tracked market expectations?

Tony

They’re OK, they’re pretty weak, actually. Compared to 2021, we had, I think, 25% earnings growth in ’21 about this time last year. They’re just over 3%. So it’s not even near where it was last year.

Something like 75% of companies are seeing estimates for their downgrade. So people expecting inflation to endure longer than they thought. If you remember a year ago, people were saying inflation was transitory, so they’re saying inflation will endure longer and rate hikes will continue.

So with credit tighter, businesses and consumers are not expected to spend as much.

So going forward, there is a fear that wallets will be more closed than they are now and earnings will continue to be tight.

BFM

Which just confuses me, Tony, because if the Fed stops their rate hikes at least decelerates the pace of it. And at the same time, corporate earnings aren’t going to be as robust as ever. Then why is the S&P500 above 4000 and the Dow Jones at 34,194 points? I mean, they’re just in fact, the Dow is only down 6% on a year to date basis and the S&P down 15%. Shouldn’t markets be actually more bearish than they are now?

Tony

Well, I think there are a couple of things happening there. I think first, there really is consumers have continued to spend and businesses have continued to spend in the US. Although we’ve seen economic growth slow dramatically, we’ve had spending continue to push forward. So if the Fed slows its tightening cycle, and keep in mind, they haven’t really started quantitative tightening, meaning getting things out of their balance sheet. They’re only, I think, $200 billion off of their high.

But if the Fed continues to tighten at an accelerated pace, then markets are worried. But again, if they slow it down, the feeling is that spending will move in stride. It won’t necessarily be too shaken up.

Also, on inflation, don’t forget inflation didn’t really start on an accelerated basis until November of ’21. So we had inflation, but fairly muted inflation then. And so what we get after November, well after this month, is what’s called a base effect.

So we’ll likely continue to see inflation rise, but not necessarily at the pace that it’s been over the past, say six to nine months. So does that mean inflation is peak? No, not at all. But it means the pace of the rise of inflation is likely going to slow on base effects.

So if that happens, we’ll have a lot of people declare victory over inflation, but I think that there is an expectation that that rate will slow as well.

BFM

Can you look at the prospects of retailers like Best Buy? We see Abercrombie and Fitch. These names are defying inflationary trends and higher rates to post better results than expected. So why has this sector been the exception to the norm?

Tony

Yes, the quick answer is most of those guys have been pushing price. So they’ve been passing along their higher labor and goods costs onto consumers.

Now they’ve been pushing price while sacrificing volume. So they’ve been pushing 8 to 10 to 15% price hikes in many cases. But they’ve had fewer transactions between one and say 6% fewer transactions.

Regardless, they’re earnings have risen. So they’re not as worried about fewer transactions. They’re focused on keeping their margins up.

And so when you look at retailers like Walmart, which has mixed, say, general goods and food, they’ve done very well. They had a very difficult Q2, but they did very well this past quarter.

Home Depot, which is a DIY store, has done very well because they pushed price Cracker Barrel has done very well.

Cracker Barrel. These are not these are not retailers that are at the high end of the market either. These are mid and even, say lower end companies, but they’re pushing price on the middle and lower end of the market.

Higher end of the market? They’re doing great. So it’s tough to be a consumer in this market because price definitely continues to be pushed and we expect price to continue to be pushed through probably Q2 of next year.

BFM

And Tony, with potentially slower pace of interest rate hikes, how do you expect the technology sector to do? Is there more pain to come for the likes of Amazon and Meta?

Tony

For sure. Amazon, Meta and technology companies generally do very well in very low interest rate environment, where the money is effectively free or negative real interest rates.

As you have to pay for that money, it becomes tougher for those companies to do well because their core investment is in technology. And we had things like Mark Zuckerberg at Meta really went off the rails with some of his spending and investment.

It’s not to say that the Metaverse investment is not ever going to happen, but much of that stuff really went way overboard. Same thing with, say, Amazon with some of their infrastructure investments and delivery investments.

So we do expect HP today, I think announce 6,000 jobs to be lost over the next, I don’t know, twelve months or something. So we do expect much more pain in tech. We expect that to continue until at least the end of Q1, if not a little bit further.

BFM

And Tony, let’s talk about oil because WTI for futures delivery in January, $77 a barrel. And we know that there’s an upcoming OPEC meeting in December. What are your expectations in terms of oil price then?

Tony

Yeah, it’s tricky, right? Because oil prices are kind of in that zone where a lot of people are comfortable. And so the question is, is this acceptable to OPEC members? So Saudi Arabia, UAE, Iraq and Kuwait have already come out and said they’re going to stick to the current plan, the current cuts that were already announced last month.

But we have things like the Russian price caps coming into play. And you know, our view is the price caps are pretty meaningless actually, because Europeans are pretty good at circumventing the kind of emotional embargoes they put in place.

I’m sorry to put it that way, but they put these laws in place and then they circumvent them pretty well. A lot of this is theater. So that’s not the price caps are not going to have as much of an impact as many people thought. So it’s possible if we get into next week and crude prices start coming back pretty strongly, or sorry, if we get into next week and crude prices are as weak as they are now, we may see a 500,000 barrel per day cut. I think that’s a possibility, but it’s likely they’ll stay on what’s already been announced.

BFM

Tony, thanks very much for speaking with us. And since it’s Thanksgiving eve. Happy Thanksgiving to you. That was Tony Nash, CEO of Complete Intelligence, giving us his take on the trends that he sees moving markets in the days and weeks ahead.

All eyes, of course, on that all-important inflation number and how that will affect how the Fed raises hikes moving forward.

I think the key takeaway for me was he mentioned that 75% of corporates in the US had downgrades, which I feel it’s a good thing as it brings expectations lower and more in line with future expectations and it also gives perhaps some room to surprise on the upside.

Yeah, well, markets seem to be at crossroads, but a little bit cheered by the fact that the Fed isn’t going to raise rates as aggressively as they have in the past. But I want to keep my eye on corporate earnings. I think that if you see continuous downgrades by the analyst community, you see the messaging coming out of US corporates that things aren’t looking as rosy as they are, then it’s just going to be hard for the Dow, S&P500 to actually break through their current resistance levels. So I think it’s something we have to keep an eye on.

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UK Turns To QE To Calm Markets

This podcast was originally published at https://www.bfm.my/podcast/morning-run/market-watch/uk-qe-outdated-government-bonds-calm-markets-british-pound

The Bank of England surprised markets by announcing that it would buy long dated government bonds in order to stabilise capital markets. Tony Nash, CEO of Complete Intelligence explains why and what does this mean for the Pound.

Transcript

BFM

Good morning. You’re listening to the Morning Run on Thursday the 29 September. I’m Shazana Mokhtar with Wong Shou Ning. Now, in half an hour, we are going to discuss the political future of Crown Prince Mama bin Salman, or MBS of Saudi Arabia, now that he’s been named the Prime Minister of the country. But as always, let’s kick start the morning with a look at how global markets closed.

BFM

Yesterday, US markets had a very good date was at 1.9%. S&P 500 up 2%, while Nasdaq was up a whopping 2.1%. Meanwhile, in Asia, it was all red. Nikkei was down 1.5%, hong Singh was down a whopping 3.4%. Shanghai and Times Index both down 1.6%, while our very own FBM KLCI was down 0.6%.

BFM

So for some thoughts on what’s moving international markets, we have on the line with us Tony Nash, CEO of Complete Intelligence. Tony, good morning. Thanks for joining us. I want to start off with moves by the bank of England that said it would move to buy long dated government bonds in order to stabilize capital markets. Can you talk us through what the BoE is trying to do and whether this will ultimately be successful?

Tony

Yes. So here’s what happened. You had some pension funds who bought debt, debt instruments called Guilt, and they used those gilts as collateral to borrow more money to buy more debt instruments. And they use that as collateral to borrow more money to buy more instruments. So they were many times leveraged on these government debt instruments. And when the value of those gifts declined, they had to provide collateral against the loans they had taken out to buy that debt. So it’s a very circular kind of series of events that’s happened. So because these pension funds got in trouble, the UK, the bank of England wanted to prevent their insolvency, of course, because many of them are government pension funds. So since the bank of England has nearly endless currency, they can help the government come to a relatively orderly decline. So is it ideal? No, but there was some messaging out from the new Prime Minister in Whitehall that was very disturbing to government bond investors and that triggered the sell off and then that triggered a multibillion pound rescue from the bank of England.

BFM

Okay, I want to stay on the topic of the United Kingdom, but us about the currency. They must be the only G seven countries still doing quantitative easing in some way. Where do you think the pound is heading? Dendu?

Tony

Well, because of the energy environment, they’re going to be spending more money on subsidies to help the British people through the winter and more pound? Denominated spending actually makes the pound stronger, but you have aggressive quantitative easing and you have a relatively stronger US dollar. It’s possible that we see the pound decline, say, 35% more, unless something dramatic happens, like another event like today or another event by the government that really erodes credibility, I don’t see a lot more decline happening, but it’s a weird year. It’s a weird few years that we’re having right now. Right. So I think on some level it’s really hard to tell. And the problem with losing credibility is that you lose credibility. And if they erode even more credibility, it could be worse than anybody thinks. So I think that’s a small chance. I think we’re probably in a range at this point.

BFM

And if we take a look over at the US, we have seen federal officials reiterate the very hawkish stance that they have. But San Francisco Federal Reserve Bank President Mary Daly said that the bank is resolute by bringing down high inflation, but wants to do so as gently as possible so as not to drive the economy into a downturn. Do you think it’s possible at this point to engineer a soft landing, or is a recession inevitable?

Tony

I think it’s possible to engineer a softish landing. I think the problem with the Feds facing as they were very slow to respond to inflation, and so now they’re trying to respond as quickly as they can, and they’re responding in a very kind of brutal kind of way. Mary Daily coming out with these as gently as possible comments are good. And that’s new. Neil Cashari yesterday said he’s another Fed governor. He said there is the risk of overdoing it on the front end, meaning that the Fed could raise rates too quickly. So some of these governors are getting out with messaging, trying to soften the Fed’s hard message over the last couple of months. So the wording from the Feds, ongoing wording generally from especially JPOW, has said that they’re going to be ongoing aggressive hikes, and that’s scaring people. So, like, the Fed needs to be less aggressively hawkish in their language. So that doesn’t mean they turn dovish. That doesn’t necessarily mean they start doing QE. They just need to be less aggressively hawkish. And that’s just toning down the language. I think it’s a little bit too little too late in as much as markets have fallen by, say, 23%, I think, since the highs.

Tony

But I think if they start inserting some less aggressively hawkish language, we can have a smoother glide path to balance, meaning higher interest rates, more moderate equity markets at a slower pace.

BFM

Okay, Tony, can you help us understand what happened today in markets? Because I’m a little bit confused in the sense that US ten year treasury yields fell the most since March 2020. On a day like this, equities shouldn’t go up, but it did. Why?

Tony

Well, I think equity investors are seeing what the bank of England did, and I think on some level they see equity markets versus central banks as a bit of a game of chicken. And the bank of England blinked. And I think equity investors are hoping that the Fed will slow down or blink. This is not a pivot. Meaning when people talk about the Fed and say a pivot, they mean pivoting to quantitative easing and pivoting to dovish language. I don’t see that at all, but I think equity investors are seeing a chance of the Fed becoming less aggressively hawkish, as I was saying. So I think that’s really what happened is just a quick breath think, oh gosh, maybe they’re going to slow down a little bit, which would be positive for equity markets.

BFM

And if you take a look at the Nordstream gas pipeline disruption, that does seem to have changed the energy calculus in Western Europe. How do you think it’s going to affect the dynamics of energy prices over there, especially with winter looming?

Tony

Yeah, I think it will affect, but there isn’t a lot of gas coming by Nordstream. There are other pipelines bringing gas to Europe, so it’s really, at the moment, more perception than reality. So Europe has a fair bit of gas and storage for winter. It’s 87% of their goal, so they’re in pretty good shape. They’re not in great shape, but they’re in pretty good shape. They can make it all the way through winter with what they have in storage, but they aren’t reliant on Nordstrom to fill their reserves further. So I think the kind of the gut punch on this is that it’s a pretty damaging leak and so it would be really hard to get it back online. If Russia say something happened with a resolution of UK, sorry, Ukraine, Russia, and there was optimism that Russia could turn on the taps again, that would be really hard to achieve. So it’ll be an expensive winter for energy in Europe. But Nordstream doesn’t really impact it all that much. It’s more, say, the long term hopes and expectations for Nordstream.

BFM

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. Really assessing what’s happening over in the UK with the actions by the bank of England overnight. That has helped somewhat to calm the plunge in the pound sterling that we’ve seen over the past few days. I think this pound has rallied, but how long this equilibrium will last, I think, is anyone’s guess.

BFM

Well, this morning pound against ringgate is 5.0260 at the lowest in the last two days, if I’m not wrong, 4.8. Right. So it has truly, truly recovered. But volatile markets ahead, I think still question marks about whether this trust economic policy makes any sense. Confusion over the tax cuts, how they’re going to pay for it, reverberating around global markets because we’ve seen actually global bond yields peak. Question about whether there will be more activities by central banks to intervene, to prop up their currencies or to restore come to their own respective markets, because we saw that in Japan. And apparently even South Korea says it plans to conduct an emergency born buyback program.

BFM

Indeed, we do see also that the yuan is coming under pressure, and China central bank has issued a strongly worded statement to warn against speculation after the currency dropped to its lowest versus the dollar since 2008.

BFM

I love the language. The language is released yesterday. Do not bet on one way appreciation or depreciation of the yarn, as losses will definitely be incurred in the long term. Can’t spell it out more clearly than that, right? Indeed.

BFM

716 in the morning. We’re going to head into some messages. And when we come back, what does long or need more? Another quarry or preservation of its forests? Stay tuned. BFM 89.9 you have been listening to.