One Knightsbridge Capital Monday Espresso Podcast

Monday Espresso Podcast - 1st July 2024

[00:00:00] Nathan Sweeney: It is Monday, the 1st of July. Hard to believe we're at the halfway point already. Today I'm joined by Scott Truter, our US Analyst and Assistant Portfolio Manager. Good morning, Scott.

[00:00:10] Scott Truter: Morning, Nathan.

[00:00:12] Nathan Sweeney: We'll get some insight from Scott in a second. Firstly, let's quickly recap on what was driving markets last week. As always, there's quite a lot to unpack, so let's dive straight in.

[00:00:22] Nathan Sweeney: If we look at equity markets, they're actually broadly flat for the week. The one standout performer for me was actually the Japanese stock market. It was up over 2% for the week. Question is, why was that? It was really driven by a weakening in the Japanese yen, so weaker currency there.

[00:00:39] Nathan Sweeney: And what that does is it tends to support exporting companies, so the export market, because it makes their products cheaper for overseas buyers when you get that weakening in currency. The Japanese stock market is made up of large, and for me, the big trend there was technology back in vogue hence the move in the stock market last week.

[00:00:59] Nathan Sweeney: We've also just closed out the month of July. The Nasdaq was leading the charge in terms of the major markets for the month as a result of tech stocks doing much better during the period. If we look at bonds for the week, they were slightly weak so nothing really of note on that side. So, turning to you, Scott, what was the key news for last week?

[00:01:20] Scott Truter: Yeah. On Friday, we had an inflation data point from the US and that's personal consumption, expenditure or PCE. So that data came in as expected. So, for a month on month change, it was flat. So, 0% and over the last 12 months and it was 2.6%. So, as I say, came in line as we expected.

[00:01:40] Nathan Sweeney: Okay. So that's quite good because what you're saying there is that actually there was no increase in prices or inflation for the month. So, I suppose the question is why is that important?

[00:01:51] Scott Truter: Yeah, that PCE data point is the Fed's preferred measure of inflation. So, they looked at that to help think about an impact there, obviously policy changes. So clearly, it's important that looks like it's stabilized and continue to trend lower, which should obviously help in their decision making and considering that for interest rate cuts.

[00:02:11] Nathan Sweeney: Okay, so I suppose then the follow-on question from that is, what's the impact of that for investors?

[00:02:17] Scott Truter: Yeah, so a lot of questions currently are around when our central bank's going to cut interest rates. We've already seen the ECB start, but then there's the question around the UK and the US. So, for the US, that should mean that inflation continues to fall, so that helps them think about rate cuts and still leaves the door open to see some rate cuts later this year.

[00:02:38] Scott Truter: So, we think that maybe now because of that print and the trajectory we're seeing, we may see a cut in September. As well that helps company profits because clearly if interest rates come down, that helps the borrowing costs that those companies are paying to support their companies and look at growth.

[00:02:55] Nathan Sweeney: Okay, so that's welcome news for investors. Obviously that inflation number coming in line, but it actually means that prices are actually not going up from here, which opens the door for the central bank to cut rates. And it looks as if the Fed is likely to begin cutting rates in September and the market today is thinking we'll probably get two interest rate cuts in the US this year. So pretty much in sight at this point. Were there any other data points of note last week?

[00:03:21] Scott Truter: Yes, we had US GDP, like growth figures. So that showed the economy expanded 1.4% in the first quarter of 2024, so that's up slightly from the preliminary estimate, which was 1.3%. So, look it's positive because we are still seeing that stronger economy things continue to move, however, it is slower than some of the data we saw in the second half of 2023. So again, it supports that narrative that we're still seeing this gradual slowing.

[00:03:53] Scott Truter: Things are moving in the right direction for central banks to be able to act.

[00:03:57] Nathan Sweeney: Okay, and we're seeing any other data out across the globe last week?

[00:04:01] Scott Truter: Yeah, so as well as the US, we had the GDP data for the UK. Again, that was slightly more positive than expected. So, we saw the economy expand by 0.7% in the first quarter of this year, again, the expectation was 0.6%. So, we're just seeing things again, slightly better than expected. We talk about the US as well, and things like broadening out because we see those rate cuts and that doesn't just help the really largest big companies. We expect something similar into UKC broadening out into other areas of markets and seeing that performance.

[00:04:35] Scott Truter: So again, this idea, the economy is still a little bit better than maybe we expected at the start of the year is just a little bit more positive news for companies.

[00:04:43] Nathan Sweeney: Okay. So that really is good news for markets generally, because what we're seeing is there's no recession in sight in the UK or the US so growth is still positive, inflation is falling, interest rate cuts coming through, and this really chimes with the narrative which we have here at Marlborough in the multi asset team that we'll get this gradual slowdown and growth and inflation coming down, which allows central banks to cut interest rates. And then that means that areas of the market, which didn't participate so far will begin to participate as ultimately their profits get boosted from lower interest rates.

[00:05:17] Nathan Sweeney: So, thank you Scott for that. Some great snippets there. I suppose finally, the week ahead. Is there anything we should be looking out for?

[00:05:23] Scott Truter: Yeah, I think I normally come on and talk about how there's lots of important data in the US and there is some unemployment data coming through but probably the bigger news and focus will be on the UK general election because after those sort of weeks of debates and discussion, we'll have that on Thursday and then obviously wait to see who the next prime minister may be.

[00:05:42] Scott Truter: And then across the Eurozone, we've got inflation data that's coming out. So again, the forecast or last month was 2.6% and it's now expected to be 2.5. So just continuing that trend, gradual shift down.

[00:05:55] Nathan Sweeney: Okay. Thank you, Scott, for that. And thank you everybody for listening in today. I hope you have a great week as always if you do have any questions you'd like us to bring up on the show, please do send them in. Have a great week, everybody.