This podcast is originally produced and published by BFM 89.9 and can be found at https://www.bfm.my/podcast/morning-run/market-watch/us-inflation-cpi-nasdaq-fed-rates
In podcast, BFM 89.9 invites Tony Nash, CEO of Complete Intelligence, to share insights on international markets. Nash mentions that the recent CPI numbers aligned with expectations, noting the rise in energy prices. He also discusses the potential impact of inflation on Fed fund rates and predicts that next month’s numbers will be more significant.
Nash emphasizes the importance of predictability in markets and suggests that a slight re-acceleration of inflation is being accepted by investors. He mentions the potential benefits of energy prices falling, creating a disinflationary environment. Regarding the Fed’s reaction, Nash believes they would be happy to see inflation come down, as this would align with their goals and shift the focus to policies rather than monetary measures during the upcoming US presidential election year.
The discussion then turns to the tech sector, particularly the rise of AI-related stocks. Nash explains that the late-cycle tech rally is driven by the AI hype, but warns that certain tech stocks, like Oracle, could face significant downside due to inflated expectations.
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The hosts inquire about the apparent negative correlation between rising oil prices and the decline of the energy sector. Nash explains that energy companies face different challenges and may not fully benefit from higher oil prices. He also predicts that oil prices will likely peak in October before receding towards the end of the year.
Lastly, the conversation touches on an IPO priced at the higher end of the range, which Nash deems oversubscribed. He suggests keeping an eye on the company’s performance in the following months to assess its true value.
BFM mentions SoftBank’s need for a successful IPO after losses in their Vision Fund and concludes by highlighting the importance of predictability and hinting at a potential slowdown in the AI hype story based on recent movements in Oracle stocks. They also note the upcoming US presidential election year as a factor to watch in trading patterns.
Transcript:
BFM
This is a podcast from BFM 89.9, The Business Station. BFM 89.9 it’s 7:07 Thursday, the 14th of September. You’re listening to the morning round with Keith Kam, Mark Tan, and I’m Wong Shou Ning. Now, in about 30 minutes, we’ll discuss the highlights of the Apple iPhone 15 launch this week and how investors are reacting. But in the meantime, let’s recap how global markets closed yesterday.
BFM
In the US markets, the Dow Jones was down 0.2%, S&P 500 up 0.1%. Nasdaq up 0.3%. In the Asian markets, the Nikkei was down 0.2%. Hang Seng down 0.1%. Shanghai Composite down 0.5%. STI up 0.1%. FBMKLCI, largely up at 0.01%.
BFM
So for some insights on what’s moving international markets, we speak to Tony Nash, CEO of Complete Intelligence. Good morning, Tony, and thanks, as always, for joining us. I want to start with, of course, the CPI numbers. So the Core Consumer Price Index advanced 0.3 % from July. The first acceleration in six months, so it’s still 4.3 % in line with the estimates, but still above the Fed 2 % goal. So what does this then mean for Fed fund rates?
Tony Nash
Yeah, I think the CPI… People are conditioned to these levels now. It was in line with expectations. Of course, energy rose the fastest and petrol prices here in the US, everyone’s complaining about them because they’ve risen quite a lot over the last few months. That wasn’t a surprise. But the overall headline and even the core was pretty much in line with what everyone thought. You really saw the reaction in equity and bond markets today in the US. There really wasn’t much of anything. People wanted to be surprised one way or another, but they just weren’t. It was in line. It was boring. I hate to be that way, but it’s true. And the Fed rate hikes are firmly taking effect now. And you see with the pressure on margins, you see with companies putting off hiring. I think one of the tech companies fired hundreds of recruiters today. I think Google cut hundreds of recruiters. When interest rates rise, these things happen by design. They’re supposed to happen because cash isn’t as easy to come by. So we’re very much in that cycle. So these CPI numbers are people have been accepting a slight re-acceleration of inflation.
Tony Nash
And so this is where we are. I think the real mystery number is really next month because August was an off month with everyone in Wyoming and messing around. And so this was a live month and there had been expectations a couple of months ago that there may be a rise this month. But I think that’s pushed aside now, especially with the CPI parent.
BFM
But Tony, isn’t boring good for markets? We don’t like surprises. So what does this then mean? What direction will markets take?
Tony Nash
I think, boring is… Well, I’ll say predictable is good for markets, right? But I think what is dangerous for markets is really not knowing what’s happening next. And so I think October at this point is an unknown along. We see real estate slowing down quite a bit here in the US. We see hiring slowing down. We see prices continuing to rise. The question is, are we going to start to see accelerated say, disinflation, meaning the rate of inflation slows. Where energy prices are, it’s really hard to hit that right. The real question is, will we see energy prices fall, whether it’s net gas, or crude or whatever it is? And I think that’s the one area that if we saw those prices fall, it would really create a disinflation sweet spot for people. And it would be pretty pleasing to markets generally, I guess. But you would still have fallout in places like Teck that have been really favorable for the last, say, 6-9 months.
BFM
How do you reckon the FEDs might react to something like this?
Tony Nash
To energy prices falling?
BFM
Sorry, disinflation and your views on inflation.
Tony Nash
I think they would stay where they are. I think if you saw inflation start to come down, if you see markets slowing down, this is exactly what the Fed wants. And so if we were in that position, they would feel very happy with themselves. You would have wage markets slow down a little bit. You would have goods prices. They’ve already slowed down a little bit. So you’d have further, say, deceleration of services, prices, those sorts of things. These are all things that as we enter a presidential election year in the US, they want to see because you don’t want a Fed that is seen as the main economic driver in a presidential election year. You want to see policies being the main driver, not necessarily the Fed and monetary policy.
BFM
Now, Tony, the Nasdaq has risen 32 % over the last nine months. Is this bullishness generated solely by AI-related names or all tech names rising with the tide?
Tony Nash
Well, you have tech names in spots rising with the tide. But I think we’re a really late cycle right now for tech to be rallying the way we are. So investors are really trying to juice out as much as they can. If the AI hype hadn’t started, so if ChatGPT didn’t come out in December of 2022 and that AI hype cycle hadn’t perpetuated through the first half of the year, I don’t think we’d be where we are in tech right now, but it happened. It went all the way to NVIDIA and the hardware underlying AI software. It took a while for that AI hype to really catch on. Now we’re late cycle with rates in the economy. We’re also late cycle with tech hype. If you look at Oracle’s massive fall since Monday, I think they’ve lost like 16 % because investors aren’t buying their cloud and AI story anymore. The problem is stocks like that can fall even more because they pumped up so much on AI and on cloud that there could be some real downside coming for a number of tech stocks.
BFM
Tony, can you help me understand this? Because as we can see, Brent Crude, WTI, they’ve all been on a bit of a mini rally. In fact, Brent Crude this morning close to $92 a barrel. WTI, $88 a barrel. But yet, the energy sector declined 0.8 % last night. The second worst performer. Why is that the case? It’s like negatively correlated.
Tony Nash
Yeah. I mean, if you take a very short term look, yes, I think since July, energy is up somewhere between three and five %. I’d have to double-check. But energy doesn’t move like NVIDIA, right? And so energy is a grind. Those operating companies are a grind. And so because we have shortages in crude, and because we still have things like the OPEC supply cuts on, you’re going to see upward pressure on the underlying feedstocks on crude and other things. That may or may not necessarily translate through to the operating companies. You may have some energy companies that aren’t necessarily can’t put that margin onto their products. But in general, I think we’re pretty close, at least in this short term, before the end of 2023, we’re pretty close to seeing oil top out. We expect October will be the top. We don’t quite think we’ll hit 100. Now that’s on an average basis. We may hit 100 on an individual day basis or something, but we don’t think we’ll see 100 on a sustained basis. Our forecast are showing October as the top, and then we’ll recede into the end of the year. That’s not to say that 2024 is going to be a bad year for oil.
Tony Nash
2024 looks pretty good for crude and for energy companies generally.
BFM
And Tony, one last question on, it was priced at the higher end of the range at $51. Is this an IPO that you’re going to be excited about?
Tony Nash
I’m sorry. Which company is this? It’s okay. I think it was way oversubscribe. And so, yeah, it’ll be a really interesting IPO. But really the question is what happens three months later? I think we’ll have to take a look at arm. I think it was 10 times oversubscribe or something.
BFM
Yes.
Tony Nash
So we’ll have to keep looking at that three to six months down the road because it’s really taking advantage of this AI hype and other things. So we’ll see how much value is there say two quarters in.
BFM
All right. Thank you so much for your time. That was Tony Nash, CEO of Complete Intelligence, telling us, Hey, arm looks exciting, but you really only know three months later down the road, there might be a lot of hype. We might bounce on the first day, and then we’ll find out where it goes. This is something that Softbank really needs. They lost $30 billion in their SoftBank vision fund last year. They do need a winner for change.
BFM
He said that markets are also boring, which in the sense of the word versus volatility, I prefer boring anyway.
BFM
I think predictability was the word he used. But I think Tony did highlight the fact that this whole AI hype started last year, end of last year, due to ChatGPT being the catalyst for the AI hype. And if we look at Oracle stocks this week, maybe some boring science that the AI hype story may be coming to an end.
BFM
He also did put into context that next year is the US presidential election year. So that’s one factor that we can start looking out for in terms of trading patterns.