BFM speaks to Tony about corporate earnings as worse GDPs, market expectations, and the Dow and S&P 500 extended losses after their worst quarter since 2008 as Trump warned of a “painful two weeks ahead”. They also get into Tony’s expectations for markets in April, the shortage of US Dollars globally and Chinese Manufacturing data.
Produced by: Michael Gong
Presented by: Roshan Kanesan, Noelle Lim, Khoo Hsu Chuang
Listen to the podcast at BFM: The Business Station
Podcast Notes
BFM: But right now. Let’s take a look at global markets, a deeper look at global markets and to do that, we speak to Tony Nash, CEO of complete intelligence. Tony, thank you for joining us on the line this morning. Now the Dow and the S&P 500 extended loss after their worse quarter since 2008, as Trump warned of a painful two weeks. I think, for the Dow, this was the worst quarter since 1987, if I’m not incorrect there. Now, how badly is this going to hit US corporate earnings across the board?
TN: It does really depend on the energy sector, but generally it’s hitting things pretty bad. I guess the good news is it’s only part of Q1. So the last few weeks of Q1, but I guess the big question mark and the reason markets are really saying negative is nobody is sure how long we need to endure?
It is another couple of weeks, is it another few months? And that’s why we’re seeing markets in the red because nobody really knows. And so I live in Houston, in Texas. So it’s the energy capital of the world. Malaysia’s feeling a similar pressure with the oil and gas and a lot of my neighbors, thousands of my neighbors have been laid off from their jobs. So it’s not just the stores being shut and things that are not happening. It’s actual incomes not coming in as well.
So that consumption part of the GDP calculation will be decimated for at least a single week. And this is why you’ve seen the big government intervention come in with the 2-terms plan, which allows government spending. That ‘G’ part of the GDP calculation, it allows that to replace some of the consumer spendings and that’s one component that’s been displaced over the last few weeks and will be displaced for the part of Q2. So, our view is it the last fiscal plan in the U.S.?
We expect at least one more, if not two, five to six trillion dollars of fiscal spending from the U.S. government. The real question is whether other governments can afford to match a similar proportion of their GDP. I’m skeptical that none of them can. So what matters right now to consumers is fiscal health, fiscal spending. For central banks do not matter as much. What matters is getting hands into the consumers.
BFM: U.S. right now has over 200 thousand COVID-19 cases and the situation does not look like it’s improving, and we might see even more lockdowns in the U.S. So do you expect markets will perform even more badly in April? And how might markets land in April?
TN: No, I think what’s affecting markets really is the uncertainty not necessarily the case count because, you know, not all tests are created equally. And what really matters in the case count is the denominator.
What we found is, yes US test is actually pretty accurate, unlike a number of other tests out there. And so the number of false positives and false negatives are a lot lower that’s my understanding of the US test. And the portion of population that’s been tested in the US is growing pretty rapidly. So although we see those cases counts growing, we see it as a fairly good example of the real picture in the US. Now, what we have seen on the ground here in the U.S. So the governor of Texas came out a few days ago and said that 99 percent of the bed space allocated for covered patients is empty. So we’re not seeing people in hospitals here. We are seeing things in other parts of the country. And of course, there are cases here. But what we’re doing again and again and again is that people will come in with other ailments that will be diagnosed as COVID. So COVID is a secondary or tertiary infection to something that is really, really ailing them.
So and that’s the question that people need to start peeling back is, “Is COVID the primary cause of that fatality or is was there already a number of other ailments in place and COVID was somewhat incidental?” Until we start asking these questions, you really won’t understand how deeply dire the problem is.
BFM: Tony, there’s a shortage of US dollars in the world today obviously as a safe haven. The Fed has introduced a new repo facility for foreign central banks to draw down on what you know about this facility and how effective has it been?
TN: Well, it’s been pretty effective. I mean, we see the trade weighted dollar down 99 with a 99 handle on it now it was up 103 or something, which makes it very difficult for people outside of the U.S. needing dollars. There’s a lot of U.S. dollars denominated debt. There’s a lot of trade conducted in U.S. dollars. So if the US dollar is expensive and if governments are having to buy medical equipment and other things in U.S. dollars, it makes it even harder for them to address some of these quality concerns. So the US government has been working very hard to help other countries by pushing the value of the U.S. dollar down. So these facilities and it’s easy for countries to put up pretty low quality assets in exchange for U.S. dollars. So that the U.S. can churn more U.S. dollars out into the global economy to grain that supply up and, of course, bring the value down. So I’m not really optimistic that they’ll be able to keep it down for long. I think the flight to kind of safe haven currencies is going to persist. So I think the dollar value is going to rise, continue to rise. But I think it’s really important for the Fed to focus on this and to take these efforts in the short term to help countries get the equipment they need and transact in dollars at a lower rate.
BFM: There’s a report forecasting a severe contraction for China this year, however, the latest PMI data beat market expectations. What is your current outlook on China’s economy?
TN: You know what’s interesting forecast, because the world’s economies can’t have a very downbeat China forecast without China’s permission. So, somebody is trying to get bad news out there, okay? So I think what we may be seeing, because we saw the PMIs came out a couple days ago that weren’t that bad. But we’ve also seen a lot of government spending to try to offset the lack of business and consumer activity. So there’s no doubt there’s going to be a bad reading in China this year. And I think the World Bank report is a way for the Chinese government to allow us to get out into the market first so they’re not seen as disappointing on their deliverable of 6 percent. So we’ve, you know, Complete Intelligence had believed that China’s been growing at 4 to 5 percent for the past couple of years. So with this, I believe it’s a 2.7 percent rate been said for continuous something, I can’t remember. But it allows China to deliver under 6 percent to deliver over whatever the World Bank forecast was so that they can start to notch down those expectations. So I think the World Bank report is probably credible. I don’t know that it’s necessarily that dire, but it might be, that I think it gives NBS and China an excuse to clock significantly under 6 layer.
BFM: Tony, how about your comments changed as the context of a couple of reports overnight suggesting a) that China has been doctoring the data on coronavirus the last couple of months and b) that a county in China, other reports suggesting that parts of the country is not under a new lockdown because of a further outbreak.
TN: Well, first, I don’t think it’s crazy that anybody that China’s been doctoring the data, but I don’t think China is unique. I think there are many, many countries out there that are doctoring the data. I think political leaders are afraid that corona would be seen as a political failure. And so I think many, many numbers. And China, usually have been singled out in this kind of data doctoring, which they’re guilty, but they’re not the only ones. So, you know, is there a resurgence of this? I don’t know if there’s a resurgence as much as maybe it didn’t pale off in the way the Chinese authorities said it did. So whether it’s a statistical resurgence, you know, maybe that’s the case. But these were you know, these were always there and they didn’t see the decline that was expected several weeks ago. I think that’s likelier than the fact that there’s just some crazy resurgence in COVID in China. But, you know, I don’t think anybody should be shocked. I don’t think China is angry or guilty than anybody else. They’re known for this. A lot of statistics ministries are known for its reporting and health agencies on this reporting. So it’s just the nature of reporting national level data that can be seen as politically sensitive.
BFM: Thank you so much for joining us on the line this morning. That was Tony Nash, CEO of Complete Intelligence.